With the shouting going on about America's healthcare crisis, many are probably finding it difficult to concentrate, not as understand the explanation for the issues confronting us. I find myself dismayed at the tone of the discussion (though I realize it---people are scared) along with bemused that anyone would presume themselves sufficiently qualified to understand how to best improve our healthcare system mainly because they've encountered it, when people who've spent entire careers studying it (and I don't mean politicians) aren't sure what direction to go themselves.
Albert Einstein is reputed to own said that when he had an hour or so to save lots of the planet he'd spend 55 minutes defining the situation and only 5 minutes solving it. Our healthcare system is far more complex than most who are offering solutions admit or recognize, and unless we focus nearly all of our efforts on defining its problems and thoroughly understanding their causes, any changes we make are simply likely to create them worse since they are better.
Though I've worked in the American healthcare system as a physician since 1992 and have seven year's worth of experience as an administrative director of primary care, I don't consider myself qualified to thoroughly evaluate the viability of most of the suggestions I've heard for improving our healthcare system. I actually do think, however, I will at the very least donate to the discussion by describing some of its troubles, taking reasonable guesses at their causes, and outlining some general principles that needs to be applied in attempting to solve them.
THE PROBLEM OF COST
No one disputes that healthcare spending in the U.S. has been rising dramatically. In line with the Centers for Medicare and Medicaid Services (CMS), healthcare spending is projected to attain $8,160 per person annually by the conclusion of 2009 set alongside the $356 per person annually it was in 1970. This increase occurred roughly 2.4% faster compared to increase in GDP over the exact same period. Though GDP varies from year-to-year and is therefore an imperfect method to assess a rise in healthcare costs when compared with other expenditures from one year to another location, we can still conclude from this data that over the last 40 years the percentage of our national income (personal, business, and governmental) we've allocated to healthcare has been rising.
Despite what most assume, this may or may not be bad. It all hangs on a few things: the reasons why spending on healthcare has been increasing relative to our GDP and just how much value we've been getting for every single dollar we spend.
WHY HAS HEALTH CARE BECOME SO COSTLY?
This is a harder question to answer than many would believe. The rise in the cost of healthcare (on average 8.1% annually from 1970 to 2009, calculated from the info above) has exceeded the rise in inflation (4.4% an average of over that same period), so we can't attribute the increased cost to inflation alone. Medical care expenditures are regarded as closely of a country's GDP (the wealthier the nation, the more it spends on health care), yet even in this the United States remains an outlier (figure 3).
Can it be as a result of spending on healthcare for individuals over age 75 (five times what we spend on people between the ages of 25 and 34)? In a phrase, no. Studies show this demographic trend explains only a small percentage of health expenditure growth.
Can it be as a result of monstrous profits the health insurance companies are raking in? Probably not. It's admittedly difficult to learn for several as not absolutely all insurance companies are publicly traded and therefore have balance sheets readily available for public review. But Aetna, among the largest publicly traded medical insurance companies in North America, reported a 2009 second quarter profit of $346.7 million, which, if projected out, predicts an annual profit of around $1.3 billion from the approximately 19 million people they insure. When we assume their profit margin is average for his or her industry (even if untrue, it's unlikely to be orders of magnitude different from the average), the total profit for several private medical insurance companies in America, which insured 202 million people (2nd bullet point) in 2007, would come to approximately $13 billion per year. Total healthcare expenditures in 2007 were $2.2 trillion (see Table 1, page 3), which yields a personal healthcare industry profit approximately 0.6% of total healthcare costs (though this analysis mixes data from different years, it could perhaps be permitted since the numbers aren't likely different by any order of magnitude).
Can it be as a result of healthcare fraud? Estimates of losses as a result of fraud range as high as 10% of most healthcare expenditures, but it's difficult to find hard data to back this up. Although some percentage of fraud most likely goes undetected, perhaps the simplest way to estimate how much money is lost as a result of fraud is by taking a look at just how much the government actually recovers. In 2006, this is $2.2 billion, only 0.1% of $2.1 trillion (see Table 1, page 3) as a whole healthcare expenditures for that year.
Can it be as a result of pharmaceutical costs? In 2006, total expenditures on prescription drugs was approximately $216 billion (see Table 2, page 4). Though this amounted to 10% of the $2.1 trillion (see Table 1, page 3) as a whole healthcare expenditures for that year and must therefore be looked at significant, it still remains only a small percentage of total healthcare costs.
Can it be from administrative costs? In 1999, total administrative costs were estimated to be $294 billion, the full 25% of the $1.2 trillion (Table 1) as a whole healthcare expenditures that year. This is a substantial percentage in 1999 and it's hard to assume it's shrunk to any significant degree since then.
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