Comeback America Page 10

  It’s easy to see why this issue keeps coming back to center stage. America’s health care system (if you can call it a system) is among the most expensive on Earth, yet it fails to cover tens of millions of us and generates below average results in many cases, unless you happen to be rich. In some ways, it’s the worst of both worlds—costing too much and doing a poor job. These problems are growing, and that’s why the disaster in the making has once again captured Washington’s attention. As Obama has put it: “The cost of our health care has weighed down our economy and the conscience of our nation long enough.”

  We already know this from our own experiences. Everybody has a story about bad health care. My wife and I got to see the system in action within the past few years, after Mary had an auto accident. While she was driving in the middle of the day, she fainted at the wheel and had a head-on collision with a pickup truck. Fortunately, she had just started moving after a traffic light changed, and she wasn’t going too fast. That bit of luck, combined with our car’s outstanding engineering, resulted in significant damage to the vehicle, but not a scratch on Mary.

  After the accident, her primary care physician and a number of specialists subjected her to every test they could think of in an effort to find out why she had fainted. Despite running a battery of tests, almost all of them paid for by our insurance, the doctors never discovered the cause.

  In her final appointment, the doctor ordered three more tests, the last he could think of. He wanted to do everything he could to try to find out what the problem was. While I certainly appreciated his wanting to help my wife, I was troubled by his reply when I asked how much the tests would cost. He said he had no idea and that we shouldn’t worry because our insurance would cover it. I reminded him how insurance really works. Namely, the insurance company may pay the bill today, but we will pay the costs eventually. This seemed to be news to him. In his world, ordering every test imaginable, regardless of its usefulness or, shall we say, any fiscal considerations, was part of the routine. And what went unsaid was that in ordering more tests he made himself more money and reduced his risk of being sued. The total cost of all of the procedures he tried? Nearly $20,000.

  I think it’s safe to say that few people would have even questioned the doctor; if a loved one is sick, we want to do everything we can, no matter how low the odds it will actually help to get him or her better. Combine our incentive to try everything with the doctor’s incentive to make money and avoid being sued and you can see what the problem is. Project these wasteful practices throughout our entire health care system—at a time of growing demand and diminishing resources—and you get the picture. Overall, the cost of health care in America is rising faster than that of other goods and services. In fact, over the past forty years health care costs have risen an average of 2.4 percent faster than the national economy has grown. (See figure 6.) This increase is the primary reason that health care now represents approximately 17 percent of our economy, up from just 6.5 percent forty years ago. And this rapid rise is expected to continue. The only question is, at what rate?

  Our government health care programs contribute enormously to this imbalance. The signature program for retirees, hospitalization insurance under Medicare, already pays out more in benefits than it takes in. Medicare as a whole had a financing gap of about $38 trillion as of January 1, 2009, which is about five times greater than Social Security’s shortfall.

  We need health care reform, we need it badly, and we need it soon. The problem is whether any given health care reform plan would make things better or worse. Americans want a better health care system. But we need a system we can afford and sustain. And we most certainly do not want Washington’s bureaucracy, rather than our family doctors, to be in control of it.

  Now it’s President Obama’s turn to come up with a workable formula. I’m not going to get into the ins and outs of any particular plan. The details and formulas are shifting daily as health care reform works its way through the legislative sausage factory. Suffice it to say that President Obama favors universal health care coverage in a system where government-provided insurance (or a public option) is available but not mandatory. And, no surprise, he has been hazy about how we would pay for this coverage without borrowing even more and making our fiscal crisis even worse. One thing is clear: You can’t reduce costs by expanding coverage.

  Figure 6 Cumulative growth in health care spending and GDP since 1968. Health care costs are growing faster than the economy.

  It is also clear that the first priority of reform—making real progress on controlling costs—will require a new way of thinking about the problem. Yes, we need universal coverage, but first we need an honest discussion about what level of coverage is appropriate, affordable, and sustainable. To reform our health care system in a fiscally responsible way involves changing payment systems, reducing existing tax breaks, better targeting taxpayer premium subsidies for Medicare, pursuing integrated and alternative approaches to care, addressing difficult end-of-life issues, leveraging information technology, and reforming malpractice. Unfortunately, as of this writing, the health care reform plans being considered by the Congress do not address these issues in a meaningful way.

  That includes the main issue—fiscal integrity. Given the Peterson Foundation’s concern about this principle, we commissioned the Lewin Group to examine a major health care reform bill making its way through the House. The study found that the bill would cut the number of uninsured Americans by more than half, and the reform would almost pay for itself over the first ten years. But that’s where the good news ended. For the ten years after that, the bill would add $1 trillion to projected federal deficits. In the end, we would have a health care system that was more expensive than the one we already have.

  Thanks but no thanks. We need a system that pays for itself over the first ten years, does not add to federal deficits beyond ten years, and achieves a number of other key objectives. Let’s hope President Obama meant it when he told a joint session of Congress: “I will not sign a plan that adds one dime to our deficits—either now or in the future. Period.”

  Has Congress agreed to a health care reform plan by the time you’re reading this book? Does it improve our nation’s financial condition, or dig our federal financial hole deeper? Does it address the tough issues, or did it punt on them? I’m betting that we have made some limited progress, in part as a tribute to Senator Ted Kennedy, but that the real tough choices it will take to reduce health care costs—yours, mine, and the federal government’s—will not have been made. We all have to join this debate. Let this chapter be an issues guide that goes farther than the headlines you have been reading and efforts on both sides to spin the debate.

  A HISTORY OF RISING COSTS

  In the last chapter I wrote about some of the trends endangering Social Security. Well, our health care problem is not only more expensive than our Social Security problem, but much more extensive. This dilemma affects poor families, working families, and retirees alike.

  Our health care crisis has been developing for decades. In our tradition of private enterprise, working Americans have counted on receiving health insurance at work. We have relied on employers to provide this insurance, to expand coverage, and to finance a large portion of overall health care costs. That system is best for taking care of workers in large companies that provide good insurance. But it has left tens of millions of Americans without any health insurance at all.

  Those who do have insurance—and the employers who provide it—have become victims of cost run-ups. One major factor behind those soaring bills is that most of our personal health care costs are reimbursed on a fee-for-service basis. This means that providers are paid for what they do rather than for the results they achieve. This gives them a strong incentive, as in my wife’s case, to do more in order to generate more revenue and reduce their litigation risk.

  Our government health care programs are designed to absorb some of these costs—for some people.
Like Social Security, they are intended as safety nets, in this case protecting poor and retired Americans. Medicaid, financed by the federal and state governments but administered by the states, helps poor people who cannot otherwise afford health care. Medicare, financed by the federal government, primarily serves people sixty-five years old and older, mainly retirees who typically have no other source of health insurance.

  Medicare covers hospitalization, skilled nursing, hospice, and some home health services (Part A), and doctors’ services, outpatient care, and some preventive services (Part B). It also includes an option for typical Medicare and possibly supplemental services to be provided through certain private plans (Part C), and it now offers some prescription drug coverage (Part D). The Medicare Part A program is funded with a payroll tax of 1.45 percent on all taxable wages and self-employment earnings. The tax is imposed both on workers and on their employers (for a total of 2.9 percent). Medicare Parts B, C, and D are voluntary programs that are funded in part by premiums paid by individuals who elect to join, partly by income tax revenues, and, in the case of Medicare Part D, partly by the states.

  These programs comprise another huge portion of our nation’s rising health care costs. About 83 million people, or 27 percent of our population, were insured through Medicare, Medicaid, and military health programs in 2007. In all, the federal government now pays about one-third of the nation’s medical bills. As a result, Medicare and Medicaid have gone from approximately 4 percent of the federal budget in 1968 to about 20 percent in 2008. That percentage is still going up and will continue to climb as the baby boomers retire and our population ages.

  Why have U.S. health care costs risen so rapidly? The fee-for-service excesses are part of the story. The boomers are part of the story. In addition, new medical technologies and procedures result in more advanced and more costly health care capabilities. Hospitals and specialists are racing to add them—and we have to pay for them. And here’s another important factor: Our federal government runs the only major national health care system on Earth that does not have a budget (or limit) on what it spends. The U.S. government writes a blank check for health care.

  There are many examples of how other countries provide services without going bankrupt. Germany, for one, allocates annual health care funding to cover its citizens in each major region of the country. The physicians and other health care professionals then decide whether certain services or procedures should be provided to a patient based on the individual’s condition and on the related costs and potential benefits. And yes, this means not performing “heroic measures” (that is, procedures that may have little to no chance of meaningfully improving and extending life) at the end of life, irrespective of the patient’s age. This financing approach recognizes that providing certain procedures, devices, or prescription drugs to one patient will limit the options for others.

  In Sweden, the government also allocates a portion of its national budget to health care costs. If the actual costs go higher, then the premiums or taxes that individuals must pay automatically rise to offset the shortfall.

  These are both ways to limit federal payments in a rational and responsible manner. But benefit payments are just part of the spiraling health care costs that our federal government faces. When it comes to health care, the government not only gives, it fails to receive. Here’s why: Most people who benefit from employer-provided health insurance never have to pay income or payroll taxes on the value of the insurance provided by their employer. By fiscal 2008, these tax breaks cost the government about $288 billion a year in lost federal tax revenues, a loss that’s growing steadily as health care gets more and more expensive. This also results in lost revenue at the state and local levels, since the value of employer-provided health insurance is also excluded from state and local income taxes.

  Most people do not seem to understand how unfair these tax benefits are. Under this system, CEOs and other top earners in America, since they are in the highest tax brackets, receive more significant taxpayer subsidies than most of their employees do. And lower-income workers who do not have any employer-provided health insurance receive no taxpayer assistance. Under our tax system, the rich get generous subsidies, and those who do not qualify for Medicaid and aren’t covered by an employer-sponsored plan have to fend for themselves. Does this seem right to you?

  Even those individuals who have employer-provided health insurance and benefit from the related tax preferences are feeling the effects of higher health care costs. If you’re a typical American and get health insurance on the job, you’re probably paying a deductible that can top $1,000 a year, according to a recent study by Mercer Consultants—that’s before your insurance even kicks in, and that’s on top of any premiums and co-pays that you are responsible for.

  That’s expensive, but it could be much worse. If your employer does not give you insurance and you have to buy your own, you could be looking at an average annual cost of $21,000 to purchase comprehensive health insurance coverage for your family. How does that sound, when median household income in America is about $50,000 a year?

  What we have here is a portrait of a system that is badly broken. Washington is having trouble paying the bills for our federal health care programs. At the same time, we consumers are having trouble covering our own medical costs. And many state and local governments also face large and growing deficits.

  The states manage Medicaid health and long-term care benefits for the poor and are responsible for paying half of the program’s spiraling costs. The states also have their own retiree health and pension plans to finance. Many are struggling to keep up with these costs while also maintaining critical infrastructure and state-sponsored education systems. Unlike our national government, states cannot print money, borrow without limit, or establish exotic trust funds. When state and local governments borrow and spend, they have to make the numbers work. In fact, all but one state have some sort of balanced budget requirement, although these vary in nature and effectiveness. In addition, states have to keep their finances in order to maintain a favorable credit rating.

  Federal handouts are about the only relief states can hope for—and that’s why many states lined up at the trough for federal help as part of the 2009 stimulus package and some, such as California, made later requests for federal assistance. Many states and localities are assuming that this aid pipeline from Washington will be a recurring fixture, but that is unrealistic.

  How do we get out of this situation? That’s the question the president and Congress are trying again to answer. Here’s one way to assess the debate: Don’t believe any politician who says that the government can expand health care coverage without eventually raising your taxes. Yes, there are plenty of opportunities to improve the efficiency of our health care system and eliminate the perverse incentives, but universal coverage, even for basic and essential services, will cost more money.

  The fact is, the federal government has already promised way more than it can deliver. Of Medicare’s approximately $38 trillion financing hole, about $7.2 trillion came from the new prescription drug benefit pushed through by Bush 43. And remember, many advocates claimed this program would save the federal government money!

  Filling in our funding gap will be enormously painful. For example, to finance Medicare’s hospitalization program (Part A) through 2083, the government would have to immediately raise the program’s payroll tax from 2.9 percent to 6.78 percent or immediately cut the program’s services by more than half. Imagine the outcry against any administration that made such a proposal. And that assumes that the annual increase in health care costs will be reduced to 1 percent in excess of annual economic growth within twenty-five years rather than the historical average of 2.4 percent.

  Something has got to give. And yet some people want to give the government more responsibility for health care, without adequate financing. Take a look, for example, at the health care reform proposals that were working their way through Congress in th
e fall of 2009. Senate Finance Committee chairman Max Baucus (D-MT) produced a bill that would reduce federal deficits, according to the Congressional Budget Office—but only if implemented as designed. That was a big “if.” The bill came under immediate attack from other Democrats, who complained that the Baucus formula imposed too great a financial burden on the middle class. They were sure to add amendments that would make the bill less fiscally responsible. Chairman Baucus’s bill also relies on the willingness of Congress to make significant reductions in future provider reimbursement rates when it has consistently failed to do so in the past.

  Given concerns regarding the doctor’s reimbursement issue, in October 2009 Senate Majority Leader Harry Reid proposed to decouple this matter from overall health care reform, thereby potentially avoiding a need to pay for its $247 billion price tag. The Washington Post noted in an editorial that Mr. Reid’s attempt to do so was “nonsensical.” The Post also noted that some sort of “bipartisan commission” would be required to craft a “comprehensive solution.”

  The House of Representatives didn’t help by voting to waive a 2010 premium increase for the Medicare plan that pays doctors’ bills—irresponsibly cutting revenues at a time when Medicare already was heading deep into the red. This is just another example of fiscally irresponsible political pondering by elected officials.

  Steps like these only serve to deepen our federal financial hole, increase our risk, and make our ultimate day of reckoning even more painful.

  FALLING THROUGH THE CRACKS

  As I discussed earlier, the near poor and people with lower-middle-class incomes often are not covered or are not adequately covered by insurance. They rely on emergency rooms when they need care, which is a tremendously costly, inefficient, and stressful way to treat them. Too often they can’t pay the bill, leaving hospitals to absorb the losses and to bear most of the burden of treating uninsured people. This results in higher prices for those who can afford to pay, and in some cases hospitals must turn away people without insurance. It’s hard to think of a more inefficient and cruel system of treating people.