This segment reviews the impact of relentless increase of U.S. healthcare spending on the economy, politics and society.
In Segment 4, we showed some statistics on relentlessly rising healthcare spending. And in Segment 5 we looked at the Perfect Storm — how rising costs are literally built into the system as it is now.
In this Segment, we will ask the question, So, why is it so bad for health spending to increase? After all, health care is good and noble. By the way, it also creates good-paying jobs.
My answer is that healthcare spending is good, of course, but only up to a point. Past a certain point it is not worth the cost, it sucks money from other important purposes, and it fuels social and political unrest.
Let’s look at each of these arguments. First, are we getting our money’s worth?
Here’s the slide from the last lecture showing the benefit from each additional dollar spent. This is what economists call “marginal benefit.” If you’ve already spent 1,000 dollars, what more do we get by spending 10 or 100 more dollars? The answer is, we get less and less, the more we spend.
On the left side is the column of highly valuable health services like public sanitation and immunizations. For very few dollars spent, we prevent disease and save lives. The next column, moving right, are routine services that give good value for the money spent, like kidney dialysis, chemo for treatable cancers and heart bypass up to age 70. The next column are lower-value services like keeping dying patients in uncomfortable ICU beds. Then we reach a cut-point where we get no added benefit from extra spending, what economists call the “flat of the curve.” This is unnecessary testing, treatments, or drugs, which are wasteful. Here is a list of examples.
Doctors and specialists have recently gotten together to identify some worthless habits of care that can be eliminated. They call it the Choosing Wisely campaign, and are trying to get all doctors to break the habit of getting these. Here are some other examples.
The last column shows that sometimes giving too many treatments or drugs can actually be harmful. As a geriatric specialist taking care of the elderly, I can tell you that over my years of practice I have definitely cured more people by stopping unnecessary drugs than by overprescribing.
The bottom line is that most experts agree that the US is not getting any more bang by spending more bucks, and in some cases actually doing more harm than good.
The next reason is that health spending is taking money away from other equally important purposes. This is what economists call “opportunity costs.” By spending an extra dollar on healthcare, we are missing the opportunity to buy better education, business investment, housing or infrastructure.
The third reason is budget squeezes. Healthcare is driving up Medicare and Medicaid, for example, which increases the federal budget deficit. It also squeezes states’ share of Medicaid costs, driving up taxes. It squeezes corporate expenses, cutting into investments and employee pay. This also hurts US competitiveness abroad, and it drives some jobs overseas.
And the last reason I’ll give is its effect on take-home pay. I showed this graph in Segment 3. The RAND think tank calculated that between 1999 and 2009 Americans were 30% more productive and got 30% more wage compensation, but all of that increase went into health premiums (shown in red), not into take home pay (shown in blue). Healthcare costs are making us feel poorer.
I think people are finally getting angry about so much healthcare spending. That’s one big reason they voted for Donald Trump, hoping he could do something dramatic to fix it.
I am worried that if left unchecked, soaring healthcare costs will cut into defense spending, drive up the national debt, and ultimately weaken us as a nation.
And so, what is the conclusion?
The conclusion is that exorbitant spending is the problem. Health spending eventually leads back into your wallet, and my wallet, and our grandchildren’s wallet in the future.
In the next episodes we will discuss how to stop the excessive spending. This will require us to fix the whole healthcare system, not just tinker with insurance, Obamacare markets, and Medicaid. We will also look at some of the ethical issues and the political challenges involved. I’ll see you then.