Saturday, September 12, 2009

Topic 3 of 3: Healthcare Costs

I will now focus on cost, the last of our pillars of healthcare reform. First, I feel compelled to point out that increases in healthcare spending are not necessarily bad. America spends more money on healthcare because it is a wealthy nation and has the resources to do so. We have achieved the basic necessities of life and now have more income available to spend on higher level societal needs such as our health. However, most would agree that the current costs are unsustainable, and we may not be getting the full bang for our buck. The following statistics add credence to the cost concern.

- National healthcare expenditures1

- 2006 : $2.1 trillion

- projected 2009 : $2.5 trillion

- an increase of 18.3% over that period

(I chose 2006-2009 to make a point later)

- Expenditures as percent of Gross Domestic Product have increased from 13.8% to 17.6% from 2000 to 20091

- Average increase in healthcare costs from 2008-2018 projected to exceed rise in GDP by 2.1% annually1

- Medicare Trust Fund is expected to be turning to cash flow deficits beginning in 2016 2

- fund assets exhausted by 20372

- Private insurance premiums for families have risen 17.2% from 2006 to 20093

And, of course, we have been continually inundated by those quoting the daily number of bankruptcies due to healthcare costs, the negative impact to businesses…we are all well aware of this, and while we may disagree on some of the numbers being thrown out, none would argue that we can and should do better.

So if we accept the notion that healthcare costs are in need of control, then we can move on to determining the best course of correcting the cost issue.

If we want to first look at a government-based intervention, then we should ask ourselves a fundamental question. Do we have historical or current models of government intervention in healthcare similar to those that are the crux upon which the current plans are being developed by this administration? For if we do have these models, wouldn’t it be foolish to not evaluate the current plans in the context of these models? Shouldn’t we determine their effectiveness in reaching the goal of decreased cost? Remember the saying about those who do not learn from history. Fortunately, we do have models to evaluate.

I am going to hearken back to the Massachusetts model once again. For those who are not aware, it is a public option model adopted by the state of Massachusetts in 2006. It has an individual and employer mandate, it set up an insurance exchange and it used expansion of Medicaid and subsidies to broaden insurance coverage. While the state does not run the insurance, it does highly regulate it through the Connector (the Massachusetts Insurance exchange). Subtle differences will likely arise between it and the legislation coming out of this administration, but it gives us the ability to evaluate if a government-financed stake in healthcare delivery can actually lead to a decrease in cost. So what have we seen with regard to the cost numbers coming out of Massachusetts since the initiation of this plan? And again, these are numbers from the Massachusetts website, from CMS, not my opinions, but numbers.

- State-only healthcare expenditures have increased 28% since program’s inception in 2006

- Total state healthcare spending has increased 42% since 20064

- Federal government allocated $360 million to Massachusetts in 2008

$1.5 billion granted over next 3 years

- As a comparison, national healthcare expenditures (meaning not using this plan) have increased 18.3% since 20061

- Per capita healthcare spending in Massachusetts has increased 33% more than national average5

- Private health insurance premiums have risen over 9% annually on average during the last 3 years compared to 6.7% nationally 6,7

- Supporters suggested that the reforms would reduce the price of individual insurance policies by 25–40 percent 8

So in looking at these simple numbers above, we see that healthcare costs have increased 2.3 times more in Massachusetts when compared to the rest of the US since 2006. If this plan had been widely released on the US at the same time, then our national healthcare expenditures would be $2.98 trillion dollars, not $2.5 trillion. That statement speaks for itself – we would be in serious trouble. And if you look at the graph above, is there anything in that cost curve that looks positive? Is that the cost curve that we are shooting for?

An equally concerning point in the numbers above is that this plan has also negatively impacted the private insurance market. The cost for private insurance has also increased at a 34% faster rate in Massachusetts than the rest of the US. Not that the cost was 34% higher, but that its rate of rise was 34% greater. So even if you have fall outside of the need for state assistance, your insurance bill is increasing.

Another question that arises from the information above: if the federal government is filling in anywhere from $360 to now $500 million to cover part of the expense, then what will happen if a similar plan goes nationwide? Who will be there for our backstop to give us additional dollars?

Even with increased taxes on cigarettes (a tax mostly affecting low and middle income wage earners), an additional $100 million in fees on private companies signed by Governor Patrick in 8/2008, changes in the compliance laws for the business mandate that increases costs for small businesses, increased federal government spending (the list goes on and on), the state continues to struggle to cover the increased spending.9

This problem of cost containment with government intervention in healthcare is not specific to Massachusetts. I will not go into depth here, but please look up Maine, Tennessee, Oregon, Hawaii, Vermont, Minnesota - a list of states that since 1988 have enacted reforms aimed at achieving universal coverage.

- All offered new government subsidies and/or expanded Medicaid: ALL FAILED

- “There is little reason to think that the current Massachusetts reform, or a national plan modeled on these state reforms, would have any better long-term success.”10

This is a quote from a group of Harvard physicians who understand that the current approach is not going to be successful. I included it because they are far from being labeled as independent or conservative thinkers and instead desire a single-payer system. And they realize that repeating failed past policies will not work.

I am not going to delve too far into our central government’s ability to control costs. If most of us applied a little common sense, I do believe that we would agree that the government controls costs very poorly. We keep hearing about the $500 billion in waste in Medicare – that does not sound like spectacular cost control.

I will be anecdotal for a second but how many of us remember joking about toilets and screws and wrenches going for tens of thousands of dollars? If a bank was unable to control costs and was wasting that kind of money, I doubt too many of us would be running to increase our savings in that bank. Yet we for some reason blindly believe that the government will change its ways despite decades of similar practices under the control of both Republicans and Democrats.

But to bring this back to numbers, I thought this graph below is interesting. The cost per patient has risen more quickly in the government programs than those in the private sector. The accompanying article goes through the arguments that I am sure will arise, so please read it and I will not rehash them here.11

If we need further proof, I say look no further than the bankrupt Medicare. And look at Medicaid funding. And look at Social Security. And look at the Post Office. Remember that little saying about fool me once, shame on you, fool me twice, shame on me.

I do look forward to the discussions regarding the best way to control costs. I am sure we will delve into competition, profits, overhead expenses of the government versus private industry, and more. This was to be a small view into “research trials” that have already been performed and by my estimation, based on numbers, have failed.

To finish this post, I’d like to us the following medical concept to explain my concerns.

Let’s say that I am setting up a research trial looking for a cure for prostate cancer and I made drinking sweet tea (this is Atlanta) the crux of my cure. If I had patients return in 6 months for follow up, and I found that instead of curing them, the cancer had instead progressed, then I would not then take sweet tea and make it the crux of a second trial. It makes no sense, and worse than that, it would be unethical. It’s been proven not to work. It is no different than once again applying increased government intervention, a concept that has been trialed and shown to fail, to model effective healthcare reform. We have evidence to support the contrary.




3. “Survey of Employer Health Benefits 2007,”Kaiser Family Foundation,; “Survey of EmployerHealth Benefits 2008,” Kaiser Family Foundation,; “Hewitt Data Reveals Little Change in U.S. Health Care Cost Increases for 2009,” Hewitt

4. Kevin Sack, “Massachusetts Faces Costs of Big Health Plan,” New York Times, March 16, 2009.

5. Centers for Medicare & Medicaid Services (CMS), Office of the Actuary, National Health Statistics Group, 2007.

6.“Health Benefits Survey 2007,” United BenefitsAdvisors,—employees-paying-most-for-health-care-plans-10689-2/. John McDonough, “Massachusetts Health ReformImplementation: Major Progress and FutureChallenges,” Health Affairs (June 3, 2008): w285–97.“2009 CommCare Premium Contributions and Affordability Schedules,” March12, 2009,1,Slide 1.

7.“Survey of Employer Health Benefits 2007,”Kaiser Family Foundation,; “Survey of EmployerHealth Benefits 2008,” Kaiser Family Foundation,; “Hewitt Data Reveals Little Change in U.S. Health Care Cost Increases for 2009,” HewittAssociates LLC,

8. Massachusetts Healthcare Reform” (Power-Point Presentation, Office of the Governor, April10, 2006).




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