Paying for the High Cost of U.S. Healthcare

 

Slide1 Fixing U.S. Healthcare blog has claimed

  • the high cost of U.S. healthcare is the Real Problem
  • paying such a high price diverts resources from other important national priorities
  • if left unchecked, these relentlessly rising healthcare costs will seriously weaken the nation over time.

Two recent authoritative op-eds support the first two claims, but not the third.

 

1. Rationing of Health Care in the United States, by Howard Bauchner MD

Inexorably increasing healthcare costs and their root causes are the subject of a February 26 editorial in the respected Journal of the A.M.A. (See also links to my previous posts). Editor-in-Chief Dr. Bauchner asserts that as costs climb higher, more rationing will result, driving ever deeper inequities in care and worse disparities in health outcomes. He acknowledges that healthcare spending will also limit “appropriate investment in other areas, such as education, the environment, and infrastructure.”

Comment: Dr. Bauchner’s primary concern is the insidious effect of rising healthcare costs leading to unfair rationing of health care services. But he recognizes the opportunity costs for other national priorities, as well. And he summarizes, “For the United States to prosper in the 21stcentury, controlling health care costs is critical – indeed it is the single most important challenge facing health care.” He advocates controlling administrative costs as a key to reining in overall costs, but is short on detail.

Conclusion: Dr. Bauchner’s editorial echoes all three of Fixing U.S. Healthcare blog’s main claims. There is some merit in his notion to tackle the problem by focusing on administrative costs. But this blog claims that any real solution will require the full weight of a unitary government-backed finance system to undo rigging by deeply entrenched powerful interests – including the A.M.A. and the medical establishment.

 

2. Who’s Afraid of Budget Deficits?, by Jason Furman and Lawrence H. Summers

Harvard economists Furman and Summers both served in the Obama White House. Their essay in the March/April 2019 Foreign Affairs argues that standard textbook warnings against budget deficits are overwrought. Thus, by extension, Furman and Summers disagree that relentless healthcare cost increases will necessarily bring disaster, as feared by Fixing U.S. Healthcare. They point out that “real” interest rates (nominal rate minus inflation) have equilibrated around 1% and will hold there for the next decade. This is well below the real rate of 4.5 – 5% that prevailed from 1980 to 2000. As a result, “the U.S. government currently pays around the same proportion of GDP in interest on its debt, adjusted for inflation, as it has on average since World War II.” Nevertheless, they advise that mounting debt cannot be ignored. In particular, they recommend, “instead of passing unfunded legislation, Congress should pay for new measures with either spending cuts or extra revenues… If something is truly worth doing, it should be worth paying for.”

Comment: Furman and Summers’ zero-sum economic strategy underscores this blog’s claim about the competition between spending on healthcare and that on other worthy national priorities. Although their essay does not address healthcare costs thematically, they do reference healthcare costs in general and Medicare in particular as significant macroeconomic factors. They part ways with Fixing U.S. Healthcare blog’s projection of dire consequences if rising healthcare costs are left unchecked.

Conclusion:  Furman and Summers give us a reassurance that economic disaster is not imminent, contrary to the warnings of this blog. But they still admonish policy makers to exercise prudence in raising the revenue to pay for any new initiatives such as government-backed health insurance. They warn against adding any more deficit spending that would further deepen the national debt.

 

How to Pay for Universal Healthcare

How can the U.S. adopt universal government-backed healthcare insurance and at the same time pay for it, heeding Furman and Summers’ admonition?

Fixing U.S. Healthcare blog claims that premiums, deductibles and copays, like taxes, come out of consumer pockets. Likewise, the healthcare premiums paid by businesses as employee benefits are either passed along to consumers or taken out of profits. This blog sees no difference between out-of-pocket healthcare costs and out-of-pocket health insurance taxes. Switching from one to the other would be macroeconomically neutral. In fact, a simplified unitary healthcare finance system would yield immediate savings on administrative costs, as advocated by Dr. Blauchner.

This blog makes the further claim that once healthcare financing is consolidated, it would be possible to use the clout of the government to begin unrigging the system. Gradually, prices could be brought more in line with those in other advanced economies. Anti-competitive monopolies could be contained. Waste could be reduced. And eventually value-based services could be retained, and no-marginal-benefit services could be eliminated.

In a $3.5 trillion economic sector, saving even 5 or 10 percent could pay for a lot of green technology, robotics skills re-training, and infrastructure repair.

Now, take action

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Image Credits

Title:  Howard Bauchner MD

By: Jeffrey Beall [CC BY 3.0 (https://creativecommons.org/licenses/by/3.0)]

URL: https://commons.wikimedia.org/wiki/File:Howard_Bauchner.JPG

License: This file is licensed under the Creative Commons Attribution 3.0 Unported license. No changes were made in the image

 

Title: Lawrence Summers PhD

By: Chatham House

URL: https://commons.wikimedia.org/wiki/File:Larry_Summers_(6357735111).jpg

License: This file is licensed under the Creative Commons Attribution 2.0 Generic license. Image is flipped on its vertical axis to facing left to enhance layout.

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