William Larsen

Healthcare Debate and some Facts

Healthcare in the United States by some respects is in a crisis. When you speak to people, they say it has gotten too expensive. They point to 50 million uninsured and an increase in bankruptcies. I attended a forum at St. Mary’s Wednesday evening and listened to several commenters’. There was a 30 minute video clip that was shown. It was done by a person traveling the globe researching other countries healthcare systems.

The US is ranked 37^th in the world in terms of providing healthcare. Two criteria repeatedly indentified were a higher infant mortality and lower life expectancy. Several countries rated higher were identified, but were not quantified as to just how much better they were. I swam competitively years ago swam the Huntington Mile a year ago. My older brother swam as well, but in a different heat. He beat me by less than 0.06 seconds. There was no actual finish line, just an imaginary line of sight. Yes, I was second, but does that really make me that much slower than my brother? When the US is ranked 37^th, what exactly is 36^th? Were they a year longer in life expectancy or was it a day or fractional day. The US has the highest diet of red meat in the world as well as drinking soda. We also rank towards the bottom in exercise and have a high drug risk. Crime is also a bit higher which will life expectancy. Too me ranked 37^th is no reason to investigate healthcare, it is a red herring.

The video looked at England, Germany, Switzerland, Japan and Taiwan. All had different variations of a universal plan. All have one common theme to theme; the government sets the price of all providers. In England they set the salary of every doctor. They work 10 to 14 hours a day and make half what a doctor in the US makes. Emergency care is rated good while elective care is rated poor. They have higher taxes and no provider is allowed to make a profit. Administrators are not allowed to make a profit. This means everyone who works in the healthcare industry works for the government. Waiting lists exist with waits of up to seven months. The cost is to each person is about $50 each just for the general practitioner who has 1,800 patients. Lastly, they tend to attract lonely people more. That’s right because healthcare is free; many people tend to go just to speak with someone.

Japan has 130 million people and spends 8% of GDP on healthcare. They have a longer life expectancy and lower infant mortality rates, but also eat more fish, less meat and is attributed to lifestyle, not healthcare. 80% of all hospitals are private, citizens have are three times more likely to seek healthcare than anywhere in the world. A hospital room with 4 people costs $10 a day while a private room is $80. 50% of all hospitals in Japan are in financial deficit. Doctors bare the brunt of costs with a doctor’s visit reimbursed at 450 yen or $4. Again the Government dictates what every procedure costs. Every provider is paid the same for the same procedure.

Germany uses the Bismarck model. 90% of the country in enrolled in national system with 10% opting for private coverage. Everyone pays a premium based on income. A worker making $60,000 pays $600 a month. The insurance premium rises with income. There is a 15 Euro co-pay. Again insurance companies and providers are not allowed to make a profit. Administrative costs run 6%, doctors make $80,000 a year and work longer hours. Doctors went on strike for higher wages for one day recently

Taiwan began their healthcare system in 1980. They looked at over ten countries and took what they thought was the best of each. No one can opt out and there is one collector. There is no waiting or referrals. They use information technology giving every citizen a smart card. The government keeps tabs on who uses healthcare – if you use it more than 20 times, you get a visit. This program costs 6.2% of GDP, yet it does not cover all the costs. The government instead of raising the taxes has been borrowing money to cover the 1.8% of GDP shortfall. Actual costs are closer to 8% GDP.

Switzerland has 8 million citizens. Medical insurance is required and voted in by a very slim majority. Insurance companies are not allowed to make a profit, no cherry picking of insured and view healthcare as a “Human Right.” All procedures have a standard price. Their system costs 5.5% of GDP. Drug companies make just 1/3 of the profits they did prior to the mandatory healthcare program. The premium is $750 a month and is the second most costly program in the world with the US the most costly. There is significant pressure to raise the premiums to cover costs.

There are three basic concepts to Universal healthcare;

Insurance companies cannot make a profit

All must be insured

Government sets the reimbursement rate providers are paid for each service provided and no provider may make a profit.

The closest system in the United States to any of these countries programs is Medicare.

In the United States, there is a proposal for universal coverage. To pay for this there is an incremental tax based on income. All employers will pay 4.75% of wages into the insurance pool. The bottom 95% of employees will pay 3.3% of wages into the insurance pool. Those making more than $1 million a year will pay 10% into the insurance pool while those in the top 5% income level, but less than $1 million a year will pay 5%.

In simple terms 95% will pay 8.05%, 4.8% will pay 9.75% while 0.2% of workers will pay 14.75%. On top of this will be the existing 2.9% Medicare tax. Based on income alone, the cost to the workers is 10.95% of wages. Again, many will say the employer pays 1.45% of the Medicare tax and they will pay 4.75% for the universal insurance cost as well. However, we all know that the companies will just add this additional cost of doing business onto everything they sell and in the end we as consumers end up paying for it either in lower wages or higher prices.

I did a back of the envelope calculation using 2008 reported $7.2 Trillion in wages. Based on 10.95% healthcare insurance on $7.2 Trillion raises just $788.4 Billion. I am not sure who came up with this proposal but the total cost of healthcare in 2007 was $2.6 Trillion. Unless those proposing this tax rate believe current healthcare providers will take a 70% cut in wages, this is not going to work. In addition, 10.95% of wages is not the same thing as 10.95% of GDP. This is comparable to 6% GDP.

What I am more interested in is trend and root cause, not overall dollar cost per capita. I have looked at data for different age groups

· All Ages

· Under age 65

· 0-18

· 19-64

· 19-44

· 45-54

· 55-64

· Age 65 and older

· 65-74

· 75-84

· 85 and older

I have looked at individual categories

· Hospital

· Physician & Clinical Services

· Prescription Drugs

· Nursing Home

· Dental Care

· Other Professional

· Other Personal Health Care

· Home Health Care

· Nondurables

· Durables

Is there any type of trend over time, yes? It is a fact that both Medicare and Medicaid shift costs to all other payees regardless of if they are covered by employer insurance, individual insurance or uninsured. It is also a fact that the baby boom or what I refer to as the Baby Bust began in 1963. There was also an explosion in technology beginning after the inception of Medicare. We have three large causes to our increase in healthcare costs and our government has not been totally honest with the American People.

1. The advent of Medicare and Medicaid has funded the technology boom we have in healthcare. It provided dedicated “customers.” This is similar to mandating the use of ethanol in gasoline. It creates a demand, regardless of efficiency, cost effectivness or need. In the case of Medicare, it provided funds to those who could come up with a better diagnostic, test, procedure, drug and treatment.

2. The baby bust or the end of the baby boom lowered the population growth rate to nearly zero. This in affect stopped the dilution of the population age. A birth rate that increased population artificially lowered the over all age of the population. A birth rate that yields a zero population growth causes the average age of the population to increase and over a period of about 85 years stabilizes. The change in the population age after this point in time is caused by increased in life expectancy only.

3. It Is a fact the younger you are, the lower the healthcare costs. For those age 0 to 44, the increase in healthcare costs has been about 6.8% a year over 12 years. For those 45 to 54 the increase has been 10.2%. As one ages the cost per year increases dramatically.

4. Looking at two different tables, one of overall expenditures and one dealing with per capita costs, one would think the growth in cost of per capita would match that of expenditures, but it does not. The cost per capita has held relatively steady over 12 years at 6.5% or less, yet the expenditure growth is 50% greater. The reason is the compounding affect of inflation, aging and cost shifting.

5. Cost shifting can be indentified easily by comparing the two tables. The growth in expenditures and per capita for those under age 45 correspond well. However, when you look at the growth in expenditure and per capita for those age 65 and over, they do not. They differ greatly. When you look at shear numbers and weighted averages, you find that the reimbursement rate of Medicare and Medicaid in the range of 60 to 70% will cause the other age groups to see a cost shift of about 20%. Those over age 65 expend 37% of total healthcare dollars, yet represent just 13% of the population. This is a 3:1 leveraging affect.

Historical National Health Expenditure Data

posted by William Larsen @ 1:21 AM 2 comments