Two views of one problem—Is there a bridge?

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Two views of one problem—Is there a bridge?

Two views of one problem—Is there a bridge?

As the 113th Congress convenes to tackle the nation’s debt ceiling and start down the road to economic recovery, one of its most daunting challenges will be to lower long-term health costs.

As the 113th Congress convenes to tackle the nation’s debt ceiling and start down the road to economic recovery, one of its most daunting challenges will be to lower long-term health costs. There’s bipartisan agreement that the single biggest factor in government spending is health care—it’s 25 percent of federal spending and 23 percent of the average state’s spending. Both are projected to increase at more than 6 percent annually for the next decade—faster than any other category of public spending. But, there’s huge disagreement about the long-term solution.

Reducing the rate of growth in health care spending closer to overall economic growth—perhaps to 1 percent above the gross domestic product (GDP) as the Simpson-Bowles Commission sought to do—could be achieved, but it requires changes that are not popular or in some cases are politically risky. Health costs have grown on average 2.4 percent faster than GDP for more than 30 years. To reduce spending to 1 percent above the annual GDP would mean the industry would continue to grow, but at a slower rate. For the average consumer, that might mean higher out-of-pocket costs or limits on care deemed unnecessary.

A compounding problem is this: most consumers don’t understand the health care system per se; their strong opinions about health care are based on their personal experiences with the doctors and hospitals they use and the insurance they may or may not have. At the same time, polls show consumers think the US health care system is wasteful and inefficient. The majority support doing away with fee-for-service incentives and replacing them with outcomes-based payments. They want increased transparency about prices and provider performance and basic insurance for everyone. But each of these is a major shift to a system that’s change resistant. As a result, policymakers are hamstrung to change what seems intractable.

The facts are compelling: the health care system is more than 17 percent of GDP and employs 14.5 million workers. It impacts everyone everyday—whether insured or not, whether well or sick. Its almost $9,000 per capita cost is unseen to most: prices for the drugs, tests, and procedures are unknown. Consumers depend on physicians to determine what they need, whether based on evidence or not, and our insurance system, funded by employers and the government, absorbs about 80 percent of these costs, leaving individuals to pay the rest. The recovery of the US economy starts with slowing the rate of health care costs and fixing the health care system. Every day, an average of 7,000 new enrollees join Medicare, and on average, they receive $3 for every $1 they paid into the Medicare system in their working years. And complicating things, one in ten employers anticipate dropping health benefits coverage in the next 1–3 years.

Today, government health programs cover 99.5 million Americans through programs like Medicaid, Medicare, and military health care. The government uses its buying muscle to negotiate lower rates with doctors, hospitals, and drugs paying in some cases less than the cost of producing or providing the service.

The private insurance market covers 197 million Americans through premiums, co-payments, and other out-of-pocket costs. Individuals and employers pay for the care they consume and a bit more for the government’s underpayments, plus a hidden tax for the almost 50 million without coverage.

Something’s got to give. The math doesn’t work.

Policymakers tend to fall into two camps on the solution: let the market work, as messy as it is, or let’s get on with it—a government-run system like most in the world.

The “let the market work” crowd espouses a justifiable position that the health care system is fundamentally flawed: incentives for volume, not outcomes, are at the root of the structural problem. Add its lack of transparency about costs and quality, and an insurance system that has sheltered its members from the financial impact of their decisions and lifestyles, and the result is predictable—high costs, public aversion to change, and escalating costs disproportionately born by employers and individuals who purchase commercial insurance. The solution: force consumers to buy health care the way they purchase automobile repair services (i.e., insurance for collisions but routine maintenance out-of-pocket). They reason it will force the system to become more accountable, competitive, transparent, and responsive. Antagonists challenge the logic of the “let the market work” crowd on two fronts: it deepens the divide between the “haves and have-nots,” and it does not reduce costs if the sickest and most in need are forced into a public system by default.

The “get on with it” crowd has no appetite for the “let the market work” chorus. They reason that the system is fundamentally corrupted by flawed incentives that reward volume and access for those with insurance while a growing number of those without coverage face substantial barriers to accessing preventive and consistent health care services, forcing individuals to fend for themselves or wait until an emergent situation arises before they can access care―a costly alternative for everyone. The “get on with it” sentiment is especially popular among young independents who fear the future of the country’s stability is compromised by the failure to fix the health care juggernaut. They view the equity of the system—coverage as a universal right—as the foundation for its reform and imagine a single-payer system that will cost less and function better. Those most opposed to the “get on with it” perspective point to public education and the US Postal Service to defend the argument against a government solution.

The 113th Congress must address a long-term health care cost fix head-on. Policymakers must navigate between these two strongly held views of the solution. The Affordable Care Act, signed into law on March 23, 2010 and upheld by the Supreme Court June 28, 2012, is a legal framework for modest reforms of the system that the Congressional Budget Office concluded will save more than $100 billion over ten years. But, it does not fundamentally answer the question about a long-term solution.

That’s the national discussion necessary now. And it’s a discussion that should involve everyone, not just members of Congress.

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.

Two views of one problem—Is there a bridge?