I began teaching health policy almost thirty years ago with Odin Anderson at the University of Chicago
Graduate School of Business. Like me, Odin was a sociologist, and one
of his hobbies was tracking the sociology of our nation’s “healthcare
crisis”. He found that the health care “crisis” waxed and
waned (as measured by press mentions and journal articles), but never
disappeared. It had been going on for twenty years by then,
so I guess we’ve now been in “crisis” for fifty years. The
American health care “crisis” is not acute illness – rather it is
like a chronic disease which flares up periodically, accompanied by
fresh prophecies of impending doom and calls for someone on a white
horse to fix the problem.
From 1970 to 1993, health costs
roughly doubled as a percentage of GDP. All the way along, prophets
of doom forecast that the country would simply fall apart when
health costs exceeded 8%, then 10%, etc. . Our economy somehow
continued growing and innovating, and the health system got steadily
more capable at managing our illnesses the entire time. No-one
I know would trade our present, very expensive health system for the
cheaper one we had in 1965 or 1980.
Then, during the mid- 1990’s,
a remarkable thing happened. For the first time since people began
tracking the statistic, health costs remained dead flat as a % of GDP
for eight years in a row. It is remarkable how little attention
this flattening got from the “crisis” mongers. When we finally
get this year’s spending numbers from the CMS Actuary, my forecast
is thathHealth costs will have been flat as a percentage of GDP for
the past five years if you include 2007. Five years isn’t “momentary”,
as Brian Klepper characterized this latest pause.
At the very same time, death
rates from our three major killers continue falling, and the health
of our most fragile citizens, the elderly, has continuously improved.
From 1982-2004, the percentage of people over the age of 85 who are
institutionalized has fallen by almost half. Acute MI admissions
to the nation’s hospitals have fallen 19% in the past three years.
Overall, there are a million fewer hospital admissions today than in
1982, despite a 30% increase in our population. This didn’t happen
by accident, but by sensible changes in payment policy and by continuous
innovation in technology and care provision. Of course, we’ve been
in “crisis” the whole time.
There is a huge public policy disconnect here. If containing health
costs were popular, you’d probably see more of it. And
it isn’t just our own chaotic system that has struggled to constrain
health costs, but virtually every other national system to which our
own health system is unfavorably compared. Tony Blair threw tens of
billions of pounds at the British National Health Service to loud public
Most Americans feel that the
more we spend on health programs, the better off we are, as long
as someone else pays the bill. The Congressional Democrats’ big
problems with the Medicare drug benefit, and recently with SCHIP, was
that we weren’t spending anywhere near enough. So the idea that
the rising cost of care is a “problem’ but that we continue hurling
money at the system should tell us something about our political culture.
For all their whining about
costs, American businesses have been active facilitators of health cost
growth, by concealing the actual costs from their employees with massive,
tax supported subsidies, tolerating inflationary open ended fee-based
payment of providers and adding new benefits as they become available.
Those companies who have gotten beyond the whining and actually engaged
their employees with consumer directed health plan designs have been
rewarded by halving their cost growth. Perhaps Mr. Klepper
has oversampled the whiners and undersampled the businesses of who have
actually been proactive in redesigning their health benefits.
Businesses that played Santa
Claus at the bargaining table with their health benefits and completely
sheltered their employees from the cost have had the worst problem.
It is hard for a dispassionate observer to understand why this is a
public policy problem; it was terrible, short-sighted management, and
its consequences are now being felt in the decline of these industries.
The fact that some businesses have figured out a better way to manage
their costs should raise questions about how much of a public policy
problem corporate cost growth really is. If we really want to
help business, we’ll figure out a way to cover the nation’s 47 million
uninsured. (See the Health Affairs blog of 13 September 2007 for a discussion
of this problem).
My point wasn’t that health
costs rising at double the rate of inflation is great news, but it’s
WAY better than rising at 7 times the rate of inflation as they did
in 2003. To deny that we have made progress in the ensuing four
years is not helpful. To my mind, a $62 billion incursion into
the 2003 health cost trend is, in fact, “meaningful” progress. Mr.
Klepper, please look closely at the Kaiser Foundation data below.
Health cost inflation is, in
fact, subsiding, not “skyrocketing”. While this decline
is certainly not; “permanent”, as someone who covers the “usual
suspect” hotspots like pharma and biotech, medical devices and specialty
medicine closely, I see no signs of a re-ignition as of this writing.
This downtrend seems fairly durable. The “fundamentals”,
as Mr. Klepper put it, are changing right under his nose.
For the very reason that the
care is expensive, and that businesses are getting their workers to
bear more of the cost themselves, people are beginning to manage their
own health risks more aggressively. The potential for getting
a significantly better societal return on our health care investment
is very great indeed. To achieve it, a lot more remains to be
My intent was not to suggest
that everything is fine with our health system; it isn’t. Pollyanna
doesn’t live around here. The problem I addressed was that
any good news about our health system (and a robust four year disinflationary
cost trend is certainly good news) has become politically incorrect
in a climate of Job’s Daughter handwringing and crisis mongering.
The “Ain’t It Awful” School of Health Policy hasn’t
produced a lot of actionable solutions to the “crisis”. (I
certainly didn’t hear any solutions from Mr. Klepper, or any data
either). It sure is fun complaining and pointing fingers
though. Keep your eyes peeled for someone on a “white horse”
to save us from ourselves! It’s the game, not the players, that