Know the Facts

Of the many different challenges facing American Healthcare, the rising cost of healthcare is the paramount problem in our system.  The exponential increase of the nation’s total healthcare expenditures over the past decades and the projected future trajectory of these costs will continue to have devastating consequences for the nation as a whole.  Importantly, figures regarding national healthcare expenditures include the costs associated with both public and private healthcare, meaning healthcare’s rising cost cannot be blamed on one form of the system but rather on the system as a whole.  The cold hard truth is that as a nation we lead the world in healthcare spending, yet only receive a system whose quality ranks 37th in the world (WHO 2007).  By examining the rise in healthcare costs to the nation as a whole, the trends we find are disturbing and without change, it only stands to get worse.

• In 2007, America’s healthcare spending alone would represent the world’s seventh largest economy.
• The United States currently spends more on healthcare than on food or housing. ²  
• By 2015, it is projected that US health spending will double from over $2 to nearly $4 trillion per year, going from 17% to 20% of GDP. ³

The federally funded Medicare program guarantees healthcare for all Americans age 65 and up.  Its federally funded counterpart, Medicaid, provides healthcare for qualifying Americans who are economically disadvantaged.  Undoubtedly, both programs play an essential role in the lives of tens of millions of Americans by providing healthcare for many individuals who otherwise would be unable to afford it.  The problems within these programs are not related to their undeniably noble mission, but rather in how the unsustainable structure of Medicare and Medicaid is threatening the economic stability of the federal government.  Due to the rising cost of healthcare, each year these programs are consuming a larger portion of the federal budget and diverting more and more money away from all other federally funded programs.

Largely, it is how healthcare is delivered within the Medicare and Medicaid programs that are driving the exponential rise in cost. Both a reassessment of Medicare and Medicaid’s structure of delivery, its funding, as well as an understanding that more care is not necessarily better care is greatly needed.  If not, by 2019 the Medicare Hospital Trust Fund will be insolvent.  Just as importantly, Medicare and Medicaid reform is necessary before these programs economically shake the federal government as well as those who fund it – taxpayers like you.

• Federal spending on Medicare has increased from $8 billion in 1970, to an expected $479 billion in 2008, an increase of over 5800%.⁵
• Medicaid spending has increased from $5 billion in 1970, to an expected $362 billion in 2008.  By 2015, Medicaid spending is expected to increase to $625 billion a year.⁶
• Although ¼ of the increase in Medicare and Medicaid spending can be attributed to the aging of America’s population, the other ¾ is simply a result of healthcare’s soaring cost. ⁷

    The rising cost of healthcare has a tremendous impact on American business, as the majority of Americans receive their healthcare though employer based coverage.  For many years, American companies attracted workers to their business by offering generous healthcare benefits for both employees and their families.  However, as healthcare expenditures have soared in the recent past, American businesses have been forced to make tough decisions regarding their employees’ coverage.  Those decisions are generally limited to raising prices, raising employee contribution levels to healthcare plans, cutting benefits (if not dropping them completely) or even laying off American workers altogether.

The rising cost of healthcare affects all American businesses both big and small and has become a drag on American companies’ ability to compete in the ever expanding global economy.  Moreover, the employees of companies that suffer from skyrocketing healthcare costs are less likely to receive raises and find themselves ever vulnerable as their employers cut back to remain profitable.  The rising cost of healthcare to American businesses is evident to us all, as healthcare costs have also shifted to the consumers of American products and services.  There is no question that ignoring the rising cost of healthcare is bad for business and in turn the economy as a whole.

• Since 2000, the cost of premiums for employer-based plans has outpaced wage growth by about fivefold. ⁹
• More than half of all small businesses are no longer able to offer health insurance.¹⁰
• General Motors now spends more on healthcare than it does on steel.  The price of each of its cars includes more than $1,500 for healthcare, while Japanese automaker Toyota's healthcare costs only come to about $200 a car.¹¹
• In 2005, GM laid off 25,000 employees citing “runaway health care costs.” ¹²

Measuring the precise cost of rising healthcare expenditures to individual Americans is difficult because costs vary from person to person.  What is not difficult to measure are the ways in which every American citizen is affected by the healthcare’s rising costs on an individual basis whether directly or indirectly.  Of course all Americans face higher tax burdens to fund an increasingly expensive Medicare program, but the rising cost of care is not limited to publically funded health insurance.   For Americans that have private health insurance, to experience healthcare’s rising cost, they need only to look as far as their own pocket.  The rise in health insurance premiums coupled with the increase in out-of-pocket contributions over past years mirror the wider trends in national healthcare expenditures.  Each year it is becoming more and more expensive for Americans to insure themselves as well as their families.  Without an effort to contain healthcare’s rising cost, Americans will have to sacrifice more and more to remain insured or perhaps even worse, face financial hardship to get healthcare in their moment of need.

• In 2007, the average cost for family coverage was $12,106 per year, while the cost for individual coverage was $4,479 per year.  Continuing at current rates in 2014, the average cost for individual coverage will be $8,868 per year and the cost for family coverage will hit $23,969 per year. ¹⁴
• In 2001 the average employee spent $1,320 on out of pocket healthcare costs (premiums, deductibles, copayments, etc.)  In 2005, they spent $3,597. ¹⁵
• Over half of all personal bankruptcies are to due medical bills. ¹⁶
• 1 out of 5 working age Americans-both insured and uninsured-have medical debt they are paying off over time. ¹⁷

 Uninsured Americans are often the face of America’s healthcare challenges as they are the most visible failing of the American system – the failure to provide all US citizens with access to affordable healthcare.  Although, there are two deeper issues within the unfortunate truth that tens of millions of Americans do not have access to basic healthcare: the first being the root cause of such a large uninsured population; the next being just who these 47 million plus Americans really are.  It is simple to focus on the uninsured as the paramount problem in American healthcare, but in fact so many uninsured Americans are in actuality a symptom of healthcare’s rising cost.  Without a concern for first containing the cost of healthcare, the realization of universal healthcare in the United States is destined to remain elusive. 

Being that American healthcare is largely employer based, the uninsured are often the victims of healthcare’s impact on American business.  As a result, being uninsured is less a function of poverty, but instead a rather high percentage of the uninsured are employed or recently employed, middle class individuals and their families.  Another population prone to being uninsured is young Americans between the ages 18-34.  Whether as a result of having a job without health benefits or simply by being in a relatively healthy stage of life, the young are disproportionately uninsured.  However, foregoing health insurance due to its cost is a choice no citizen of the world’s richest nation should ever have to make.  No one is immune to having an accident or to the possibility of developing a chronic disease.  For those Americans who find themselves uninsured at the wrong point in their lives, the consequences can be both costly and dire.

• The population of uninsured Americans is greater than the entire populations of Australia, Greece, Sweden and Ireland combined.
• Almost 30% of 18-24 year olds are uninsured,¹⁹ while almost 27% of 25-34 year olds have no health insurance. ²⁰
• Of the 47 million uninsured Americans, 4/5ths (37.6 million) are either employed or members of a family with an employed adult. ²¹  
• 28 million are small business owners, their employees or their dependents.²²
• 9 million are children.²³

The rising cost of Medicare is out of control, but not all of Medicare’s problems are the results of an ineffective system; some reasons are beyond our immediate control.  The aging of the baby boom generation, people born between the years 1946 and 1964, is the beginning of an unprecedented demographic shift in the United States.  In this shift the two fastest growing segments of American society will be the old (65 and over) and the very old (85 and over).  When Medicare was created in 1965, much of the baby-boom generation was still in the crib or elementary school.  Today, they are becoming eligible for the benefits program they paid into throughout their adult lives.

Thus the elderly population will soon be the largest segment of American society and all of them are fully entitled to publicly funded healthcare.  In addition, by nature the elderly are the least healthy segment of the population, meaning they receive the highest percentage of healthcare services in the country.  The impending growth in the elderly population, coupled with the cost of our technology’s ability to keep people alive longer than ever before means that the aging of America jeopardizes the future of the Medicare program and its beneficiaries.  As is, the Federal government and you the taxpayer cannot afford to provide the care it has promised to the elderly of this country.  Without responsible and thoughtful reform, we stand to leave future generations with a series of ethical dilemmas that have no easy solutions.

• The first baby-boomer will turn 65 on January 1, 2011 and become eligible for Medicare. ²⁵
• Between 1992 and 1996, average annual healthcare expenditures for individuals aged 65 and older were $7,365, but grew to $37,581 during their last year of life. ²⁶
• The “oldest old,” people over 85, are the fastest growing segment of the US population, growing from 3.7 million in 1996 to more than 18 million in 2050. ²⁷
• 100 years ago, the average male died before his 50th birthday.  By 2050, the average male will live to 80 and the average female will live to 84. ²⁸

 Looking at the figures behind the rising cost of healthcare often begs a simple question:  why?  In truth there is no simple answer, however, a large culprit of healthcare's rising cost is due to a series of inefficiencies built into the structure of the healthcare system.  The piecemeal development of America's healthcare system over the course of the past half century greatly mirrors the fragmented system that we have today.  A large portion of healthcare's cost is consumed by the massive administrative brigades and the paper trails needed to integrate insurance companies, providers, hospitals, pharmacies, the government, patients, and much more. Strangely, unlike other American enterprises, the healthcare industry has been slow to integrate technology and resistant to streamlining the inefficient bureaucracies and administrative processes inherent to the system.  
If the American healthcare industry really was like any other enterprise it would be struggling to compete.  Aside from its issues regarding IT and administrative costs, the American healthcare system’s ability to compete in any true open market setting would be negated by its total lack of consumer friendliness.  The transparency of healthcare costs between providers and consumers (in this case, patients) is virtually non-existent.  In healthcare’s peculiar industry, consumers are neither informed of nor encouraged to become informed about the cost of treatments and procedures, instead they pay their co-pay and allow their insurance to pay the rest.  However, unbeknownst to many, those costs are ultimately retransferred back to patients and the public as a whole through higher insurance premiums for individuals and employers or in the case of public programs, higher taxes.  In our healthcare system, market forces are unable to efficiently regulate cost and moreover if consumers are dissatisfied they are for the most part limited in their ability to take their business elsewhere.  

Additionally, our fragmented and decentralized system disallows the kind of formal oversight necessary to hold such a large and vital industry accountable for its performance.  As a result, if patients have issues with their insurance companies or providers, their sole means of significant action lies within the US legal system.  Leaving a knowingly expensive legal system to act as the main form of regulation and patient advocacy in healthcare, adds a tremendous amount of cost to the system.  Providers, insurance companies and patients alike pay billions of dollars in liability insurance and legal fees for malpractice suits, piling on even more to the cost of healthcare that eventually trickles down to us all – just what we and the system needed.  

• In 2005, less than a quarter of office based physicians used electronic medical records; in 2007, still less than a third. ³⁰
• The average premium for physician malpractice insurance increased by 73% between 1999 and 2002. ³¹
• 94% of Healthcare Organizations devoted 6% or less of their budget to information technology. ³²

When discussing the rising cost of healthcare, the question is often raised whether the American healthcare industry is in the, “health business” or “the sick business.”  One of the great problems within American healthcare is the lack of attention and resources devoted to preventative care, or regular check-ups and screenings, which can play a large role in the prevention of costly conditions and their treatments down the road.  However, an emphasis on preventative care is not the sole responsibility of insurance companies and providers, as individuals themselves play a large role in disease prevention and the management of their day-to-day health through a good diet and regular exercise.  It is widely understood that paying to keep a person healthy is more cost effective than fixing them once they are sick.  In addition, staying healthy can play a large role in lowering the risk of chronic diseases and keeping healthcare costs down.  Preventative care calls for both more emphasis by providers on keeping their patients healthy as well as more individual accountability in the stewardship of their health.  Preventable conditions, particularly at the end of one’s life add a substantial amount to the rising cost of healthcare and containing such costs is both the duty of the healthcare system and individuals alike.

• 2/3 of healthcare spending in the last 25 years is due to the sharp rise in the number of treatable chronic diseases.³⁴
• 96 cents out of every Medicare dollar is spent on the treatment of chronic diseases, while 83 cents of every Medicaid dollar is devoted to the treatment of chronic diseases.³⁵
• The number of obese Americans has doubled since 1987, accounting for almost 30% of the rise in healthcare spending³⁶ 
• Heart disease is by far the no. 1 killer in the United States and it is estimated that  1/3 of its cases could be prevented if people followed better diets and exercised more often. ³⁷
  

The prescription drug industry’s role in the rising cost of healthcare is demonstrated by a difficult cycle.  The Pharmaceutical industry, one of the largest industries in the nation, thrives off of its ability to fund the research and development that finds the next miracle drug.  However, the industry’s thirst for R&D funding comes at a high price for consumers, as Americans pay more for their prescription drugs than anyone else in the world.  In order to generate a market for their drugs amongst consumers, the Pharmaceutical industry spends billions on advertising and marketing for their drugs. To pay for these campaigns, the industry tacks more onto the price of their products, this brings back the money that will again fund the process of research and development for another drug. In this system, much of the demand for drugs is generated by the pharmaceutical industry’s own marketing campaigns and as a result prescription drugs are driving up the cost of healthcare.  Thus, the relationship between the prescription drug industry and healthcare’s soaring cost is undeniable.

• In 2002, the profits of the top 10 drug companies in the Fortune 500 were more than the total profits of all the other 490 companies on the list combined. ³⁹
• The United States is one of two countries in the world that allows pharmaceutical companies to advertise.⁴⁰
• During the beginning of 2008, the average wholesale price of 17 brand-name drugs doubled. It is also projected that the prices on 64 other drugs are expected to more than double by the end of the year. ⁴¹
  Half of the profits in the drug industry worldwide are paid for by Americans. ⁴²