We’ve been hearing a lot about the so called “healthcare debate” in the past couple of decades, but little seems to change. The primary discussions always center on funding—how will we pay for the kind of healthcare we want, need and have a “right” to?
Here’s my thinking on the healthcare issue: until our leaders—from what ever quarter they originate—come clean and begin discussing what healthcare services we’ll have to give up in order to have affordable healthcare, the entire issue is dead in the water. Funding healthcare isn’t the problem—controlling costs is. Is rationing the future of healthcare?
I’m not betting against it.
To paraphrase Ross Perot, that’s “the crazy aunt in the attic no one wants to talk about.” It’s the 21st Century’s version of the “third rail of politics—touch it and you die”. It’s excluded from the debate and treated as if it isn’t necessary.
But I think rationing is the only way out of the healthcare crisis, and the only reasonable course we have to provide more affordably priced health insurance policies.
The current system is excluding too many peopleAccording to the 2010 Census, nearly 50 million people have no health insurance in the US. That works out to be one out of every six people in the country. They’re doing without coverage either because they can’t afford the cost of private coverage, or because they have medical conditions that make getting insurance either prohibitively expensive, or totally impossible.
Now if you have health insurance you may not be terribly concerned that so many are going without it, but rest assured, your health insurance premiums are being affected by the millions who aren’t covered. The cost of paying for care given to the uninsured is passed on to those who do have coverage in the form of higher charges for medical services performed. If healthcare providers can’t collect fees for service from the uninsured, they raise the price of services across the board to cover the loss. That means higher medical costs and higher insurance premiums for everyone.
The sheer number of uninsured in the US is a gaping hole in the system that’s getting bigger each year. Obamacare, to be fully implemented on January 1, 2014, will supposedly address this issue. But how much more will it cost to provide unlimited care for an additional 50 million people?
The impact of healthcare on the US economy
We have serious, structural problems in the US economy, and one of them is the cost of healthcare. According to the chart below, issued by the Organization of Economic Cooperation and Development (OECD), US healthcare expenditures are eating up more than 16% of the nations total economic output (gross domestic product, or GDP). The numbers in the chart—applicable to 2008 but released by the OECD in 2010—have reportedly gotten worse since and now show healthcare costs to be consuming more than 17% of GDP.
Notice from the chart that healthcare costs consume proportionately more of our GDP than they do the GDP of any of the other industrialized countries, and by a wide margin. In fact healthcare costs in the US, in general, are about twice the average for the industrialized world. That gives US based businesses a competitive disadvantage compared to our major trading partners. But it gets worse.
The chart reflects healthcare costs-to-GDP ratios for rich countries—the difference between the US and developing countries is far worse. Much of the manufacturing production that was once here has been shipped off to developing countries, who not only have much lower wage costs, but also far lower healthcare costs. This means we can fully expect even more jobs to move to lower cost countries.
We can continue the present course of expanding healthcare—always demanding more and better care—but it will continue to degrade the economy, and that will translate into a continuing loss of jobs.
The current healthcare system is completely unsustainable
I don’t want to throw too many numbers out, but numbers are the only way to properly illustrate the cost trends in healthcare. So here come some more numbers…
In 1980, the US GDP was approximately $3 trillion. By 2010 it had reached nearly $15 trillion—which is to say that the US economy grew by a factor of five over a period of 30 years.
In 1980, US healthcare expenditures were $256 billion, representing about 8% of the total economy.
By 2010, total healthcare expenditures hit $2.6 trillion, which is to say that healthcare spending increased by a factor of ten over a 30 year period. Healthcare as a percentage of the economy increased to more than 17%.
Numbers don’t lie, so here’s what we know: while the overall economy grew by a factor of five in the last 30 years, healthcare expenses have grown by a factor of ten. That’s double the rate of growth in the economy. In that same time frame, healthcare as a percentage of the total economy grew from 8% to 17%–which is also a doubling.
In the next 30 years, will we be able to absorb another doubling of healthcare costs from 17% of the economy to 34%? That kind of growth in healthcare—and the economic fallout it will produce—is completely unsustainable.
The case for healthcare rationing
The problems of the healthcare system aren’t going to be fixed by making a few tweaks here and there, or by half-hearted attempts at superficial “reform”.
There are two constructive ways to approach this: continue to increase funding, or make serious efforts at cost containment—which ultimately will lead to rationing.
Increasing funding is the route we’ve taken thus far, and it’s the course that’s gotten us into the current conundrum. Increased funding drives higher medical costs, which leads to demands for still more funding. How this will continue in a nation whose national debt is larger than its economy remains to be seen, especially given that the population is getting steadily older.
That brings us to cost containment.
There’s no way to cut healthcare costs without forcing us all to give up benefits—a.k.a., rationing. This can be done either by capping how much health insurance will pay for any given therapy or, at the extreme, by restricting therapies except under very specific conditions.
As “unfair” as that seems on the surface, something has to be done to end the cycle of healthcare/health insurance inflation. That inflation has gotten so entrenched in our economy that no one even questions it. Like housing prices prior to 2007, we expect that healthcare prices will always go higher as though it were a natural phenomenon. But as we found out in the housing meltdown, a tree truly can’t grow to the sky. Sooner or later, prices reach nosebleed levels and set off a crisis. I believe we’re on the cusp of that right now with healthcare. Healthcare is eating up a disproportionate, unsustainable (17%) level of the economy and still 50 million people are without coverage.
Whether it’s legislated or it comes upon us by disaster, rationing is in the future of healthcare.
My thinking is that until the dialogue on healthcare begins to incorporate workable cost cutting, the debate is mostly an attempt to defend business as usual. And we know where that’s going.
What do you think about healthcare rationing? As much as the public doesn’t want to hear it, do you think it’s inevitable?