Health care: Just another industry or something different?

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Health care: Just another industry or something different?

Health care: Just another industry or something different?

US health care is big business: Spending will exceed $2.7 trillion in 2012. Since 2000, annual costs have grown by 7 percent; through 2020 spending is forecast to grow 6 percent a year.

Health care in the United States is a big business: spending will exceed $2.7 trillion in 2012—that’s 18 percent of the GDP and $9,000 per person. Since 2000, annual costs have grown by 7 percent; through 2020, the Congressional Budget Office forecasts spending growth at 6 percent per year.

Since the passage of the Affordable Care Act (ACA) in March, 2010, health reform has been in the spotlight. Its proponents call attention to disparities in access and outcomes between those with insurance and the 50 million people without. Opponents cite health costs as the issue, not access, and they favor market-based approaches rather than a government-driven overhaul.

Last March, after 11 Circuit Court rulings on the constitutionality of the ACA, the Supreme Court heard six hours of oral arguments focused on fundamental questions about the ACA. Is the individual mandate constitutional? Does the federal government have the authority to force states to enroll individuals in Medicaid programs based on its definition of eligibility? On June 28, it announced its rulings. By a 5-4 vote, yes, the individual mandate is constitutional under the taxing authority of the constitution. By a 7-2 vote, no, the federal government does not have the right to define eligibility and force states to comply.

In the four opinions written by the justices explaining their decisions, a fundamental question is left unanswered: is health care a “unique market” wherein the federal government is obligated to establish rules unique to its functioning, or is it like every other industry where market economics and principles are applicable? My conclusion: it’s different for three reasons.

First, health care services are used by everyone; the questions are when and how. Each of us uses elements of the system differently depending on our health and stage in life. Some are born with problems that require intense health care. For others, accidents and maladies without cure drive frequent use. But everyone uses the system: some more than others and the costs of the system are born by everyone—directly, through insurance premiums and co-payments, and indirectly, in overhead passed thru in the prices of goods and services we purchase.

Secondly, health care is structurally unique. In this industry, physicians bear primary responsibility to diagnose and treat. Health insurers and employers arbitrate between their recommendations and evidence of need (necessity) and cost effectiveness (reasonable and customary). The average consumer directly pays less than 20 percent of costs, with employers or the government making up the difference. In what other industry is the consumer’s direct involvement in purchases so limited and exposure to the costs of what’s used so limited? Structurally, the premise on which the US system is based is that others make decisions on behalf of “patients” because they are not “rational consumers” in this complicated market. Complicating matters further, physicians, who act as patient advocates, are trained to consider only the clinical risks of their recommendations. Costs are not a factor in their determinations.

Lastly, an organized health care system is an essential public service; like public education, public transportation, and public utilities, health care is a system essential to a community’s wellbeing. The structure and provision of services may be via contractual relationships with private operators, or ownership and control by the government, but in any scenario, it is necessary that services be provided to support economic development, population health, and social stability.

I believe health care is a unique market. I do not think consumers are capable today of navigating the system effectively, but that will change. Millennials and Gen Y demand online tools to manage their health and costs. But for the time being, it’s difficult for a consumer to engage effectively without tools to equip them in active decision-making.

Does it matter? Yes. Our society is fractured: some believe government should step away from health care and let the market work. Others think the health care market needs a stronger government role, perhaps even a takeover. But the issue is not who’s right. The issue is quite simply that each of us is a user of the system, and its long term stability is at risk.

It is unique, in my view, because the system impacts each of us, is structured to limit a consumer’s direct influence, and is essential to a local community’s wellbeing. How we manage this behemoth industry will have much to do with its costs and the role government will play in designing its future.

About The Author

Paul Keckley

Paul H. Keckley, Ph.D., a director with Deloitte Consulting LLP, is executive director for the Deloitte Center for Health Solutions (DCHS), the health care research arm of Deloitte LLP.

Health care: Just another industry or something different?