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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Irwin TylerKenKalebergSteve Beller, PhDmatt Recent comment authors
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Irwin Tyler
Irwin Tyler

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… Read more »

Irwin Tyler
Irwin Tyler

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.


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… Read more »


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… Read more »

Steve Beller, PhD

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… Read more »


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.” and: “Leaving Well Enough Alone” by: Professor Nortin Hadler “Do you need surgery for your back pain? Should you have a colonoscopy once you reach… Read more »


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… Read more »


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.


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.


Yes. Bush double-double good. All hail Bush. Bush double-extra-double smart. All enemies crushed by triple-strong Bush. Whatever. 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… Read more »


“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,… Read more »

Barry Carol
Barry Carol

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… Read more »


“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.

Matthew Holt

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… Read more »


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: http://www.boozallen.com/media/file/Trends_in_Consumer_Cost-Sharing.pdf 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… Read more »