The budget problems are all healthcare related

Fix ItHealthcare spending in the U.S. accounts for 17.6% of the economy, and is projected to be 20% by the end of this decade.  These are not federal budget numbers, this is the whole economy.  $1 out of every $6 that’s spent in this country is spent on healthcare.

For context, that’s double the percentage spent in the average OCED country.  In absolute dollars, we spend 2.5 times more per capita than average, at $8,650/person.  And for all that money, we rank just under the average for life expectancy and infant mortality.

This is a pointless drag on the entire economy.  Not only for the government and private employers, but for workers as well.  One of the reasons wages have been so flat for the last decade is that money available for employee raises has gone into preserving medical coverage rather than increasing take home pay.

Yet this is also a big issue, perhaps the only issue, for the current budget problems faced by the federal government.  Government spending on healthcare (including employee plans, veterans benefits, as well as Medicare and Medicaid) is $1.17 trillion each year.  And this is projected to double over the decade.  Granted, these numbers are inclusive of state and local government spending as well, but this is still paid for with our tax dollars.

In other words, considering our 2.5x cost premium, there’s $700 billion/year sitting on the table if we manage to get our healthcare costs in line with our global peers.  Even assuming the federal portion is only half of that, the numbers dwarf any of the cost savings currently proposed by either party’s budget plans.  Couple this with the already planned savings for drawing down the wars, and our deficit goes away by 2020.

This is the only budget problem we need to be addressing.  It saves Medicare, Medicaid, Social Security, NASA, Pell Grants, and everyone else currently on the chopping block.  Do the math.

So why aren’t we focused on fixing this?  Primarily because the proven method of achieving the healthcare cost goals, the one used by pretty much every other OCED country we are benchmarking against, is some form of single-payer model.  And for reasons known mostly to powerful corporate lobbies for insurance, pharmaceutical, and medical device  companies, single-payer health plans are socialist Nazi plots to kill Grandma. Instead, we are committed to responsible prudent austerity founded on shared sacrifice… because Grandma prefers be bankrupt such that she is forced to choose between food and medicine.  After all, it is about having a choice.

This is why we can’t have nice things

Grandma Party
Democrats are pandering to the senior crowd

The Obama administration announced it was kicking in $6.7 billion to head off cuts to Medicare Advantage—cuts put in place by Obamacare.

These were some of the cuts put in place to reduce the excessive spending on health care.  They were a key part of the package Democrats fought tooth and nail to get passed last year.  They are essential for the new health care reform bill to achieve its projected savings.  And now they are flip-flopping on them.

Why would these cuts be restored?  Well, no one is saying for sure, but given the popularity of Medicare Advantage with seniors and the impending election season, this is pretty clearly just blatant pandering to the elder voting bloc.

The Republicans ruled the 2010 elections largely on the back of seniors they scared by pointing out that Obamacare included cuts to Medicare Advantage, so maybe Democratic strategists are merely trying to avoid a repeat in 2012.  However, House Republicans are now on record as supporting the Ryan plan which not only contains those cuts, but goes on to dismantle traditional Medicare as well.  It seems seniors worried about Medicare should be far more scared of the GOP proposed budget than Obamacare, even without this restoration of benefits.

Medicare Advantage is more expensive than traditional Medicare.  While it makes sense to allow seniors to opt for private insurance over public coverage, it doesn’t make sense for us to pay extra for it.  These cuts should be among the easiest to make.  If politicians can’t stick to even this sort of spending cut back out of fear of losing votes, will they ever be able to make any really hard economic choices?

The Magic 8-Ball says… “Outlook not so good”

Single Payer Health Care is a Conservative Policy

Health care costs are the elephant in the room (Photo by Lauren Nelson on Flickr)

Medicare for all, or other incarnations of the idea of federalized universal healthcare funded by tax dollars, is seen as a far-left liberal policy. Yet from a strictly financial point of view, it should be the policy true fiscal conservatives are advocating for.

Looked at economy wide, the biggest problem facing America is the cost of health care.  At present it is 17% of our total economy.  It also represents over 20% of our federal budget, amounting to some $800 billion a year.  Further, these costs are borne system wide.  Companies pay for it in their employee benefits costs, States pay for it in Medicaid, and individuals without insurance or who have moved to high-deductible plans feel the pain as well.  To add insult to injury, costs are rising at a rate of about 6.3% a year, which is a rate far exceeding inflation or GDP growth.

If these costs could be dramatically reduced it would mean a significant reduction in federal deficits and relief to cash strapped states.  It would mean more corporate profits available for growth and investment or worker wages.  And it would mean more money in everyone’s pockets as well.  No one whose priority was fiscal responsibility and economic growth could possibly stand against such an opportunity.  Yet that is where we find ourselves.

Heath Care Costs per Capita

Health care costs per capita in the US are currently about double what the rest of the industrialized world pays.  While some might argue this is because we have access to superior care, the evidence doesn’t bear that out in aggregate.  Our life expectancy, infant mortality rate, and other indicators place us as a below average country for quality of care.  Even allowing for a bit of American exceptionalism here, our “superior” care doesn’t warrant double the investment.

So why do we pay so much for care? We are the only country not providing centrally managed care, and one of only two who do not provide for universal coverage (Mexico and Turkey are the others).   No one insurance company is currently responsible for you from cradle to grave, and hence there is little incentive to prevent future medical conditions or mange chronic conditions.  The incentive is to spend as little as possible until you can pass the patient on to the next carrier.  Patch ’em up and move ’em out.  And in addition, everyone in the current system needs to make a profit.

Medicare currently controls costs better than private insurance in this country.  And recall that Medicare was created entirely because it became impossible for seniors to afford private coverage.  There is no evidence that further privatizing medical insurance will result in better, cheaper, or more universal coverage.  There is no model anywhere else in the world, or even in our own history where that has worked.  On the other hand, federally managed universal care is proven to work in dozens of countries around the world—at half the price.

Conservatives are by nature risk averse.  Choosing between a solution proven to work and an alternative unproven solution at double the cost should not even be a debate in those circles.  Yet anything that even smells like single-payer is a non-starter. It is not even open for discussion.

I don’t favor a single payer system because I have some lefty liberal bias that assumes everyone has an entitlement to be be healthy and well cared for.  I favor it because I’m cheap.  I favor it because I’m pretty sure (but not quite certain) we won’t entertain walling off the Dakotas and tossing in all the indigent old and sick and leaving them to die in their own filth.  I’m pretty sure we wind up providing them some level of care at some point.  And given we’re stuck with that societal obligation, let’s do it as cost effectively as possible.

I understand the social justice or social Darwinist side of this issue.  People who didn’t earn their way and can’t provide for themselves don’t deserve to sponge off people who worked, saved, and did prepare.  But people with such views fail to look at the larger picture.  Unless we’re really okay with the Dakota Internment Camp, those people wind up being a “burden” somewhere on someone.  You may think you’re ducking being saddled with that burden, but issues as pervasive and large as health care are an economic drain on us all.  If you live, work, and pay taxes here, you’re saddled.

So here’s a plan with a proven track record to take half the load off us all.  That’s $400 billion a year off the federal budget alone.  Are you in?

America needs a 12-step program

12-step Program
The first step is admitting you have a problem.

Politicians have made it a habit to invoke American exceptionalism at every opportunity.  President Obama has been repeatedly reviled by his detractors for not aggressively asserting that the rest of the world should bow to our obvious superiority.  Meanwhile, pundit Sean Hannity is now famous for frequently uttering his catch phrase, “America is the single greatest nation that God ever gave man on this earth.”

That’s not to say that America doesn’t have a reason to be proud, but a little humility might help us to realize that in some ways we are quite a bit less than we imagine.

Compared to a group of our peers, the 20 most affluent countries in the world, we are number 1 in some embarrassing categories:

  • The highest poverty rate, both generally and for children;
  • The greatest inequality of incomes;
  • The lowest government spending as a percentage of GDP on social programs for the disadvantaged;
  • The lowest number of paid holiday, annual and maternity leaves;
  • The lowest score on the UN’s index of “material well-being of children”;
  • The worst score on the UN’s gender inequality index;
  • The lowest social mobility;
  • The highest public and private expenditure on health care as a portion of GDP;
  • The highest percentage of our population in jail;
  • The highest carbon dioxide emissions and water consumption per capita;
  • The highest rate of failing to ratify international agreements;
  • The lowest spending on international development and humanitarian 
assistance as a percentage of GDP;
  • The highest military spending as a portion of GDP;
  • The largest international arms sales;
  • The lowest scores for student performance in math (except for Portugal and Italy) (and far down from the top in both science and reading);
  • The highest high school drop out rate (except for Spain);

These are not problems that have just come about in the last few years.  We have been building our dysfunction in these areas for decades.  Problems like these are at the core of our decline, not deficits.  And problems like these will not be solved with budgetary adjustments or minor policy changes. These are fundamental behavioral issues.

As with any person or organization exhibiting self-destructive behavioral problems, the first step is admitting we actually have a problem.  This does not require that we declare ourselves worthless and unworthy.  On the contrary, a sense of self-worth is required such that we believe ourselves worth saving. But we desperately need to embrace the notion that we could be better, much better, than we are now, and further that this transformation requires dedication and sacrifice.  Until we’re ready to own up to that, nothing will change.

      It’s the health care costs, stupid

      Health care costs are the elephant in the room (Photo by Lauren Nelson on Flickr)

      As Democrats and Republicans continue their budget dance over non-military discretionary spending, the elephant in the room remains the rising cost of health care.  The Congressional Budget Office estimates that over the next 25 years, the percent of GDP spent on Medicare and Medicaid will double.  And these cost increases will not be limited to government programs.  Private and employer based costs will rise at the same rate—costs that will be reflected in higher prices and lower wages. Simply put, if you’re serious about the economy, then you are serious about long term containment of medical costs. Clearly, Congress is not serious about the economy.

      According to Kaiser Health News, Republicans mocked proposals to improve the use of Medicare and Medicaid funds. They declared spending money on prevention was just a “slush fund,” and research on innovation was “an oxymoron.”  Further, there was no cause to pay for “so-called effectiveness research.”

      Meanwhile, two House Democrats have signed onto a Republican bill to repeal a health reform provision for the Medicare payment board, which fast-tracks cuts to Medicare payments when spending reaches a pre-determined target. The CBO estimated the board would save $28 billion through 2019.

      GOP 2012 hopeful Mike Huckabee attacked the Obama stimulus because it included funds for comparative effectiveness research saying, “The stimulus didn’t just waste your money; it planted the seeds from which the poisonous tree of death panels will grow.”

      The proposals opposing efforts to reign in escalating health care costs may be partly political opportunism run amok, but likely also reflect a broad ignorance about the state of medicine as currently practiced. A panel of experts convened in 2007 by the prestigious Institute of Medicine estimated that “well below half” of the procedures doctors perform and the decisions they make about surgeries, drugs, and tests have been adequately investigated and shown to be effective. The rest are based on a combination of guesswork, theory, and tradition, with a strong dose of marketing by drug and device companies. (reference—subscription required)

      In fact, the reliance of doctors on companies marketing treatments is downright frightening. In many cases, physicians perform surgeries, prescribe drugs, and give patients tests that are not backed by sound evidence because most doctors are not trained to analyze scientific data, says Michael Wilkes, vice dean of education at U.C. Davis. “Most medical students don’t learn how to think critically.”  The reality is that doctors are human. They trust what they are told, especially by their peers. Yet, a 2002 study in the Journal of the American Medical Association (JAMA) found that 87 percent of guideline authors received industry funding and 59 percent were paid by the manufacturer of a drug affected by the guidelines they wrote. Their peers, it seems, are largely bought and paid for by companies trying to sell something.

      The holes in medical knowledge can have life-threatening implications, according to an Agency for Healthcare Research and Quality report published in 2001: More than 770,000 Americans are injured or die each year from drug complications, including unexpected side effects, some of which might have been avoided if somebody had conducted the proper research. Meaningless or inaccurate tests can lead to medical interventions that are unnecessary or harmful. And risky surgical techniques can be performed for years before studies are launched to test whether the surgery is actually effective.

      Getting health care costs under control requires government sponsored comparative effectiveness research.  This is research aimed at determining what treatments actually work, and educating doctors.  Doctors and hospitals do not have the resources to self-fund this research.  And private companies are incented to sell drugs, devices, and treatments rather than cure patients.

      Doctors are smart people. But they are only as good as the information they have available to them. Comparative effectiveness research will allow doctors to make better choices, reduce costs, and have healthier patients.  That’s money well spent. Money that is an investment in not only our health, but our economic future.