Analysis: You Have No Idea What Health Costs
Sunday, September 20, 2009
The most important health-care document released this week was not Sen. Max Baucus's Healthy Future Act. It was the Kaiser Family Foundation's 2009 Employer Benefits Survey.
While the proposal by Baucus, chairman of the Senate Finance Committee, outlines a direction for policy, the survey, which polls employers about health benefits to assemble a detailed look at the actual cost of health care, fits it squarely in our pocketbooks.
The truth is we all pay, and much more than we recognize, for health care.
For many, it's among the largest investments we'll make, on par, even, with the money we spend on a house or tuck away for retirement. But while it's easy to track our stock portfolios as they tank along with the market, our outlay for health care is less obvious. Employers pay some, and so do individuals, and taxpayers. And some even hides behind the deficit. As such, few of us see the full picture. But to make sense of the proposals for reform, getting a grasp of the cost is critical.
The average health-care coverage for the average family now costs $13,375, according to Kaiser. Over the past decade, premiums have increased by 138 percent. And if the trend continues, by 2019 the average family plan will cost $30,083.
Three years of slightly above-average health insurance will cost a solid six figures.
Those are numbers to marvel at. Those are numbers to fear. But they are not the numbers that loom in the minds of most Americans. And therein lies the problem for health-care reform.
About 160 million Americans receive health coverage through their employers. In general, the employer picks up 73 percent of the tab. This seems like a good deal. In reality, that money comes out of wages.
As Ezekiel Emanuel, who advises Office of Management and Budget Director Peter Orszag on health-care policy, has pointed out, health-care premiums have risen by 300 percent over the past 30 years (and that's after adjusting for inflation). Corporate profit per employee has soared by 200 percent. Hourly earnings for workers, adjusted for inflation, have fallen. The wage increases have been consumed by health-care costs.
Another 80 million Americans are on public plans, mainly Medicare and Medicaid. Those costs are paid by taxpayers. And about 46 million Americans are uninsured. The costs for their care are shifted to the insured: This raises premiums for the average family by $1,100 each year, according to an analysis by Ben Furnas and Peter Harbage of the Center for American Progress.
Imagine if people who touched a hot stove felt only a small fraction of the pain from the burn. That's pretty much what's happening in our health-care system. It hurts enough that we would prefer it to stop, but the urgency is lost.
That's the dilemma for Washington wonks trying to fix this mess: They look at the numbers and see health-care costs crushing our economy, overwhelming our government, swallowing our wages. But the public isn't feeling it. Virtually no one cuts a $13,375 check for health care. Most pay 27 percent of it, or even less. The surest way to cut health-care spending would be to make people shoulder more of the burden directly, as opposed to hiding it in taxes and lost wages. But that's about as popular as a puppy pot roast.
Health-care reform concentrates on the people in acute distress: the uninsured and the underinsured and the poor few who've been left to the cruel chaos of the individual or small-group insurance markets. The public insurance option -- if it comes to pass -- would be open to only these groups, and the bill's hefty price tag is almost entirely devoted to helping them afford coverage. But what about the rest of us?
The problem for the White House has been that the proposed health reform policies meant to help the average American aren't specific. They're not a cash transfer or a new insurance card. These are the "curve benders," policies meant to cut long-term health-care costs. The problem is they're abstract, speculative and, at times, even unpopular.
The White House's favorite curve bender is called "comparative effectiveness review" -- a fancy way of saying "evidence." Study after study has shown that we waste an incredible amount of money on medical interventions that just don't work. If we can figure out which ones those are, we can stop using them and save money by not buying what we don't need. That may work. But the evidence will take a long time to amass, and we don't yet know what it will show. What if it finds that some brand-new and incredibly expensive treatments are wildly effective? That could raise spending. Industry stakeholders, however, had little interest in waiting around to find out: They made such a fuss that Congress quickly inserted a provision promising that the government wouldn't use any of this evidence in deciding what Medicare and Medicaid would cover. Because God forbid government programs rely on evidence.
The favorite proposal of liberals is the public insurance option. If the public plan were open to all Americans and partnered with Medicare, it could negotiate deep discounts with health-care providers. The Lewin Group, a health industry consultancy firm, and the Commonwealth Fund, a liberal-leaning health-care advocacy organization, have both estimated that this sort of plan could save the average American 20 to 30 percent on premiums.
Of course, providers don't much like the sound of that because they would see 20 to 30 percent less revenue. And insurers don't much like the sound of that because they could not compete with that sort of buying power. Republicans and centrist Democrats have banded together to weaken the public plan and maybe even remove it altogether. President Obama now promises that the public plan would be open only to the uninsured and wouldn't offer any advantages over private insurers. It won't, in other words, be allowed to save people money.
Conservatives favor the idea of taxing health-care benefits and popularizing "high-deductible health plans." In short, if people have to pay more for health care, they'll use less of it. This is true, but as you might expect, quite unpopular. The Finance Committee's bill would tax insurers who offer high-cost plans, but we'll see whether that survives once people realize it would raise the price of their insurance.
'Reform' = Wonky Tweaks
If Americans felt the full burden of health-care costs, they'd likely be clamoring for all these policies, and maybe more. They'd want transformational change. But they don't feel those costs, and so they're resistant to change. Obama continually promises that most Americans will notice no changes in their existing coverage, and all the bills reflect that vow. So what's left? How do you reform a system you cannot change?
You ask the wonks. People often complain about the length of bills. But you don't need many pages to explain a public plan, or set up a death panel (kidding!). Rather, the bulk of these bills amount to hundreds of small tweaks and fixes that make this corner of the health-care system a smidge more user-friendly, or that transaction a tad faster. Rather than saving hundreds of billions of dollars with a single dramatic intervention that transforms the system, they provide for the accretion of modest savings and small efficiencies.
For instance, despite all the fire over the co-op plan, it gets two pages in the Finance Committee's bill. Pages 75 to 110 are all devoted to delivery system changes that are meant to make the system a bit more efficient but that no one has ever heard of. "Value-based purchasing" alone gets six pages in the bill. The "National Pilot Program on Payment Bundling" gets another five.
Melinda Beeuwkes Buntin, a researcher at the Rand Corporation, and David Cutler, a health economist at Harvard, recently estimated the savings that could be attained by "modernizing" the system over the next 10 years. The changes they examined weren't dramatic. Replacing paper records with computerized files, making it easier for people to comparison-shop across insurers, "bundling" payments for the treatment of a single illness rather than shelling out separately for each doctor visit -- that sort of thing. Added up, they equaled a startling $2 trillion over 10 years. That's a lot of money for policies that have received virtually no attention in the debate.
And yet, this is the quiet promise of health-care reform. The grand theories might fail. They often do. But making the system a bit better, a bit quicker and a bit more agile -- we can do that. And until the stove gets hot enough, it may be all we can do.