MONEY MATTERS: The Healthcare Quandary - Pay More, Get Less

According to a new report issued by the Commonwealth Fund, a non-profit group that studies healthcare issues, America has the least efficient, most expensive healthcare system compared to five other industrialized nations.

The report found that – in order - Germany, Britain, Australia, New Zealand and Canada all provide better care for less money.

The reports’ issuers said “The U.S. healthcare system ranks last compared with five other nations on measures of quality, access, efficiency, equity, and outcomes.”

The Commonwealth Fund has consistently found that the U.S. -- the only one of the six nations surveyed that does not provide universal healthcare -- is inferior to the other nations in many measures of healthcare.

Despite its inferiority, the U.S. spends twice as much as other countries on healthcare. In 2004, per-capita health spending in the United States was $6,102; Canada spent $3,165; Germany $3,005 New Zealand $2,083; Australia $2,876; and Britain spent $2,546 per person.

The report also studied convenience, such as waiting more than four months for elective, non-emergency surgery. The U.S. doesn’t fare as well as Germany, but is better than the other countries.

The cost of healthcare has accelerated far beyond the rate of inflation and has placed heavy burdens on individuals, families, businesses, and the economy in general.

Healthcare spending now accounts for 17% of the US economy -- the highest proportion ever, according to the government -- and is predicted to reach 19%, or $3.6 trillion in 2014.

According to a report from the Center for Medicare and Medicaid Services, the overall cost of healthcare -- everything from hospital and doctor bills to the cost of pharmaceuticals, medical equipment, insurance, and nursing home and home-health care -- doubled from 1993 to 2004.

In 2004 alone, the cost of healthcare increased by 7.9 percent -- almost three times greater than the overall national inflation rate of 2.7 percent.

Reforming the healthcare system has long been a platform of, or the wishful thinking of, Democrats. Remember Hillary Clinton’s blunted effort during her husband’s first term? It didn’t get far because Republicans warned of a huge, new government bureaucracy and a system that smacked of socialized medicine, or just plain socialism. 

But a decade of massive healthcare-cost increases, impacting American businesses both small and large, has changed their tune.

Americans are very concerned about healthcare costs, particularly the affordability and availability of health insurance. In turn, politicians -- including Republicans -- have taken notice.

According to a CNN/Opinion Research Corporation poll, conducted May 4-6, healthcare is the fourth most important issue facing Americans today. Seventy-eight percent of respondents called it extremely or very important. Concerns over healthcare trailed only the war in Iraq and, just barely, terrorism and education.

While it’s often reported that over 45 million Americans are uninsured, the number uninsured at some point during a typical year-- usually because they lose coverage while switching jobs--ranges from 57 million to 69 million. Over a period of 24 months, that number climbs to over 80 million.

Healthcare isn’t just a problem for the insured; it’s also a problem for anyone whose insurance lapses if/when they lose or change jobs, those whose plans don't cover expensive crises, and everyone who pays more, in the form of higher premiums, to cover the medical bills of the permanently uninsured.

The current system –- a disjointed amalgamation of employer-funded care, private health insurance and government programs -- has become so complex and inefficient that even some Republicans believe that carefully crafted reform would eventually pay for itself.

In 2003, federal, state, and local governments spent almost $730 billion on healthcare, and the tax breaks for employer-provided healthcare amounted to almost $190 billion.

This led the conservative Weekly Standard to assert, “With this level of spending, it ought to be possible to move to a more rational, market-oriented health care system that would provide portable coverage for all families, without spending an extra cent of government money.”

Instead of waiting for something to happen nationally, last spring Massachusetts took the lead. Former Governor Mitt Romney shepherded legislation that made his state the first in the nation to pass universal healthcare coverage for nearly all of its residents.

By requiring all residents over the age of 18 who can’t get Medicaid to have health insurance by this July 1, (compliance will be indicated on tax returns), Massachusetts says it will cut costs.

Romney sold his plan as being market-based and promised that it could be implemented without any new taxes. Aside from money flowing from the federal government, the plan will be financed with state funds that had previously been used for other healthcare expenses, such as reimbursing hospitals providing care to uninsured residents.

Romney estimated that Massachusetts was spending about $1 billion a year providing free care for those without insurance.

The Massachusetts plan subsidizes low-income residents with state and federal funds -- those making less than $9,800 will have their entire monthly premiums paid by the state -- and will help the vast majority of its estimated 500,000 uninsured residents gain coverage over the next three years.

Starting next year, anyone who doesn’t get coverage will be charged a penalty fee of up to 50 percent of the amount of an "affordable" premium. A state analysis estimated that most low-income residents will have to spend between $30 and $140 a month to buy health insurance under the new mandatory coverage law.

Romney insisted that his plan was very different from the Clintons’ ambitious but controversial 1993 proposal. “This is the opposite of that,” said Romney at the time. “This is entirely based on getting the free marketplace to work for all our citizens. So it’s no new government money, no new government bureaucracy. But instead it relies on personal responsibility to get everyone healthcare coverage.”

Romney may be on to something.

The Institute of Medicine of the National Academies estimates that ensuring uninterrupted health coverage for all Americans could result in a savings of $65 billion to $135 billion annually.

If there’s one thing almost everyone seems to agree on, it’s that the current system is broken. At present, the healthcare system encourages hospitals and doctors to perform unnecessary medical procedures on people who don't need them, while denying procedures to those who do.

In their book “Redefining Health Care: Creating Value-Based Competition on Results,” Professors Michael E. Porter and Elizabeth Olmsted Teisberg note that the current system is entirely dysfunctional. They argue that it rewards participants who redirect costs and restrict services, rather than those who create value for the consumer. They note that system needs to be redesigned so that each participant is motivated to increase value, as measured by health outcomes per dollar expended.

Ultimately, many Republicans would like to completely disengage healthcare coverage from employment. In 2004, employers spent $443 billion on healthcare. That has created an unlikely alliance between the Chamber of Commerce and liberal groups in the quest for change. Conservatives contend that portable coverage would eliminate coverage gaps when workers change jobs. That, they assert, would free employees from jobs they hate and ultimately boost productivity.

Portable, universal healthcare might achieve that goal. Aside from the Massachusetts plan, which is just getting under way, there are experts who have studied the issue carefully calling for a single-payer system.

The award-winning investigative reporting team of Donald Barlett and James Steele advocate a universal system in which a single agency would collect medical fees and pay claims. Under such a system, all healthcare providers -- doctors, hospitals, and clinics -- would bill one agency for their services and would be reimbursed by the same agency.

Though such an idea would surely face great opposition from numerous lobbying groups with plenty to lose (such as insurance companies), there already exists a perfect example of how such a proposal would work. The government already runs a universal healthcare, single-payer system for everybody age 65 and over – it’s called Medicare.

According to Barlett and Steele, Medicare is the most efficiently run health insurance program in the U.S. Relying on economies of scale and standardized universal coverage, Medicare's overhead averages about 2% a year in administrative costs. On the other hand they note, "Private insurance is built on bewildering layers of plans and providers that require a costly bureaucracy to administer, much of which is geared toward denying claims."

The current market-based healthcare system requires profits, stock options and generous executive compensation, contributing to our undesirable distinction of having the world's most expensive health care.

Whichever system the U.S. eventually shifts to -- and with so many disparate groups are calling for change, change is sure to come -- Americans are going to have to do a better job of caring for themselves and preventing disease through better lifestyle choices, such as diet and exercise.

As the old saying goes, an ounce of prevention is worth a pound of cure – and it could also be worth millions in savings. America is an increasingly fat and aging nation. Two-thirds of our population is overweight or obese and, for the first time in history, people 85 and older are the fastest growing segment of the population.  Over the next 25-30 years, the number of people over the age of 65 will double to more than 70 million, or 20% of the population.

According to a 2005 report by researchers at the Boston University School of Public Health, about 10% of the U.S. population is responsible for 70% of its health care costs.

We can’t stop the aging process, but we can do more to avoid lifestyle diseases such as heart disease, hypertension, and diabetes. We can also stop spending so much on end-of-life care, simply prolonging the inevitability of death.

The government, doctors, hospitals, and insurance companies can only do so much. Ultimately, we need to do a better job of taking care of ourselves. Meanwhile, we can only hope that our legislators, the free market, mandatory health insurance, a single-payer system, or some combination thereof, will make health insurance more affordable for everyone.

Sean M. Kennedy, Money Correspondent:

Money Matters, by Gather Correspondent Sean M. Kennedy, is published every Friday to Gather Essentials: Money.

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Sean is a freelance writer based in Los Angeles.

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