DON'T PANIC! This blog is authored by Seniors at Aragon High School, San Mateo, CA.
Tuesday, April 22, 2014
Up, Up, and Away (The Rising Cost of Healthcare)
Hey guys, good news! The cost of health care is still growing faster than the overall economy, but it has started to rise at a slower rate: according to this New York Times article by Milt Freundheim, "Changes in the way doctors and hospitals are paid -- how much and by whom -- have begun to curb the steady rise of health care costs in the New York region. Costs are still going up faster than overall inflation, but the annual rate of increase is the lowest in 21 years."
Credit: Chris Howel. AP.
So, in conclusion, we have nothing to worry--WAIT CRAP. My bad! That article is from 1993. We still have a lot to worry about.
(Full disclosure: I fell for the same trick you just fell for. Check out this article by Eduardo Porter in the New York Times).
According to Porter's article, the cost of health care is currently 18 percent of the nation's GDP. According to The World Bank, the current US GDP is $2,475,781,990,521. That means we spend about $446 billion (with a "B") on health care annually.
According to this study done by the Brookings Institute*, health spending will continue to grow 1.2 percentage points faster than the economy in the next 20 years. Many experts are growing increasingly nervous, as the trend in spending had been downward before the last two years.
As the cost of health care goes up, spending on programs like Medicare and Medicaid will inevitably increase; that will require taxes to go up, or benefits to decrease. Medicare has apparently already tried to cut costs by using "cheaper generics to replace brand-name drugs" (Porter).
I've got a couple questions. 1) Why do you think the cost of health care has started increasing in the US? 2) Is 18% of GDP too much to be spending on health care? 3) Do you think that the rising cost of health care will (as I asserted) inevitably lead to cost increases in Medicare and Medicaid?
It'd be super cool to see other people bring in their own research/background knowledge: I'd love to see a comparison country by country.
*Here's a video of on of the Brookings Institute researches describing the study. The speaker, Justin Wolfers, asserts that "high-cost, pretty useless innovations" are what is driving costs up.
Hey Jack, unfortunately you copied the UK's GDP numbers instead of US GDP from the World Bank website. US GDP, according to them, is actually $16,244,600,000,000, which means we actually spend $2.9 trillion (with a "T") annually on health care if it's 18% of GDP.
As for why the cost of health care has been increasing, I think some of it can simply be attributed to an increase in the demand for health care. As more people are retiring and living longer, overall demand in the market for health care is increasing as more buyers are entering the market, and this drives prices up. Perhaps our nation's obesity and smoking epidemics also have something to contribute to this increased demand for health care.
Using the same World Bank website (http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS/countries?order=wbapi_data_value_2012+wbapi_data_value+wbapi_data_value-last&sort=asc), I found that health expenditures actually constitute a greater percentage of GDP for the US than any other country that the World Bank has data on. So yes, I do think 18% of GDP is too much to be spending on health care, when countries with higher life expectancy and basically universal health care like Canada and Sweden spend only 11% and 9.6% of their GDP, respectively, on health care. Even France and Germany, which have fairly substantial populations and high life expectancy, have health care expenditures equivalent to around 11-12% of GDP, still far lower than the US.
I definitely agree that increasing demand for health care is going to be an issue in the future. Additionally, administrative inefficiencies in the American health care system are well-documented. But studies have also shown that health care expenditures increase when the economy is performing better. This is particularly interesting because growth in the physician supply also follows the GDP. It’s also commonly stated that US health care is inferior to other countries because we spend more, and perhaps get poorer results. A lot of proponents of a single-payer health care model use this as an argument. But I recently looked into a book called “In Excellent Health” by Scott Atlas which argued that the performance metrics of health care systems generated misleading results. Another major point that the book brought out is that people suffering from the three major killers heart disease, cancer, and stroke are more likely to survive in the US health care system than many others.
That being said, there are still many, many things contributing to the high costs of health care in our system. Doctors are for-profit—many people seem to forget this fact, and it’s another reason that our values as a nation may not necessarily align with a functional single-payer system. Additionally, before recent years, our medical payment system was known as a “fee-for-service” model. The fee-for-service model pays physicians for procedures—thus the incentives are directed so that more procedures results in more payments. It was a gross setup of misaligned incentives. The shift now, is to more value-based care, in which physicians are paid more for performance rather than procedures.
So yes, there are many things wrong with the US health care system, but I wouldn’t say that health care costs are as out of control. Our perceptions are often heavily skewed by extreme anecdotal examples. Jack, I would actually like to question some of your statistics—or at least their presentation. The rate of growth in US health care expenditures per capita has only been on a downward trend since 2002. Additionally, I think your post’s headline may be partially misleading: health care costs have historically gone up with GDP—yes, they are increasing and have been increasing for decades; that shouldn’t be news. I can’t help but wonder whether the media has sensationalized the health care cost drama. I’d also like to add that health care expenditure growth outpacing GDP growth has been a normal trend for much of the last 50 years (the reported downward trend is a recent phenomenon). The article below has some very informative figures on that.
TLDR: I do agree that Medicare and Medicaid are in interesting positions with population growth and aging factored in, but new reforms are placing downward pressure on health care spending. Before we jump to conclusions of a health care cost crisis, we need to remember that we as a nation have unique values regarding what we demand from a health care system. We are not Canada or the UK or France. My other final point is that we often find ourselves stuck in the anecdotal quagmire, ignorant of actual statistics lying in front of us. Trends are going in a positive direction, and we really do have to wait and see what the ACA’s impact will be before we can truly judge the state of US health care.
I guess one of the main issues of healthcare is that nobody is actually willing to cut down on it, even if the costs keep ballooning. As Mr. Silton said, it's an issue that's become the third rail of American politics, simply because people vote against those who threaten their self-interests in a manner more consistent perhaps with the country as a whole. Tytler is frequently credited with the quote, "A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy." While the last section is perhaps not true, the problem certainly exists today where politicians simply promise everything to their constituents. Overall, I don't think meaningful entitlement reform can occur as long as people keep voting their own interests.
3 comments:
Hey Jack, unfortunately you copied the UK's GDP numbers instead of US GDP from the World Bank website. US GDP, according to them, is actually $16,244,600,000,000, which means we actually spend $2.9 trillion (with a "T") annually on health care if it's 18% of GDP.
As for why the cost of health care has been increasing, I think some of it can simply be attributed to an increase in the demand for health care. As more people are retiring and living longer, overall demand in the market for health care is increasing as more buyers are entering the market, and this drives prices up. Perhaps our nation's obesity and smoking epidemics also have something to contribute to this increased demand for health care.
Using the same World Bank website (http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS/countries?order=wbapi_data_value_2012+wbapi_data_value+wbapi_data_value-last&sort=asc), I found that health expenditures actually constitute a greater percentage of GDP for the US than any other country that the World Bank has data on. So yes, I do think 18% of GDP is too much to be spending on health care, when countries with higher life expectancy and basically universal health care like Canada and Sweden spend only 11% and 9.6% of their GDP, respectively, on health care. Even France and Germany, which have fairly substantial populations and high life expectancy, have health care expenditures equivalent to around 11-12% of GDP, still far lower than the US.
I definitely agree that increasing demand for health care is going to be an issue in the future. Additionally, administrative inefficiencies in the American health care system are well-documented. But studies have also shown that health care expenditures increase when the economy is performing better. This is particularly interesting because growth in the physician supply also follows the GDP. It’s also commonly stated that US health care is inferior to other countries because we spend more, and perhaps get poorer results. A lot of proponents of a single-payer health care model use this as an argument. But I recently looked into a book called “In Excellent Health” by Scott Atlas which argued that the performance metrics of health care systems generated misleading results. Another major point that the book brought out is that people suffering from the three major killers heart disease, cancer, and stroke are more likely to survive in the US health care system than many others.
That being said, there are still many, many things contributing to the high costs of health care in our system. Doctors are for-profit—many people seem to forget this fact, and it’s another reason that our values as a nation may not necessarily align with a functional single-payer system. Additionally, before recent years, our medical payment system was known as a “fee-for-service” model. The fee-for-service model pays physicians for procedures—thus the incentives are directed so that more procedures results in more payments. It was a gross setup of misaligned incentives. The shift now, is to more value-based care, in which physicians are paid more for performance rather than procedures.
So yes, there are many things wrong with the US health care system, but I wouldn’t say that health care costs are as out of control. Our perceptions are often heavily skewed by extreme anecdotal examples. Jack, I would actually like to question some of your statistics—or at least their presentation. The rate of growth in US health care expenditures per capita has only been on a downward trend since 2002. Additionally, I think your post’s headline may be partially misleading: health care costs have historically gone up with GDP—yes, they are increasing and have been increasing for decades; that shouldn’t be news. I can’t help but wonder whether the media has sensationalized the health care cost drama. I’d also like to add that health care expenditure growth outpacing GDP growth has been a normal trend for much of the last 50 years (the reported downward trend is a recent phenomenon). The article below has some very informative figures on that.
http://www.whitehouse.gov/sites/default/files/docs/fact_sheet_implementing_the_affordable_care_act_from_the_erp_2013_final1.pdf
TLDR: I do agree that Medicare and Medicaid are in interesting positions with population growth and aging factored in, but new reforms are placing downward pressure on health care spending. Before we jump to conclusions of a health care cost crisis, we need to remember that we as a nation have unique values regarding what we demand from a health care system. We are not Canada or the UK or France. My other final point is that we often find ourselves stuck in the anecdotal quagmire, ignorant of actual statistics lying in front of us. Trends are going in a positive direction, and we really do have to wait and see what the ACA’s impact will be before we can truly judge the state of US health care.
I guess one of the main issues of healthcare is that nobody is actually willing to cut down on it, even if the costs keep ballooning. As Mr. Silton said, it's an issue that's become the third rail of American politics, simply because people vote against those who threaten their self-interests in a manner more consistent perhaps with the country as a whole. Tytler is frequently credited with the quote, "A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy." While the last section is perhaps not true, the problem certainly exists today where politicians simply promise everything to their constituents. Overall, I don't think meaningful entitlement reform can occur as long as people keep voting their own interests.
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