Monthly Archives: March 2012

How to expand the health care dollar

In the last 30 years health care spending has gone up by almost 30 times, to an unmanageable 2.6 trillions dollars today. Such economic burden is as unbearable as it is outrageous.

What drives health care costs? Where does all that money go?

Here is a breakdown of the health care dollar. Apparently as it turns out, most of the health care dollar goes in patient hospitalisation and physician services.

If we were able to cut down on health care expenditures to half- which would still be at the OECD expenditure average- we would save enough to wipe out the entire federal budget deficit at one fell sweep. However with the kind of political and social climate that exists in the country today, any attempt at a responsible debate on health care is met with a dogged head-in-the-sand rhetoric.

As someone eminently enlightened painfully suggested a while ago, it may require a force of inevitability for the country to change course and do a radical rethink on health care expenses. Any change will have to be forced by an eventuality like a demoralising depression or insolvency to force people to understand that continuing as usual is not possible.

As a fore thought, where could all these cuts come from?.

The chart above easily explains where the cuts must come from: hospital costs, and associated costs  will follow on the way down. And although drugs and device costs appear to be smaller percentage of the pie above, considering that they are a rather minuscule component of health care services delivery,  their relative contribution to the cost are larger. And worse off, such costs are escalating beyond control faster than any other cost group.

Furthermore, as patterns of illnesses change from short term, acute illnesses to chronic illnesses that tend to linger on, the role of hospitals in treating these have to be re-evaluated. Are chronic conditions like heart failure really managed well in the hospital every fifteen days that there is an increase in severity, or can they be managed well enough in the community? That would ensure a much lesser cost to the health care system, and a much better care experience for the patient as well.

A lot of the care that is provided in the hospital is wasteful and inappropriate; the reason is the american hospital industry is geared toward demand creation, not meeting appropriate demand. And when it comes to health care, where the provider himself can often define what demand is, creating demand for services is not a terribly hard thing to do. Furthermore, even when the provider does not benefit financially with this artificial creation of demand, the legal environment in which we operate, heavily encourages unnecessary service utilisation.

To top it all, there is hardly any incentive or reason, neither to the consumer, nor to the care provider, to utilise less services and bring the costs down.

Therein is a recipe for a perfect disaster, a colossus of spending, an all sucking financial black hole is formed right there.

Taming healthcare: here’s how

The New York Times recently published an interesting interview about how to tame runaway health care spending. The subject of that interview is the revered Stanford health economist Victor Fuchs. Mr Fuchs has real clear headed solution as to how to solve America’s runaway health care spending.

Now don’t get too excited; this may be a pill that works, but this is one bitter pill to swallow. This is in fact something we all have known in the deep dark recesses of our minds, we just did  not have to courage to confront it and the authority to express it. Now that Fuchs has laid bare the inevitability of the idea, one can just hope the idea stays alive in the realm of public debate.

Fuchs makes a very commonsense solution; that we do valued added taxation for the entire health care coverage for the entire population based on income to cover for basic health care. Any additional health care insurance that individuals may want to get will have to be bought at the private market using after-tax dollars. People will pay proportionate to the income so that those who are poor do not get left out in the scheme.

The hard question that’s yet to be answered is weather healthcare is a societal good that society must ensure at a certain basic level or is it just another tradable service at the market place that profit motive will best take care of. In America today we are pretending that it is the latter when it in reality has been very much the former. On the one hand we focus that private insurance will best take care of our health needs, when we know on the other that one sixth of the population is without insurance today; and we end up subsidising, often inadequately, their health care one way or the other, as not doing so is not congruent with our value system. In the end we end up with neither the competitive advantage of a free market place nor the moral authority of a just and equitable society; furthermore we manage to bloat health care expenditures (that is a fodder for another blog post altogether) to such unsustainable amounts that we hold the entire economy to ransom.

Suggesting going to to a taxation based single payer system in today’s America is revolutionary at best and blasphemous at worst, depending on how we interpret the idea. Either way it is equally disturbing and disruptive of business as usual.  The thing is, this looks like an idea whose time has arrived.

We have choices we can make; we either overhaul health care and wipe out the entire fiscal deficit or do not do it and whatever we do as short fix the system will just be tantamount to plugging the bare holes when the entire dam is about to give away. Fuchs also makes a rather startling but very true remark that any meaningful change will not come from inside the policy circles and will have to be forced by external eventualities like an economic depression or countries like China refusing to buy American bonds.

Until that happens we can have visions of an improbable utopia that the market gods will fix all that is wrong with healthcare, or get back on our senses, suck up to our miseries and own up to them by cutting down on the largesse and rationing healthcare. In case you still think that is blasphemous to the capitalistic spirits of America, here is the news: we are already doing it, while we are being hypocritical about it and proving ourselves to be idiots all along the way.