A Financial Argument For Universal Healthcare In The US

It’s all about efficiency, not ideology

Most of the arguments regarding the establishment of a universal healthcare system in the US are ideological. They focus on broad questions about the appropriate role of the federal government in addressing citizens’ needs, rather than the practical outcome that can be expected if a given policy is implemented.

I would argue that it’s time to put aside such ideological battles and get serious about spending healthcare dollars effectively. If we hope to tame healthcare expenses, deliver high-quality care and serve the greatest number of people, we have to get practical. And the truth is that there are completely practical, non-ideological reasons to institute universal healthcare access in the US.

We just have to stop bickering and figure out the mechanics.

A misshapen system

For decades, virtually every major law and regulation impacting the healthcare industry has been reactive, addressing short- and medium-term issues. As a result, the US healthcare system is extremely uncoordinated and fragmented, a misshapen mess barely navigable by professionals, much less patients. The current system lurches back and forth as these rules change, rather being guided by a coherent vision for the future of the broader US health system.

Fueled in part by these inefficiencies, healthcare spending has continued to expand, and as of 2017, according to the Centers for Medicare & Medicaid Services (CMS), accounted for 17.8% of the US Gross Domestic Product. This translates to $3.2 trillion in spending or $9,990 per person. (Research appearing in Health Affairs also notes that part of this growth can also be traced to expanded access to insurance under the Affordable Care Act, but that deserves a separate discussion.)

At present, meanwhile, there seems to be little hope that spending will slow down. In fact, the US Department of Health and Human Services predicts that healthcare spending will rise 5.8% each year between this year and 2025. The agency also projects that when final numbers are tallied for 2016, total spending will hit $3.35 trillion, or $10,345 per person, despite slower growth of 4.8% expected for last year.

While people can put off some elective healthcare services, virtually everyone will need access to medical care at some point regardless of their means. So “market forces” won’t save us.

Of course, according to traditional economic theories, competition between providers, insurers and suppliers should be helping to control these costs. But for complex reasons, competition offers at best a weak check on such spending.

Perhaps the most obvious reason healthcare prices keep climbing can is that if demand stays high regardless of how products and services are priced, providers have no reason to lower prices. (Who wouldn’t raise rates if buyers will pay them?) And that’s how healthcare works. While people can put off some elective healthcare services, virtually everyone will need access to medical care at some point regardless of their means. So “market forces” won’t save us.

Another attempt at controlling healthcare costs is the widespread introduction of high-deductible health plans. Unfortunately, this is unlikely to address structural problems in healthcare. While they are promoted as a means of tempering voluntary healthcare spending, HDHPs merely impose barriers to care. People need healthcare when they need it, and such deductibles result in people getting much higher-cost treatment later, generating further systemic inefficiencies in the healthcare system.

Ultimately, healthcare costs are on their own trajectory, particularly with the growth of the senior-aged population with its predictably broader healthcare needs. Also, just 10% of patients account for almost two-thirds of spending, and 5% account for nearly half of the spending in a given year, which means that targeting the other 90% is not going to help lower costs that efficiently. Therefore, efforts to suppress spending by engineering in disincentives to use the system are likely to fail.

Meanwhile, with costs for this top 10% averaging of $54,000 per person per year, few could pay for this themselves. On the other hand, few policy-makers would dare suggest excluding them completely from the system, as most of those patients are our parents and grandparents.

Fundamental ACA flaws

At this point, we come to the Affordable Care Act which, though it provided important opportunities for coverage for millions, is still fundamentally flawed due to the economics of the healthcare industry. In short, while it may be a beneficial kludge, kludge it remains.

The Affordable Care Act attempted to solve the problem of paying for the sickest 10% by requiring everyone else — including the healthiest 50%, for whom costs average under $700 per person — to buy some form of health insurance. This requirement generated a great deal of resistance from those with few health costs. Eventually, the Trump Administration got the requirement thrown out, and now it’s unclear how ACA plans will finance the costs of caring for older, sicker patients.

However, despite attempts to lower insurance costs by pitting health plans against one another, premiums have continued to increase dramatically.

Still, the law has still been something of a success. Not only has it decreased the number of people without health insurance in the U.S. to below 10%, program costs have been less than expected, though it should be noted that healthcare cost growth has slowed sharply in recent years as well.

However, despite attempts to lower insurance costs by pitting health plans against one another, premiums have continued to increase dramatically, up 56% in Minnesota, 40% in North Caroline, 53% in Pennsylvania and 116% in Arizona in 2016. What’s more, they were predicted to jump an average of 22% this year.

Of course, the immediate effect of such premium increases consumers has been cushioned somewhat by the tax credits provided for by the law to lower out-of-pocket expenses for consumers. Still, with consumer tax subsidies expected to hit an average $870 a year per person, and enrollment expanding, an argument can be made that this growth in expenses is unsustainable. In 2016, exchange subsidies cost $56 billion, and if the ACA is still in effect in 2019, such spending may exceed the law’s cap of 0.504% of GDP. In that case, some enrollees will end up covering more than expected.

That being said, repealing the ACA and replacing it post-haste is unlikely to produce results. As flawed as it may be, it probably represents the best consensus possible given that ideological opposition to instituting a universal healthcare scheme is deeply entrenched and uncompromising at present.

In other words, to paraphrase Winston Churchill, the ACA is the worst form of national healthcare except for all those other forms that have been tried.

Bang for the buck

All this being said, deliberations over the future of the Affordable Care Act are something of a sideshow. Regardless of what happens with the ACA, it is likely to prove a stopgap measure, as little can be done to change current healthcare cost drivers if our market-driven system remains unchanged. And under these circumstances, healthcare costs are likely to remain a crushing burden on our national economy for the foreseeable future. The only way to get out of this hole is to get more bang for the healthcare buck.

For that reason, I believe a very strong argument can be made for providing national coverage. More importantly, I believe such an argument crosses the ideological divide and relies on observable facts.

Regardless of what happens with the ACA, it is likely to prove a stopgap measure, as little can be done to change current healthcare cost drivers if our market-driven system remains unchanged.

One concrete reason to consider universal coverage is that by 2025, government at all levels should account for 47% of all healthcare spending, including Medicare, Medicaid and the VA healthcare system. This includes paying the exorbitant costs of patients that may be considerably sicker than they might otherwise have been once they are approved for Medicaid or age into Medicare.

While it’s difficult to pin down exactly what lack of healthcare access costs these programs, it’s likely to be considerable, as lawmakers are already acknowledging. In fact such logic — that maintaining continuous healthcare coverage is important to controlling costs — is built into a number of ACA replacement proposals, which would only cover consumers’ pre-existing conditions if they maintain their existing policies.

In making the case for a universal healthcare alternative, my assumption is that “Medicare for all” would be a reasonable vehicle for such coverage, for a multitude of reasons.

Among the strongest arguments for extending Medicare to all is that it is measurably more efficient than private insurance, according to data from the non-partisan Congressional Budget Office and CMS.

For example, Medicare spending rose by an average of 4.3% each year between 1997 and 2009, while private insurance grew at a rate of 6.5% per year, CMS notes. Also, the CBO predicts that private insurance costs will continue to grow faster than Medicare over the next 30 years — and the private insurance equivalent of Medicare would cost almost 40% more in 2022 for a typical 65-year-old.

On top of all this, CMS estimates that Medicare administrative costs are only about 2% of operating expenditures, while private insurers estimated in 2011 that they spent 17% of revenue on administrative costs. Think about it, folks: Wouldn’t that lost 15% pay for a lot of healthcare?

Financial benefits

Once we assume that a single insurance body covers all Americans, the financial benefits of providing national healthcare become even more apparent.

As illustrated by the Affordable Care Act, underwriting health insurance risk for all becomes steadily more feasible as a wider mix of insureds enter the pool. In other words, larger groups spread risk, making the controversial coverage demands of the Affordable Care Act unneeded.

Private insurers will never be able to have a similar impact [to CMS] on cost and efficiency

More importantly, for this argument, consider the clout that a single unified Medicare plan for all would have. At present, roughly 55 million Americans are covered by Medicare, which accounts for 20% of all US healthcare spending. Given the cash flow generated by its 65-year-old and above insureds, who typically need more services than younger people, Medicare policies have a very substantial impact on providers, including their pricing of services and pursuit of efficiency and quality improvement efforts.

This effect could be multiplied dramatically if all 324 million people in the United States were covered by a single, experienced and demonstrably efficient entity like the Medicare program. Private insurers will never be able to have a similar impact on cost and efficiency, particularly given ongoing, massive mergers between giant industry players which arguably reduce competition.

It’s the efficiency, stupid!

Ultimately, the realities of healthcare costs, and the impact those costs are having on our economy and collective well-being, affect people on every point of the political spectrum. We need to get beyond parties and look at numbers. When it comes down to it, providing healthcare isn’t about defending a political position. To coin a phrase, it’s the efficiency, stupid!

I urge opponents of universal healthcare to consider that we could go a long way toward taking care of everyone by pooling the extraordinary sums we already spend — and using those dollars more effectively. It’s time to take action on this. No nation can afford infinitely rising healthcare costs, a suppressed economy, and a sick citizenry.

Anne Zieger has been a writer for almost 30 years. She's interested in life, the universe and everything.

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