Editor’s note: Three weeks ago GEI published an Opinion article by Michael Kulla entitled “Health Care Paradox: Red Tap, Lobbies, Political Posturing . . . and Sick People.”
The following article was submitted to discuss and debate some of the issues and opinions that Dr. Kulla expressed in his article.
Health Care Paradox: Is our Health Care System sick and in need of a fix, or is it a success and thus is “making U.S. sick”
Written by Miles Hoffman
In this time of debate over “Obamacare”, when people read articles that favor “health care as a right”, they react (because they disagree) or they cheer (because they favor Obamacare). To be honest, I tend to react, but when I react, I do research (I’m a retired analyst that covered the insurance industry).
I’ve read and reread Mr. Kulla’s article and I find it humorous in that he’s a psychologist because he sounds schizophrenic. I can’t decide what he is advocating: we spend too much, but we spend too much on 9/11; the “Medical Business Oligarchy” seems at fault, but “prices would collapse… (under) competitive pressures”, etc. Apparently Mr. Kulla believes access to health care is a right, but the only thing Mr. Kulla seems to be advocating is more dialog, and dialog hasn’t worked, so let’s do some research.
I pulled data from the Centers for Medicare and Medicaid Services (CMS) website’s research section summarizing total national healthcare expenditures (forthwith referred to as “TNHC$”) over the last 6 decades.
Mr. Kulla does point out the critical dilemma, “… should health care delivery be a sacred right…”. He doesn’t seem to realize that question has already been answered.
The U.S. government is already in the drivers seat…
In 1960, 48% of TNHC$ were paid out of pocket by the patient. Over the next 5 decades, the percentages were 33%, 23%, 19%, 15% and 12%, respectively. In 1960, 21% was paid by private health insurance, which jumped to 32% by 1990 but has since stabilized there.
According to the “CMS” footnotes, Medicare and Medicaid became effective July 1966, so the 1960 percentage of TNHC$ by our government was a miniscule 6% (apparently Dept. of Defense spending). Additionally, CMS has an “other” category, which was 16% of TNHC$ in 1960, and it appears to be government spending too. So in 1960, our government controlled about 22% of TNHC$. By 2010, our government controlled about 49% of TNHC$ (this percentage now agrees with the World Health Organization [“WHO”] estimate, p.134).
So yes Mr. Kulla, our government believes health care delivery is a sacred right.
One of the real cruxes of the problem is that there’s no more personal responsibility with regard to health care spending; someone else is doing “all” the paying. It started when businesses began adding health insurance as an employee benefit but the enactment of Medicare/Medicaid rapidly put our government in control. Studies show that for every dollar spent by the private sector, typically the government spends two dollars (and people wonder why health care costs “are out of control”!).
No one spends your dollars as wisely as you do!
And we’re “driving recklessly” (compared to others).
Mr. Kulla mentions the U.S. spends $8,500 per person on health care, a figure almost exactly out of the CMS data (it’s figure is $8,402 in 2010), and compares it to Britian’s $3,500. Two important points:
(1) Comparing spending in difference countries is complex. The “WHO” calculates a “Purchasing Power Parity” (“PPP”) that is suppose to properly adjust (but is still lacking as I will show when I discuss hospitals below). Regardless of the calculation, the “WHO” says we spend $7,164 per person, not $8,500, compared to the U.K. figure of $3,771, not $3,500 (but the U.K. spends even less on a “PPP” basis, $3222). So comparatively, our spending is bad but not as bad as Mr. Kulla believes.
(2) More importantly, we need to look at the per beneficiary cost. CMS says Medicare spends $10,600 per enrollee vs private health insurance’s $4,000 per enrollee spending (here the government is spending 2.65 times as much). Medicaid figures are not given but from the data available we can infer Medicaid is not as bad as Medicare but still worse than our insurance industry.
Mr. Kulla also states that “Administrative costs in the U.S. are 20 to 30 percent of total cost” but the CMS data support a figure of only 10% (which is still worse than other nations if Mr. Kulla is right?). I’ve seen other sources say we spent even less administratively.
Nonetheless, regardless of the administrative costs, it sure seems that the government is NOT spending our health care dollars as wisely as does the insurance industry. And Mr. Kulla apparently supports greater government control of health care dollars. Go figure!
Have we been driven to drugs?
By “picking on” the prescription drug industry, Mr. Kulla seems to want to lay much of the blame on them; however, this industry accounts for only about 10% of TNHC$ spending whereas hospitals represent 30% and doctors 20%.
I don’t know much about the efficiencies of hospitals but I would point out that the “WHO” data shows America’s population is generally more rural than other advanced nations and being so spread out requires more hospitals. More importantly, the population density of America is 84 people per square mile whereas other advanced nations are significantly more dense, typically around 500-650 p.p.s.m. (Canada is an exception at just 9 per square mile). Serving less people per square mile is less efficient, just ask McDonalds: their “real estate” division is so skilled at picking locations that can generate profitable volumes that many companies simply “piggyback” on McDonalds and open stores where ever McDonalds builds a new (rural) location.
As for doctors, the American Medical Association (“AMA”) controls the number of medical schools and thus the number of doctors. It has been very restrictive with regards to increasing the number of either of these, so as many have pointed out, the AMA and doctors are simply a big union that restricts competition. Less supply, aka less competition, and the higher something costs. Why doesn’t Mr. Kulla “pick on” the AMA?
As “a side note”, the number of lawyers per capital has skyrocketed compared to the number of doctors per capita. So for lawyers, there’s more supply, aka more competition, and they’re competing for the right to sue those doctors and hospitals, which is why those hospitals and doctors order so many tests (it’s called “CYA”)…. but I digress (or do I?).
As for the drug industry, I do think it gets a bad wrap, perhaps not undeservingly, but for the wrong reason. The drug industry should be blamed for focusing on “blockbuster drugs” and abandoning other more basic research (to the biotech industry). Looking for blockbusters is a hit or miss business, and mostly miss at that. It is also very costly.
However, much of the blame here should probably be laid at the door of the FDA, which has slowed the drug approval process. The FDA has also made it even more difficult and costly to comply with its regulations, which in essence has forced the drug industry to seek blockbuster drugs.
As Mr. Kulla rightly points out, “Medicare is facing insolvency. A major reason is that too many older people are getting sick.”
This statement infers the other major crux of the health care problem, and the drug industry is “partially” at fault, but in reality it’s the fault of demographics.
The success of our Health Care System has driven us off a cliff!
The reality is that the health care industry, and especially the drug industry, has been succeeding in extending longevity (a “must read” link). More people now reach the “old age” brackets, and more older people is a demographic problem that was not foreseen when Social Security was created in the 1930s, nor was it foreseen when Medicare/Medicaid was created in 1966.
There are simply more old people now and they are in BETTER health. It’s counter-intuitive, but the healthy old consume more health care. The reasoning is fairly simple. Unhealthy old people die and when they die, their health care spending ceases (for this reason, some have advocated charging LESS for health insurance if you’re not healthy). Health care costs increase exponentially with old age, so healthier old people consume more drugs and more health care (and Social Security) over their lifespan.
In fact, “aged care” facilities (nursing homes, home health care, retirement communities, et. al.) were just 4.8% of TNHC$ in 1960 but have grown to 13.2% now. In simple (health care spending) terms, it’s expensive to get old.
Those who believe “health care is a right” seem to cite two primary reasons the government needs to get involved:
(1) costs are too expensive…. which may be debatable, but advocates never cite the success of our health care system as a cause of high costs, nor do they believe the lack of personal responsibility is a problem. Even worse, we’ve spent billions (trillions? quadrillions?) of dollars on the “War on Poverty”, which included the creation of Medicare/Medicaid and expended Social Security, yet the war has been lost. When this is pointed out to advocates of health care as a right, their response is the same as the response to the current financial crisis. That is, “If the government had not spent all this money, the problem would be worse.”, or “We haven’t done enough and we need to do more.” It’s a fact of logic that you cannot argue with these statements because they cannot be proven or disproven. And when you hear someone use this type of argument, bells should go off in your head telling you that they are arguing from a position of weakness. So my response would be “If the government had not gotten involved in the first place, things would be better.”, because I call it “throwing good money after bad” by spending even more, be it government spending on health care or the financial crisis.
(2) too many uninsured… this is a problem. I don’t have a solution, but in discussing “The Errors of Socialism”, F.A. Hayek saliently states “…the whole debate is a matter of value judgements (sic) and not of facts has prevented professional students of market order from stressing forcibly enough that socialism cannot possibly do what it promises.” Proponents on both the left and right appear to understand and agree that Social Security, Medicare and Medicaid are heading toward bankruptcy. In other words, they cannot possibly do what they promise.
Isn’t this what we’re doing if we try to force health care as a right, at the taxpayers expense? Aren’t we just making another promise we can not possible keep?
It is no surprise to me that those who believe that health care is a right believe that we could pay for the uninsured if only we made the more well-to-do aged pay for their medical care. Isn’t that, after all, what Obamacare does?
And believing we can cover the uninsured by making the more wealthy pay is making that same “value judgment” while ignoring “the facts”. The fact is, at their creation, people believed that Social Security would be self-funding and that we could afford Medicare and Medicaid (and the Medicare prescription-drug bill too).
So the real moral dilemma we face in health care is not access to health care, but access to health care at who’s cost?
In my humble opinion, when our forefathers set out to create a country where people were “endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness”, our forefathers meant that no government or person had the right to take away your life, your liberty, or your right to pursue whatever makes you happy.
But if what makes you happy is purchasing health care to extend your life, I believe our forefathers meant that if wanted this, then you had the right to pursue whatever it took to obtain health care. That is, you work hard or smart to earn money to buy health care (or insurance).
Simply put, these unalienable rights are “intangible” assets. Access to health care, when it is free (or even underpriced, as it is with low co-pays), is a “tangible” asset.
Access to health care is not an unalienable right. The opportunity to purchase health care is an unalienable right, but once someone else is paying for it, it becomes an asset, not a right.