Bryan R. Lawrence is founder of Oakcliff Capital, a New York-based investment partnership.
Now that the Supreme Court has found the Affordable Care Act’s individual mandate constitutional, there is a danger that we will revert to our old health-care politics — Republicans warning about “death panels” and socialized medicine, and Democrats wanting more tax revenue to protect Medicare.
All of that misses the point. Medicare costs per beneficiary grew by 5.5 percent annually from 2000 to 2011 (excluding the costs of Medicare Part D). Over the next 75 years, they are projected to grow at a slower rate, 4.3 percent annually, as Congress stops its annual “doc-fix” avoidance of its own legally required reductions in physician payments and as the ACA’s cost-control experiments prove effective.
But the 2012 Medicare trustees’ report casts doubt on whether that slower rate will happen. Medicare already pays doctors just 80 percent of private insurance rates. For the doc fix not to be implemented again next year, payments to physicians would have to be cut by 31 percent. Many doctors would stop seeing Medicare patients, and that would make another another doc fix politically inevitable.
Medicare’s trustees also worry that the ACA’s cost controls may not work. “Actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report, possibly by substantial amounts,” they concluded. To them, that 4.3 percent growth rate looks low.
Why does this matter? In its 2011 financial report for the federal government, the Government Accountability Office calculates that health-care cost growth that is just 1 percent faster would require that the Treasury Department set aside, today, an additional $36 trillion to fund future promises (this includes Medicaid, which is expected to grow at rates similar to Medicare).
That’s roughly 240 percent of our gross domestic product. Greece was pushed into crisis with a debt-to-GDP ratio of 113 percent.
These frightening numbers also show the opportunity for positive change. If total U.S. health-care spending could be reduced over the next 20 years to Swiss levels — based on 2007 data, that would mean going from 15.7 percent of GDP to 10.8 percent — annual health-care cost growth over those 20 years would be 2 percent slower. The GAO did not calculate the impact of slower growth, but simple deduction suggests that tens of trillions of dollars would be freed up to spend on schools, or roads or lower taxes.
Put another way, if we spent what the Swiss do on health care, the reduction of 4.9 percent of GDP would free up more than $700 billion a year to lessen the burden on American households. That would be almost as much as the entire 2009 American Recovery and Reinvestment Act stimulus, except that it would happen every year, and it would not increase the nation’s debt load.
The Swiss system isn’t just cheaper. Swiss health care delivers better outcomes than our own. Infant mortality is 38 percent lower, according to World Health Organization data published in 2010, and the Swiss live four years longer than Americans. Why aren’t our politics about the outrage of higher costs and worse results?
The Wall Street Journal reported this month on the case of a Medicare patient whose end-of-life care cost taxpayers $2.1 million, while prolonging his agony. Doctors were not able to stop providing care, and Medicare paid for it. Rather than trying to control costs by reducing fees for each service, which Congress has tried but overridden with its doc-fixes since 1997, we need a mechanism to choose which services to perform. Every other developed country has such a mechanism — and provides universal health care at lower cost.
In Switzerland, insurance companies choose which services to fund. Swiss citizens are required to buy insurance, and those unable to afford it are subsidized by the government. Insurance companies are required to provide a basic package; they compete on price to win business.
In Britain, the National Institute for Health and Clinical Excellence rejects payments if the added “quality-adjusted life years” cost more than 30,000 pounds ($47,000) per year. It’s hard to imagine Americans allowing an explicit value to be placed on human life, but Britain’s health care is 46 percent cheaper than ours, infant mortality is 25 percent lower and its citizens live two years longer.
In Singapore, citizens are required to save up to 36 percent of their incomes to fund their own retirement and health-care costs — the government makes no promises. An 80-year-old man dying of prostate cancer can spend $20,000 on a hip replacement or leave the money to his children. Singapore’s health care is 80 percent cheaper than ours, infant mortality is 63 percent lower and its citizens live three years longer.
We should be having a national conversation about which of these models to adopt. But too many Americans believe that any cut in Medicare spending is a confiscation of benefits they have paid into a trust fund. This misconception has created dangerous expectations among voters. There is little room for substantive debate in our toxic politics, and our elected leaders are hobbled by the consequences of bad program design (Medicare’s intergenerational funding model, which required a baby boom to be affordable) and decades of dubious accounting that hides health care’s cost.
Our leaders need to show some courage and engage us in a fully informed discussion of our options. Americans should listen patiently to any leader lecturing them about death panels or the Buffett Rule, and then ask three simple questions: Why is our care so expensive? Why do we get worse outcomes? And how do we stop borrowing from our children’s future?