Wednesday, February 02, 2005

The Great Divide - Part Two

The Great Divide: Public vs. Private Healthcare.
Part Two - Counting the Costs (and Savings).

In Part One, we looked at the various myths and facts surrounding public healthcare and concluded that there was no reason, other than possibly cost, why the US shouldn't implement a system of universal healthcare bearing some resemblance to the ubiquitous model practiced by all other Western nations. In this part, we need to find out if cost is the barrier.

Health spending has been rising as a percentage of the US economy for a generation now. Back in the 60's it was about 7% or so but it has now soared, according to the Bush administration, to over 15% of the nation's GDP. According to published figures, raw government spending on healthcare accounts for 45% of all healthcare spending or about 6.75% of GDP. This is roughly comparable to spending on the National Health Service in the UK during the last conservative government when it was widely acknowledged that not enough was being spent to sustain the NHS. However, the UK has significantly raised it's spending on healthcare to nearly the EU agreed target of 8.5% of GDP and the NHS is recovering from the darkest days.

The public figure for government spending in the US ignores certain factors though, according to a study by Harvard Medical School. Spending for government health programs like Medicare, Medicaid and the Veterans Administration ($548.7 billion in 1999) is included, but two categories that have previously been overlooked in calculating government health costs need to be included too if a true picture is to emerge. Expenditures to buy private insurance for government employees - e.g. members of Congress, firemen and school teachers - at a cost of $65.6 billion in 1999 and tax subsidies for private coverage - which totaled $109.6 billion in 1999 have never been part of official figures. These costs would be either included or saved by a universal healthcare system. The total government spend on healthcare is therefore $954 billion or 59.8% of all US healthcare spending.

Dr. Steffie Woolhandler, a study author and an Associate Professor of Medicine at Harvard, noted:

We pay the world's highest health care taxes. But much of the money is squandered. The wealthy get tax breaks. And HMOs and drug companies pocket billions in profits at the taxpayers' expense. But politicians claim we can't afford universal coverage. Every other developed nation has national health insurance. We already pay for it, but we don't get it.

Let's look at some fairly rough figures. The US spends over $309 billion each year on paperwork in insurance companies, hospitals and doctors' office - over half could be saved through national health insurance if paperwork costs followed the UK example and dropped to around 11% of all healthcare costs instead of 25%. It spends $150 billion on medications, at prices 50% higher than Canadians pay for the same drugs. By slashing bureaucracy and drug prices the US could save enough to cover all of the uninsured and improve coverage for the rest of the populace.

Estimated total US health spending is around $5,500 per capita and it has doubled in the last 20 years. That equates to a total spend of about $1,600 billion of which $400 billion is currently eaten up by administration costs. Cutting administration by moving to one standard universal system would save as much as $225 billion.. Cutting drug costs by 50% through one block negotiated price as the Canadian system does would save another $75 billion. These savings wouldn't just disappear as a means-based, equitable tax could then be levied. Individuals and employers would pay into the plan based on what they can afford, not what insurance companies want to charge. This tax would largely replace premiums, deductibles, co-pays and out-of-pocket expenses. For most taxpayers and businesses, this would lead to sizeable savings.

Add these savings to what the government is already paying and we have an available budget of almost $1.2 trillion or over 11% of the nation's GDP. All without raising taxes.

As an aside, it should be noted that recent Democrat plans for a universal health system had a similiar budget, but as the formulators had not taken into account all the savings possible, they had to include a provision for a tax levy which allowed easy attacks on these plans. The other flaw in Democrat plans was to include draconian provisions to exclude private HMO's from providing coverage for areas their universal system covered. This was simply ludicrous and smacked of a "closed-shop" ethos their fellow leftwingers in Europe gave up over a decade ago. If any new universal healthcare provision was set up properly free market competition would be a welcome playing field, it would leave the insurers able to provide luxury "top-up" covers for elective surgeries or exclusive surroundings, something the insurers would probably find very satisfactory indeed as profit margins would be far higher.

Of course, many States have already begun to think this way. Maryland, Massachusets, Minnesota, New Mexico, Wisconsin, Delaware, California,Hawaii and of course Maine are just some of the States that have either begun the process or are expecting to begin shortly. 40 States in total either have legislation in the works or studies in progress for establishing a single-payer healthcare system. In every case, savings to the State, to businesses and to individual families are expected.

Certainly, manufacturing businesses could do with the break. Employers saw their healthcare costs rise 12% in 2004 and 16% in 2003. . Such dramatic increases have damaged manufacturing in America, prompted labor strikes, and encouraged corporations to ship jobs overseas.

In one of the more exciting if little-noticed developments for progressives, a coalition is beginning to emerge that includes not just CEOs but also America's doctors and unionized workers. Executives from the Big Three automakers, upset over insanely high healthcare costs, recently sent the Canadian government a letter urging Canada to keep its single-payer system so GM, DaimlerChrysler and Ford could hold operating expenses down.
And why not? After all, in 2003, GM spent $4.5 billion on health care for its US- based employees and retirees, at a cost of $1,200 per car, according to a GM spokesman. "If we cannot get our arms around this [healthcare] issue as a nation, our manufacturing base and many of our other businesses are in danger," warned Ford's Vice Chairman Allan Gilmour.
Katerina vanden Hueval, The Nation

So why doesn't the US have a universal, single-payer public system of healthcare? Well, it would seem that misunderstanding of the costs involved, coupled with the retelling of myths over the differences in quality between public and private systems, have conspired to keep universal healthcare a "not now" subject at the national level. Pressure from physicians, businesses, and individual State's actions could well be about to change that formula. One can only hope that in this case, bi-partisan politics can be the order of the day. If kindergarten name-calling is frowned upon when it comes to supporting the troops, how much more should it be decried when it comes to supporting every living soul in the nation?

Further articles/websites referenced for Part Two.

1)We Pay for National Health Insurance but Don't Get It
2)CEOs For Universal Healthcare
3)California's single payer bill passes Assembly Health Committee
5)A Heftier Dose To Swallow -Rising Cost of Health Care in U.S. Gives Other Developed Countries an Edge in Keeping Jobs


Anonymous said...

Thanks for including the costs that are not part of the official figures on government spending. I admit I was not aware of the extra money spent.

I want to question the figure of 25% of costs that are "lost" in health care in America to paper work. (Again I haven't read your sources, but that number seems high.)

Big pharma is a separate snake to wrestle with because they are all diverse multinational corporations. They can always claim their expenses for work done in another country raise their costs. I do want to point out that since they successfully got the law changed to allow them to advertise directly to the public, their American marketing expenses have skyrocketed. I don't see a reason for it. I think most physicians would like to see it stopped. Patients are daily asking them about some medicine they saw an ad for. Frequently they don't have a need for it. Minimally it wastes time. Frequently patients demand they get to try the new drug (A Nod to Heuey Lewis here) and then refuse to switch back. Let me ask, have you ever seen an ad for a generic medicine? Me neither.
For the most expensive new & nearly new medicines big pharma spends as much or more on marketing as they do on research. Please stop telling us that research drives the cost.
That being said, I want to point out that only very few drugs are ever advertised. You don't see cancer medications advertised. The drug needs to have a mass market appeal. So do the profits from these medicines help fund the research on other medicines? I honestly don't know.
The question of re-importation is really an insult to Americans. Canada buys its medicines from America. They are the same medicines sold to Americans. There is no safety issue. This administration is misleading the public. (the nicest possible way of saying this)

"Add these savings to what the government is already paying and we have an available budget of almost $1.2 trillion or over 11% of the nation's GDP. All without raising taxes."
Outstanding! I really like how you worked the numbers. Your ideas are logical and not radical. The only people who wouldn't like this are big pharma and insurance companies.

I agree that health insurers would love to provide "top up or add-on" coverage. Many already do. However if there were a public health plan, the size of the market for the extra coverage, compared to the market now, would be relatively very small. So a lot of people would be laid off. (ME!) I don't know if moving from a giant profitable corp. to a small profitable corp. is what any of them want to do and therefore they may fight any significant changes such as your propose.
A note on "HMOs" (a generic term for private managed care health plans). Despite the evil and black thoughts the term brings to mind, it must be pointed out that millions of Americans have health insurance because of them. By reducing costs, increasing efficiencies, and yes, limiting access to care, they provide a way for employers to be able to afford health insurance for their employees. I shudder to think how many millions would not have health insurance without managed care.

Now the part I hope my bosses don't read. After much consideration and closely following Hillary's debacle I have a proposal. Keep the current system in place with two changes. First, require all health insurers, private hospitals, and physician management groups, essentially everyone who profits from healthcare, to be non-profit corps. Second, cap executive compensation and closely monitor the financial statements to make sure nobody is greedy.
This is the heart of my proposed improvement to the American health care system. It has about as much chance of happening as an ice sculpture contest in hell.

There are significant savings to be gained in the current system, but when they are realized, they will be turned into profit for the insurance companies.


Cernig said...

Thank you for the detailled comment, Kirkrrt, which has given me some things to work on - I need to do some further research on pharma companies and drug research, as well as on insurance companies and HMO profitablity. I will post findings when I have them.

Regards, Cernig

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