The Perpetual Health Care Crisis By Jeff Goldsmith

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
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
is neurotic.

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20 replies »

  1. Forget all the proposed bandaid solutions to the Medicare, Medicaid, and private insurance “mess”.
    Most proposed solutions to the current “mess” in health care insurance coverage strike me as small bandages on a very large wound. Typically, they merely are modifcations to the currently ailing system but not one of the fundamental issues is ever addressed.
    The current system, a hodge-podge of conflicting decision-makers, companies, governments and rules makes for a very expensive and unresponsive “system”. Its three main elements (Medicare, Medicaid, and private insurance) work badly with one another and leave millions in the unreasonable and politically and morally unsupportable position of having no medical coverage.
    Consider the following: the many unsuccessful attempts over the past twenty years both by governments and private industry to bring health insurance coverage in the United States to everyone while at the same time maintaining private competition and restraining costs is proof that tinkering with parts of the “system” is the wrong way to attack the problem. Like today’s IRS Tax Code, it’s more complicated than most people can deal with. And, truly, it is impossible to understand the full effects of proposed modifications to one or another of its parts.
    I offer the following medical coverage program that addresses the the full range of concerns expressed by virtually everyone:
    Covering everyone.
    Maintaining private competition.
    Keeping costs in check.
    Being simple to understand and simple to administer.
    Although I describe a nationwide solution, it also is possible to adopt this program on the state level. I propose the following replacement of today’s patchwork health insurance system, including Medicare and Medicaid, such that:
    This makes the Law of Large Numbers work.
    Several population-equal geographic health districts within the country will be defined, based on the official U.S. census, and redefined after every new census, as necessary.
    Each health district will be a minimum of one state and no health district may contain non-contiguous states.
    While population is primary in creating these health districts, consideration will be taken of the varying costs of health care in different regions of the country as much as is practical.
    Everyone will be a member of a health district based on their official home residence, so that group underwriting and group rates, and therefore the Law of Large Numbers, will apply.
    The current concept of multiple groups, being narrowly defined by one’s place of employment or affinity “group”, etc. will disappear.
    All premiums will be privately paid, whether paid for by employers, organizations or by individuals, with but one exception.
    Premiums for those family units (or individuals) certified as earning below the poverty line will be paid for by the government.
    For purposes of premium payments, individuals may be grouped as family units.
    Several coverage packages, government defined, will be offered as consumer-chosen options:
    High deductable – no well-care, no prescription drugs.
    Low deductible – no well-care, no prescription drugs.
    Well care Plus high Deductible, no prescription drugs.
    Well care Plus medium deductible, no prescription drugs.
    Catastrophic Only (as either a separate or add-on coverage).
    An HMO may be selected as one’s service provider, with premiums matching the winning bid in its health district for “Well care plus medium deductible with no prescription drugs”.
    Prescription Drugs (as an add-on coverage).
    Separate packages in the above categories will be defined for children and adults.
    Individuals are free to add their own private supplemental coverage to any of these packages.
    Each insurance company which chooses to bid in a given health district must bid on all coverages.
    Winning (lowest premium) bidders in each category will have a three year contract.
    Winning bidders may sub-contract administration of the plans within their health district but they retain ultimate responsibility.
    Should there be no bidder in a given health district, the government will be the bidder of last resort, with its bids (the premiums) for each package defined as the average of the winning bids in all adjoining health districts.
    Prospective bidders will make application to the government to be on a bid list.
    Government will approve members of a bid list and publicly disclose their reasons for rejecting any application.
    The final bid position (not the bid itself) of each bidder in each category will be made public.
    Basic cost and performance statistics will be made public in the middle of the third year of each contract period for each category in each health district.
    All statistics and reports will aggregate at the health district level and reference the winning bidder only, not any local subcontractor or local area within the health district.
    With this proposal the flaws, inconsistencies, and complexities of the current health insurance “system” are eliminated. The goal of fair, efficient, simple universal health insurance coverage without intrusive government interference and control is achieved.
    This proposal addresses every major concern of the people and of government in a way that no other proposal has to date.

  2. Measuring health care costs as a percent of GDP is a false measure because average wage does not track GDP very well. The most meaningful figure to the average American wage earner is tracking per family health care costs to per family average wage. And some adjustment to these figures needs to be made for the unemployed individuals and families without a wage earner, who generate to health care costs but do not contribute to average wage figures.

  3. You are looking at the wrong end of the horse if you think you can control the rising cost of health care. If we can not treat the sick because to many are making money on them, then we must turn to the healthy. I propose that we give a tax break to those who are in a healthy state to encourage prevention and better habits of healthy living. This is much, much cheaper than continuing our present philosophy of more and higher spending. A change in life style, encouraged by tax relief, makes all parties winners, and in the present culture life style is our biggest health problem. The tax break would get higher with the age of the person and each person would receive a med-form(s) each year from insurers and medicare indicating the amount spent on health care. The total would then go against an age/amount table to provide the tax break. Over a five year period, health care costs would definitely begin to drop. Let those who are most contributing to health care because of destructive life styles pay for their lack of self control.

  4. One of the great mysteries of World War II was the Warsaw ghetto uprising. Why did the Jews suddenly decide to fight? What was the crisis? This has puzzled historians for years now. Where was the crisis?
    There is a whole archive to study from the Warsaw ghetto. There were doctors, scientists, historians and a host of other well trained professionals there, and many of them documented the ongoing events and trends. The extermination rate was slow and steady. People checked out and never checked back in. Hunger and disease were pervasive. At what point did the problem become a crisis?
    Was 10% of our GDP spent on medical care a crisis? What about 12%, of which perhaps 10% is not spent on insurance company overhead? What about 14% or 20%? It doesn’t really matter. We still have a problem. We are paying much more per capita than any other industrialized nation. We do not have better outcomes. Worse, we have many people who are expensively uninsured. Just as Detroit discovered when the Japanese ate their lunch in the 1980s, there are others who can do better. Smart nations learn. Stupid nations do not, and they pay the price.

  5. Despite the good things mentioned, high-value patient-centered healthcare–which consists of top quality care delivered efficiently and at a good price (i.e., cost-effectively) over a person’s entire lifetime–does not exist today…not even close! Greater profits go to providers who are wasteful (over-test and over-treat); error-prone (pay for it once, then pay again to fix the mistakes); and costly (pay for more expensive treatments even though less expensive ones produce results just as good). Also, some providers “game” the system by, for example, manipulating diagnostic and treatment codes to increase payment rates.
    I assert, however, that providers are not to blame for their failure to focus on care value since our country’s “pathological mutation of capitalism” (as John Bogle calls it) has infiltrated and broken our healthcare system. This puts providers in a very difficult situation: Insurance reimbursement rates to hospitals and clinicians have been dropping. At the same time, premiums consumers pay are rising, resulting in fewer insured patients, and thus greater non-payments from strapped patients and increased “charity care.” On top of that, there is substantial cost for managing huge amounts of administrative paperwork (e.g., submitting insurance forms), not to mention enormous expense of malpractice insurance.
    Under these conditions, providers have to treat more patients in same amount of time to maintain their profits, which mean greater likelihood of errors and omissions due to overload. And providers who keep their patients healthy longer through prevention, and who treat ill patients in the most cost-effective manner, are at serious risk of financial ruin. Not to mention the lack of good evidence-based guidelines defining what cost-effective care actually is, and the fact that Medicare is unsustainable.
    Some may not call this a crisis, but I certainly do!

  6. For some reseach about this blog’s discussion on “healthcare crisis?” I would suggest all read these two books. You can Goggle Nortin Hadler and see his other books and bios. He’s not a kook.
    “The Last Well Person”
    How to Stay Well Despite the Health-Care System
    By: Professor Nortin M. Hadler – Professor of Medicane at University of North Carolina.
    “A controversial skewering of how doctors and the medical industry turn healthy people into patients.”
    “Leaving Well Enough Alone” by: Professor Nortin Hadler
    “Do you need surgery for your back pain? Should you have a colonoscopy once you reach age fifty? Is bypass surgery the answer for heart disease?”
    “According to today’s medicine, the answer to those questions often is yes. But Nortin Hadler says that all too often, this answer is wrong. Hadler maintains that many standard procedures and tests carry more risks than benefits. “I firmly believe,” he says, “that the institution of medicine, not the practitioners, has lost its way.”
    Barry, you talk a lot about qualy-metrics. I think the ideas and concepts in these books really support your push for this. Unfortunently adoption of these ideas would really cut healthcare costs and give us better health – nothing the industry really wants to do.

  7. Rebecca is correct. The other problem with the MMA is that it places private insurers as middlemen between consumers and Medicare.
    This cover story from notorious liberal rag Forbes outlines 33 ways that private insurers in the MMA are defrauding taxpayers:
    “The government is about to spend $720 billion over the next decade on medicines for old people. How much of this is going to be wasted or stolen? Why? Because the work of guarding the henhouse has been subcontracted, in large measure, to foxes. This vast and complex plan will be run by private middlemen–chiefly HMOs and PBMs, with assists from pharmaceutical companies–some of whom have been offenders in the past. Uncle Sam is relying on their honest accounting to determine how to dispense massive subsidies to them.”

  8. Is post above correct? Havent health care costs continutally gone up, more or less, as a % of GDP for past 20 odd years? Read Matthew’s clarification, but that seems like more of a slight hand interpretation for those wanting to put a spin on things. I always thought it was pretty concrete and accepted on both sides of the aisle that inflation has gone unchecked for years. Please explain.

  9. The problem with the Medicare drug bill wasn’t not spending enough it was with the poor value for the amount we were spending on it and therefore the relatively poorer coverage that it offers. Why shouldn’t Medicare use it’s bargaining leverage and economies of scale in administration to offer more comprehensive coverage. Spending more on S-CHIP is about covering more children and not overall increasing unit costs. In terms of overall lifetime costs to the health care system it’s debatable what the overall impact of having more children in S-CHIP is.

  10. Yes. Bush double-double good. All hail Bush. Bush double-extra-double smart. All enemies crushed by triple-strong Bush.
    This kind of conversation helps no one. Nothing will be done so long as we argue about the tactics and not the strategy: Are we, as a society, going to finally admit that everyone deserves the care of a doctor? Because that’s what we’re talking about. Care.
    If we make that the priority, the money, the politics, everything else will follow along. But instead we argue about arguing about how we argued and who was right 30 years ago when they were actually talking about something else entirely. PLEASE stop it. Get a grip and pay attention to the fundamental.
    Kindness, generosity, pity and charity aren’t things you SELL.

  11. “Amen. …By ignoring irrefutable evidence when it doesn’t fit the party line, they make themselves appear hopelessly rigid and ideology-driven.”
    Posted by: Catron |
    Washington Post
    No Social Security ‘Crisis’
    Tuesday, February 1, 2005; Page A16
    “THE CRISIS is now,” President Bush says of Social Security. Both aspects of that declaration are incorrect; both also contain nuggets of truth. Social Security faces a long-term deficit that is significant, if not nearly as staggering as the accompanying shortfall in Medicare. Over the next 75 years, the projected shortfall is $3.7 trillion, although the president prefers to use an even scarier number, $10.5 trillion, the gap forecast over an infinite horizon. Left untouched, the Social Security program, sometime in the next 40 or 50 years, is projected to run out of money to pay the full retirement benefits it has promised.
    This is less a crisis than a problem — one that may be more easily solved on paper than in the real world, where politicians are loath to adopt changes that could keep the program solvent in the long run but inflict costs — and therefore pose political risk — in the short term….”
    end quote
    Follow the money. There is no crisis in Healthcare because the providers control the money. There IS a crisis in Social Security because coroporate money managers want the funds now going into SS.
    So Catron, who really is, “hopelessly rigid and ideology-driven”; No, not Bush and Republicans.

  12. I remember hearing during President Reagan’s first term that the Medicare Part A Trust Fund was projected to go broke by 1988. The current forecast calls for it to go bust in 2018 or thereabouts. Go figure. Comparatively small positive changes in inflation assumptions or growth rate relative to GDP can make an enormous difference when compounded out over a long time period. In general, I’m an optimist on this subject, especially if we can do a better job of getting the incentives right, removing regulatory and legislative impediments to things like gain sharing agreements between doctors and hospitals, fixing the malpractice litigation system so hospitals are less afraid to admit mistakes and do what needs to be done to improve patient safety, and develop robust price and quality transparency tools to allow both patients and referring doctors to make more cost-effective medical decisions. A more sensible approach to end of life care would also be helpful.

  13. “Any good news about our health system has become politically incorrect in a climate of Job’s Daughter handwringing and crisis mongering.”
    Amen. The “progressive” policy wonks should consider how the incessant doom and gloom vitiates their credibility. By ignoring irrefutable evidence when it doesn’t fit the party line, they make themselves appear hopelessly rigid and ideology-driven.

  14. Jeff. 5 years is too short a time period. Health care costs go up absolutely in real dollars all the time–HC as as share of GDP goes up based on the denominator–growth in the economy. We get a decent recession every 10 years or so and that’s when that number really jumps.
    If we really were making progress we’d see healthcare’s share of the GDP go down during expansions.
    What’s remarkable at this most recent expansion is that the coverage issue has gotten so much worse–the number of commercially insurance has fallen overall.
    Just wait till the next recession, and we’ll really see a ratchet up in the “crisis”

  15. Here is an excellent set of Power Point slides that Booz Allen recently put together on consumer spending in health care after doing interviews with a bunch of different sources including trade association, policy groups, and gov’t agencies.
    Here is a link to the presentation:
    My two favorite numbers to really track healthcare reform are “number of uninsured” and the more important “out of pocket” number are both discussed and have some nice figures.
    One thing – Can we stop using the term “health care consumerism” when it is solely applied to high-deductible plans only? I find it really difficult to find how this helps consumers and demeaning when applied to useful efforts that really empower consumers.

  16. All I have to say to you, Mr. Goldsmith,is wait till you have a serious illness or injury and have to negotiate our health care system as a patient. Assuming, of course, that you have health insurance similar to the rest of us (I have an HSA and $6000 deductible) and would not receive “special treatment.”
    Then, and not before, you will see what we are talking about. Otherwise, was it Mark Twain who said there are lies, there are damn lies, and then there are statistics?

  17. Businesses are indeed short-sighted when they pay for health plans that don’t evn check for the causes of 80% of health costs. When GM orders their scientists and engineers to desigh GM’s health plans, every patient’s chart will track exercise, unprocessed food, and thrift (to reduce chronic stress). Patient non-compliance will have financial penalties, as well as having to attend a class before the next appointment. Too bad the health industry isn’t as smart as a high school grad.

  18. I generally agree that American health care has waxed and waned in perpetual “crisis” since Truman first tried to enact national health care.
    Still some of your facts are a bit misleading:
    “the health of our most fragile citizens, the elderly, has continuously improved.”
    The health of elderly people overall has improved but an individual elderly person’s health status still usually falls dramatically usually once an elderly person acquires a chronic disease or has a serious injury like a hip fracture from a fall. Medicare still does a relatively poor job of maintaining/improving an elderly person’s help after this point.
    “From 1982-2004, the percentage of people over the age of 85 who are institutionalized has fallen by almost half.”
    This is because many more seniors are living in assisted living facilities that are not captured in the Census count of where elderly reside since there is no standardized definition of an assisted living facility. Additionally, this fall also is due to an important shift in our society that places a higher value in keeping the elderly in their own home as long as possible.
    “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.”
    It is definitely cheaper to keep people out of the hospital but I don’t know how much this really has saved spending vs. just redistributing the funds to different aspects of the health care system. The research that I have seen on this has been mixed particularly with the ability of most pharmaceuticals to truly make a fundamental difference in hospital admissions.

  19. You said yourself that it’s cyclical. So it’s subsiding right now, but we all know it’s just a phase before we enter into the next phase of sky-rocketing inflation. Then healthcare takes up 20% of GDP, then a pause, then 25%, etc. If that’s the case, can you honestly say we’re “making progress”?
    Especially since adding the 47 million uninsured as full participants in our current system would cause the health inflation immediately to recommence? You say it’s cause for celebration that costs are only going up by 2X inflation while we’re leaving more and more people out of the system entirely, or resorting to more Consumer Directed plans with as yet unknown consequences for the health of the enrollees.
    And “actionable” is a funny word in today’s political climate, when fully half the elected representatives seem allergic to progress.