Healthcare Spending Rocketing Out of Control

By Aiya Anvarova

In the recent time of severe economic crisis followed by the sluggish economic recovery that the United States has been going through, it seems that the healthcare issue is not a priority for the country. Thus, many argued that President Barack Obama should have given up the Patient Protection and Affordable Care Act (PPACA), commonly called Obamacare, and focused on the economy. However, in reality escalating healthcare spending has become a significant burden for the U.S. economy which makes it highly problematic to fix the economy without fixing the healthcare system.

In one of his June interviews, Governor Romney cited a book, “The Escape Artists: How Obama’s Team Fumbled the Recovery,” by the liberal journalist Noam Scheiber. In this book, the author put forward the idea that, early in his term, President Obama was deciding whether to focus on the national healthcare law or to devote more of his attention to the economic recovery. According to Scheiber, the President considered healthcare reform as a bigger long-term achievement and his corresponding choice of priorities postponed the U.S. economic recovery. Governor Mitt Romney proceeded with his line of presenting Obamacare as a part of the reason the economy was still sluggish by stating in the first presidential debate that he did not understand how “the President could have come in the office facing 23 million people out of work, rising unemployment and the economic crisis at the kitchen table and spend his energy and passion for two years fighting for Obamacare instead of fighting for jobs for the American people”. Accordingly, the Republican presidential challenger believes that the healthcare issue is not a sound economic issue and should not be on the President’s immediate agenda.

However, even though healthcare may not be a crucial economic issue for many countries in the world, the United States is not one of them as healthcare is one of the major expenditure items in the national budget and a sizable part of the economy. In 2010, the U.S. spent nearly $2.6 trillion on healthcare. This approximated to 17.9% of the country’s GDP, a substantially higher proportion than in any other country in the world. U.S. healthcare spending is now 55% above the average for wealthy countries. With that said, the quality of and access to care in the country is no way consistent with the enormous amount of money the federal government injects into healthcare. In 2011, the number of the uninsured Americans was 48.6 million compared to 37 million in 1980. Also the U.S. lags behind on life expectancy and the quality of preventive treatment. According to the Institute of Medicine, a third of the U.S. healthcare expenditure does not lead to improved health, that is, it is a substantial waste of the federal budget that has to be eliminated.

Healthcare spending is also creating long-term fiscal problems adding significantly to the overall federal debt. Between now and 2050, Medicare and Medicaid spending will rise from 5.5% of GDP to over 12%. In contrast, Social Security is projected to rise from 5% to only 6% of GDP over this period. Consequently, healthcare spending is the primary driver of future growth in government spending. Studies of international medical costs suggest that, compared to other high-income countries such as Canada and Great Britain, the U.S. healthcare system is inefficient, which substantially increases the medical costs both for the individuals and the government. There are a few areas in the U.S. healthcare system, such as overwhelming administrative costs and fee-for-service payment method, where changes have a tangible potential for savings and sustained cost reduction.  

Healthcare spending is nearly a fifth of the U.S. economy and is the largest driver of long-term U.S. debt. The way the healthcare issue is tackled will directly affect the economy in the long run. In general, the issue of healthcare reform is itself a major issue in terms of the economic recovery. In the context of the upcoming presidential election, it is important to understand that the ability and willingness of the next president to take hold of healthcare spending and improve the productivity of the U.S. healthcare system will have a significant impact on the country’s fiscal future and the economy in general.

List of References

Collins, S. R., Guterman, S.,  Nuzum, R.,   Zezza, M. A.,  Garber, T., and Smith, J. (2012, October 2). Health care in the 2012 presidential election: How the Obama and Romney plans stack up. Retrieved from the Commonwealth Fund website: http://www.commonwealthfund.org/

Cutler D. M., and Ly D. (2011, Spring). The (paper) work of medicine: Understanding international medical costs. Journal of Economic Perspectives, 25, 3-25. doi:10.1257/jep.25.2.3

Romney’s new attack: Why did Obama focus on ObamaCare instead of on the economy? (2012, June 6) [Web log post]. Retrieved from http://hotair.com/archives/2012/06/06/romneys-new-attack-why-did-obama-focus-on-obamacare-instead-of-on-the-economy/

First Presidential Debate Overview: the Healthcare.

The first Presidential debate took place on October 3rd at the University of Denver in Denver, CO.  One of the main issues discussed was the issue of healthcare reform. Although a great amount of time was devoted to this problem, in my opinion, neither of the candidates was able to shed light on the concerns of the American people.

The main topic being the project Obamacare, President Obama started his argument with three main points. The first was that the Affordable Care Act does not concern the people who already have insurance and moreover, it regulates its cost. He also mentions  that under his new program, people with existing policies will be getting rebates if their insurance company spends more than 20% of its profit on infrastructure and CEO bonuses rather than on customers’ benefits. Second, he emphasized that for people who don’t have coverage, the cost to get it would be 18% less than before. Lastly, he notes that this model worked really well in Massachusetts, referring to his opponent’s notion of rejecting something that he himself supported in his own state. Governor Mitt Romney in response agrees that the major task of the reform is to lower the cost of health care, but not through Obamacare. He addresses statistics and finds that ¾ of small business owners will reduce their hiring potential if they will be obligated to provide insurance, which can potentially lead to a job loss in a private sector. “I like the way we did it in Massachusetts," Romney says, but proposes to leave this decision up to the State government. Nevertheless, Governor does not explain why if it works on a State level, it cannot be exercised on a Federal level.

Governor Romney also addresses the problem of Medicare, precisely the $716 billion dollar cut under Affordable Care Act reform. In his opinion, making Medicare a voucher system will give people a choice of insurance, which will create competition, and that will automatically regulate the cost. In response to that President Obama mentions that the goal of any private insurance is to make a profit, which is why Medicare will always cost less. Obama does not give any comment on the $716 billion cut and tries to avoid this subject. It is also necessary to note that the main reason for cuts is a huge federal deficit. Although Governor Romney actively criticized Obamacare, he does not specify how his program will deal with this deficit. Moreover, Congressional Budget Office reports that repealing the health care law would increase the federal deficit by $109 billion over ten years.

Democrats and Republicans still undecided on a solid solution to the Medicare funding issue.

Despite the fact that election time is just around the corner, it seems that neither Obama nor Romney can propose a complete solution to the Medicare issue as of yet.  Aside from the obvious slurs each party is throwing about how the other wants to cut Medicare funding, the key details behind said parties' ideas have not yet come to fruition.  While Romney's proposal mainly focuses on a voucher system, he is still being surprisingly vague.  On the other hand, Obama firmly believes that a voucher system is definitely the incorrect way to go and that, perhaps, a bill might be the solution.

According to The Huffington Post, Romney's plan would opt to change Medicare so that "competition among insurers will keep costs in check."  Romney believes that shifting people under the age of 54 onto a different type of Medicare plan will cut costs, but that it would not affect current beneficiaries.  While this may seem like an interesting proposal, it can be detrimental to people who are permanently disabled.  As of today, many people receiving Medicare are capable of working at least a part-time job and simply choose not to.  As a future consequence of this, the people who are permanently disabled and unable to work at all may end up paying more out of pocket than they can afford.

Obviously against a voucher system, Obama plans to increase the amount of money collected from Medicare recipients who make over a certain salary each year.  Additionally, "he also would hit newly joining baby boomers with a series of fees."  While this could perhaps be a potential issue solver, the proposal may not go over well with the generation before us, who are rapidly closing in on retirement age.  This generation has paid countless taxes towards insurance systems and as a consequence for being forced to pay said taxes, they are being rewarded with more fees and a possible drop in quality of insurance coverage for themselves when they reach the age for retirement.

Perhaps the Democrats and Republicans should focus on solidifying their plans and actually putting thought into them instead of wondering how they can get more votes by ruining the reputation of their opponent.

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Unintended Consequences?

Promoted by the Bush and Obama administrations as a cost-cutting measure, have electronic patient records actually led to increased healthcare costs?

According to an analysis by the New York Times, the push to streamline patient record keeping through federal subsidies for electronic records systems may end up increasing costs to Medicare.  The federal government has provided billions of dollars to hospitals to upgrade to the new electronic systems, in hopes of "improv[ing] efficiency and patient safety", in addition to reducing healthcare costs due to misdiagnosis and duplicate medical tests.

However, several doctors and healthcare experts interviewed by the Times say that the new systems make it easier for hospitals to "upcode", an industry term for defrauding Medicare by using medical codes for care that was never received by the patient.

The Times article quotes a Health and Human Services Department spokesperson stating that Medicare "has strong protections in place to prevent fraud."

Update:  The federal government has responded to the original story, sending a stern letter to hospitals discouraging the "gaming" of the system described above.