Health care is not a Republican versus Democrat problem, nor is it conservatives against liberals. It’s an American challenge we need to work together to conquer. Most of us know what health care looks like and the secure feeling it brings when all the services we need are available. The bill that was considered in Washington recently didn’t have the look or feel of health care. A resounding majority of Americans would’ve been disappointed and disgruntled if the bill had ultimately passed. But is there a realistic way to solve our health care problem anytime soon? If you hold your House and Senate members accountable now, the answer is an absolute yes.
Take a peek under the hood of our health care engine and your immediate reaction might be to slam it shut and call in the experts. After all, we have many brilliant minds who devote much of their resources to guiding us through a complicated maze where the end argument usually comes down to who is going to pay and how much. Is what’s best for you the same that’s best for me? Not likely. According to the U.S. Department of Health and Human Services, in 2016 the average person spent about $10,345 for health care. That amount includes aid from insurance as well as out-of-pocket costs, prescription drugs and the works. Considering the median household income was $56,516, that much spent sounds problematic for many of us. But the “average person” in the calculation doesn’t really exist. As anyone who has written about this subject before can easily attest, spending on health care tends to be highly concentrated. The easy side of the equation is that half of our population has little to no healthcare costs at all. That’s right. Almost half the population account for a whopping 3% of total healthcare spending. If a person happens to land in this half of the population, it’s easy to think “why should I pay for somebody else who isn’t as healthy as me?” The answer to that question is also easy. Family, relatives, and friends, people whose lives matter to us. Not all of them are as healthy as we are. If they’re sick, we want them to get the treatment they need to get better. And living a better life should include taking pre-emptive steps in how we eat, exercise and choose hobbies to help create the best chance for putting illness in the rearview mirror.
Back to our average spending. An astounding 5% of our population account for nearly half of all healthcare spending. In 2016, that was almost 50% of $3.35 trillion dollars. We’ve far outstripped our concept of Monopoly money here. In fact, it turns out that 20% of our population accounts for about 80% of all health care expenditures. That’s 80% of $3.35 trillion or about $2.68 trillion. Considering how widespread the 80/20 rule is, maybe we shouldn’t be surprised it applies here. But how could it be that such a small percentage of our population spends so much money on health care? It turns out that one of the major culprits is multiple chronic illnesses when there is also some form of functional limitation. Of course, you’ve heard about most of the chronic illnesses. Heart disease, cancer, trauma, mental disorders, and pulmonary conditions are examples. When these illnesses are combined with an inability to perform simple tasks such as going to the bathroom or making phone calls, health care costs begin to skyrocket. The worse-case scenario is typically when there are at least three chronic illnesses combined with one functional limitation. More trips to hospital, more doctors and specialists, and higher costs in prescription drugs. Oddly, it also turns out that communication between health care providers and many of these patients have poor communication between them. The implication in the data is that a significant portion of those with chronic illnesses and functional limitations are poorer, older, and less educated. But even if this is so, what responsibility should care providers have in finding ways to work with and explain what’s going on to the population they’re serving, especially if the providers are better educated?
These things said, let’s take a brief look at total health care spending, the service providers, and who’s actually paying the provider’s fees. We’re using data from across several years, but the trends from year to year are consistent enough to develop a good perspective of what’s going on. Americans spent about $3.2 trillion on healthcare in 2015. According to the Centers for Medicare and Medicaid Services, hospital care accounted for 32% of all costs, or $1.024 trillion. Doctors, Specialists and other Clinicians accounted for almost 20% or about $640 billion, and prescription drugs approximately 10%, $320 billion. The balance was spent in areas such as Other Professional Services, Dental Services, and Home Health Care, over $1.2 trillion. As for who paid, according to the Agency for Healthcare Research Quality, in 2015 private insurance accounted for 33% of the payments. Medicare spent $646.2 billion or 20% of the total health care expenditure for that same year. Medicaid spent $544.6 billion, 17% of total expenditures, and Personal Out-of-Pocket expenditures were 11% and amounted to $338.1 billion. That left 19% for miscellaneous payments, not an insignificant amount when one considers it represents more than $650 billion.
To the point, those with chronic illnesses and some form of functional limitation will visit hospitals the most. They’ll see the doctor most often and get referred to the highest number of specialists. Prescription drugs are a necessity for this population of patients to control a vast array of symptoms and control pain. It’s also important to recognize here that some of us are at one point in the population where we pay little to nothing for health care annually, but then move over the chronic illness side of the ledger. The reasons are not surprising. As we age we tend to slow down and exercise less. If our diet doesn’t change to meet our body’s lower metabolism rate, we become more vulnerable to heart diseases and pulmonary conditions, for example. Other unforeseen diseases crop up at a moment we least expect. Trauma can occur at any given time in a person’s life. A terrible car wreck, a major injury from playing a sport, or a devastating ski accident will cause a healthy person who’s had little to no health care expenditures to make a dramatic entrance into the world of high-cost provider services. In many instances, those who experience trauma go into the high health care expenditure population for approximately 1 to 2 years, but then return to the lower cost side afterwards. Others remain in the high expenditure side for the rest of their lives.
A few more numbers to keep in mind that’ll help develop a focused picture of what we’re dealing with. According to the TransAmerica Center for Health Studies, in 2015, 82% of Americans reported they could afford routine coverage. Yet, the overall cost of health care in our country has ballooned irrespective of recession and other obstacles that seemingly should have impeded its trajectory of increasing costs. In 1990, health care as a percentage of the total of all the money spent on goods and services in our country sat at 11.4%. By 2015, 17.8% of every dollar spent on goods and services in the United States went toward health care. The Centers for Medicare & Medicaid Services project that by 2025 about 20% of every dollar spent in our economy will be paid toward health care. In 2015 alone, health care spending grew 5.8%. That rate of growth was faster than GDP in whole and incredibly steep during a time when interest rates were near 0 percent with noticeable deflationary headwinds prevailing in the broader economy. While it’s certainly true that illnesses occur irrespective of how our economy is doing, one would empirically expect near level health care prices during recessionary times. We’ll return to rising costs in health care a little later.
For now, where does what we’ve talked about so far leave us? What do these numbers tell us when it comes to the kind of health care that should be provided to our overall population? Who should pay for which health care services and why? Most importantly, how can we afford health care that’s equitable for all of us?
Let’s start with the health care models available. While many Western countries employ one dominant model for delivering health care services, we don’t. Instead, we have a combination of several. The descriptions that follow are not all-inclusive, but help set the backdrop for why health care is so complicated for us.
The Medicare and Medicaid programs are government run with eligibility requirements based on factors such as income and age and have significant cost control features. Hospitals, Doctors, Specialists, pharmaceuticals, medical equipment providers and everyone else reimbursed through either of these programs must follow prescribed limits on charges to patients for services and/or goods rendered. Another model employed uses an insurance system funded mainly by employers and employees. There are no government cost control features in this system and most of the health care providers are privately owned for-profit entities, as are the insurance companies. Where insurers have been involved, the question of pre-existing conditions, conditions that started before a person’s coverage went into effect, has long been a sticking point.
We have several forms of managed care organizations, including Health Maintenance Organizations, Preferred Provider Organizations, and Point of Service plans, essentially a combination of the first two managed care facilities with a more limited range of services offered. HMOs provide or arrange a fairly full array of services for a fee. In this model, patients typically make co-payments for doctor’s visits and pharmaceutical purchases to supplement the fee already paid. The HMO negotiates with providers and suppliers to get the lowest possible price and tends to rely on the volume of members it signs up to maintain itself or make a profit. In a PPO, hospitals, doctors and other providers form a network and contract with an insurance company to provide services at agreed upon prices. The patient’s point of contact is usually a general practitioner who makes referrals to Specialists within the network as needed. In the case of a POS, for any services not included by the terms of agreement, the patient is on his/her own to handle billing and payments. The limited range of services offered may cause the patient to face this dilemma more often than is desirable.
Which of these models is best for you? Maybe the answer is the cheapest one, the one where you pay the least because you’re one of the 3% who spends little to nothing on health care. But what if the unthinkable happens and you have limited coverage or have to go outside your HMO or PPO? What if you’re making a decision for a loved one, like your parents, grandparents, or children? You might have multiple chronic illnesses and multiple functional limitations. The one that’s right for you clearly is the one that accepts pre-existing conditions. Under the Affordable Care Act, or Obamacare, denial of a person with a defined pre-existing condition is not allowed. With the Senate’s bill in a deep slumber for now, the rule survives. But for how long?
The first major issue that stands out in our challenge is that most of the concern about health care is NOT centered on how we can afford it, not health care itself. The vast majority of talk has been about how to afford insurance to pay for health care. More on that in a moment. The second main issue is that it’s tough comparing apples to apples in the health care market. One of the most astounding comments you’ll ever hear, or read in this case, comes from the former chairman of Kaiser Permanente, George Halvorson. He said, “There is no such thing as a legitimate price for anything in health care. Prices are made up depending on who the payer is.” Those statements explain a lot. If you’ve ever wondered why there’s rampant sticker shock in the health care industry, there’s your answer. Recall that 32% of all health care spending went to hospitals, over $1 trillion. According to ABC News, an Arizona woman paid $40,000 for a three-hour hospital visit—an emergency gall bladder surgery. Charges included the likes of $67 for sterile water that otherwise cost about $1.16, a surgical stapler for $895, disposable scissors for $177. ABC News also reported on another Arizona woman who was billed $39,652 per vial of Anascorp, appropriately named anti-venom for scorpion stings. Her total hospital bill came to $83,046 after being administered two vials of Anascorp, which the hospital purchased for $3,800 per vial. Worse than such grossly inflated pricing is the fact that hospital billing is extraordinarily complex, perhaps by design. While we’re on the topic, let’s continue with doctors, specialists, and pharmaceuticals. Taking the latter first, Anascorp was a new drug in 2012. Is there a way to justify one vial of scorpion anti-venom at a cost of $3,800? You’d need to know the true cost from the pharmaceutical company to find out. Remember those who have chronic illnesses combined with functional limitations? The cocktail mixture of drugs is often so great a cost burden to them that they cannot afford to take all the medication prescribed by their doctors. If those drugs are truly needed and the patients are unable to purchase them, should we be surprised by their frequent number of hospital trips and the associated costs? In August 2013, Forbes magazine stated that a Gallup survey estimated $650 billion annually is attributable to defensive medicine, tests doctors ordered even when they were certain what the diagnosis was—for fear of being sued. Something here is not quite right on both the doctor and the patient side.
What does all this information tell us? First, transparency in pricing is non-existent outside of Medicare and Medicaid. Second, these three sectors—hospitals, doctors & specialists, and pharmaceuticals—combine to account for about 62% of all health care spending, or $2.08 trillion in 2016. Looks like a good place to begin cost control measures. To date, our elected officials in Washington, D.C. haven’t addressed the transparency and cost control issues. Instead, the sick is blamed for being sick while the pharmaceutical and medical industry lobbyist pay our House of Representative members and Senators to protect their turf. In 2016, the Pharmaceutical and Health Products lobby gave Democrats $12,335,160 and Republicans $15,543,471, less than $30 million in total to maintain an economic system that generates in excess of $3 trillion annually. Talk about getting your money’s worth.
Numerous health care reform and advocacy groups, and notably Senators Elizabeth Warren and Bernie Sanders, say the time has come for a single-payer system. That could be an option, maybe a viable one. But many take exception to any form of health care run by the federal government. It’s too far away from where America lives. An alternative is to rebuild the health care system from the local level upward. Too complex, not enough local expertise? Think again. Boeing has begun a process where intermediaries are being cut out—the insurance companies in this case. Boeing entered its first direct contract for health care services (aka accountable care organization under Obamacare) in the Seattle area with Providence Swedish Health Alliance. Since then, the company has done the same in St. Louis with Mercy and in Charleston, South Carolina with Roper St. Francis Health Alliance. Clearly, Boeing is not in the health care industry, but was able to negotiate direct contracts with existing providers.
Boeing’s efforts can be replicated and not just by the largest corporations in America. A blueprint has been drawn that allows us to form Public Benefit Corporations that serve the smallest of towns in rural areas to the largest of cities. All of the PBCs would be created based on local needs that demand open and transparent pricing, accountable at the local level and overseen by a regional administration which would serve to lower local administrative costs, assist in facilitating reciprocity and Specialist services, help ensure consistent standards for patients & workers and conduct competitive performance analysis, and assist in maintaining regulatory standards and coordination with other government agencies such as the FDA, Medicare, and Medicaid. It’s often difficult for rural communities to attract qualified health care professionals. Where necessary, recruitment of qualified personnel (or personnel with the ability to become qualified in a reasonable amount of time) from outside the United States would be permitted and U.S. residency granted as per contractual arrangements and obligations with the local contracting PBC. To the extent patent rights allow, the door for competition for medical products and pharmaceutical drugs would be opened.
Transparent pricing alone would make a huge difference in the cost we pay for health care in total. Eliminating intermediaries would further shrink the inefficient pricing rampant in the industry. And taking control and building from the local level where the needs are toward a small administration at the national level would instill confidence and pride in a health care system most of us would be pleased to have and could comfortably afford.
We have a great sense of urgency and there is no better time than now to hold our Representatives and Senators accountable for their actions. Transparent pricing and Cooperative Health Care. Now!
by J. Hahnsberg