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Making Sense of Healthcare Reform

As a nation, we spent over $2.2 trillion on healthcare in 2007 compared to costs of $714 billion in 1990 and $253 billion in 1980, an increase of over 3 and 8 times respectively according to a background brief from the Henry J. Kaiser Family Foundation. That amount is very large and represents a shocking growth in expenditures, but it is a figure hard to comprehend until we put it in context.

Comparatively, according to the People’s History website, the average cost of a new car in 2000 was $24,750; in 1990 was $16,000; and in 1980 was $7,210. The price in 2000 represents an increase of about 1.5 times and 3.5 times from 1990 and 1980 respectively. If prices for automobiles rose at the same rate as healthcare, a new car in 2000 would have cost $57,680. Few of us could own cars now.

Rapid growth in healthcare cost puts a strain on families as well as businesses and governments. More individuals are uninsured, especially the self-employed and people working for small businesses, and employees’ shares of premiums for insurance from employers have risen dramatically (119 percent since 1999). Wages have grown much more slowly, causing many to find payment of these premiums difficult.

The growth in the cost of insurance is not the only issue causing stress on the system. According to an article in the August 2009 issue of the American Journal of Medicine, Medical Bankruptcy in the United States, 2007: Results of a National Study, a bankruptcy in the aftermath of illness occurred every 90 seconds, and over 60 percent were related to medical costs. In three-quarters of the cases, the families were insured. When an individual becomes disabled through illness, twenty-five percent of insurance companies cancel coverage immediately, and within a year, another twenty-five percent cancel it.

In addition, many people who could pay for insurance cannot get it due to pre-existing conditions. Diabetes and high blood pressure are two conditions that insurance companies might use as a reason to deny coverage. Also, individuals at high risk for other reasons may have trouble finding coverage. For example, an individual with a known family history of cancer may not be able to find a company willing to provide insurance.
The uninsured, as opposed to persons with health insurance, receive:

  • Less preventive care
  • Diagnoses at more advanced disease states
  • Less therapeutic care once diagnosed, resulting in higher mortality rates

The uninsured frequently use emergency rooms to obtain healthcare when they can no longer do without care, at a much greater cost to society. Hospitals and physicians incur billions of dollars in bad debt or uncompensated care each year, including 55 percent of emergency care. According to the American College of Emergency Physicians, nonfederal community hospitals provided $40.7 billion in uncompensated care in 2004 compared to 6.1 billion in 1983.

Reasons for Growth in Healthcare Costs
Kaiser’s background brief also discusses some reasons for the growth in costs: innovation, chronic disease, aging of the population, and administrative costs.

Some analysts think that the costs of state-of-the-art prescription drugs and new medical technologies may be the primary reasons that spending on healthcare has increased. We may or may not support the prices that industry charges to recoup its costs and obtain a profit. Regardless, the availability of these products may cause consumers to demand them even though they may not be the most cost-effective choice. Also, some products treat conditions previously untreatable, initiating new categories of spending, and others improve medical outcomes at a greater cost, increasing spending overall.

Two other causes of increased costs may be our longer life spans and the greater prevalence of chronic illnesses. These trends have impacted the nature of healthcare. According to the Centers for Disease Control and Prevention, over 75 percent of national health expenditures result from treatment of chronic disease. Also, the larger the older population, the greater the demand for long-term care, such as nursing homes. The aging of the population will contribute to increased costs in the future. According to the Congressional Budget Office, however, analysts have indicated that aging has contributed minimally in recent years to the high growth rate of spending on healthcare.

Finally, administrative expenditures, such as marketing and billing, contribute about 7 percent of
costs for healthcare through private insurance while administrative costs under the Medicare program are under
2 percent.

Solutions
With the debate over reform raging now, we can find it difficult to understand what solutions are on the table. Some prefer a stronger role for governmental negotiation and some rely on market-based models that rely on competitive forces.

Kaiser’s background brief offers a review of some solutions being considered:

  • Investments in information technology (IT) — Promotion of a greater use of technology, such as electronic medical records (EMR), to facilitate sharing of information and decrease costs.
  • Improvements in quality and efficiency — Initiatives that make healthcare more efficient and, therefore, more cost-effective and that provide higher quality.
  • Adjustments to providers’ compensation — Change from a system of compensation that pays physicians a given fee per procedure or test to a system that rewards value and good medical outcomes rather than volume of care.
  • Governmental regulation — An approach that would build on the success of Medicare in controlling per capita spending over its history.
  • Prevention of disease — An approach that would provide incentives to individuals to engage in wellness and prevention, resulting in a decrease in the prevalence of chronic conditions such as diabetes and cardiovascular disease.
  • Increases to consumer involvement in purchasing — Efforts to provide greater price transparency to make consumers more price sensitive and more prudent purchasers.
  • Alterations in the tax preference for employer-sponsored insurance — Elimination of or change to the tax exclusion for employer-sponsored healthcare to help finance the costs of expanding coverage.

Conclusion

While no easy answer seems to exist on the proper way to reform healthcare, we can be sure that it will affect us in some way. We do seem to have some common ground in shared beliefs that we must somehow reduce healthcare costs and that healthcare must be available to everyone. As an individual, the best thing you can do is become informed and get involved in the process. For more information about the debate on reform, see the following websites:

12/29/2009

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