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statements of the many problems

Is there a problem with healthcare?

Some argue no, that we are doing just fine.   Most Americans are quite happy with the coverage they receive.  However the growth in the percentage of GDP that is spent on healthcare continues to rise at a higher percentage than the GDP itself.   This means that the compensation for employees will be affected by the ever increasing cost of healthcare.

The links at right will assist to understand better the magnitude and source of the problem.

What is the nature of this rise and what can be done about it?

How long has this been going on and what effects have there been on the healthcare industry?  It is the hope that the reader will engage with these critical questions before finalizing their views on what to do.  

Healthcare is consider by economists to be a superior good, meaning that as the GDP rises that the percentage of the GDP that is consumed also rises.   A neutral good is one that is unchanged by the increase in GDP.   As we can imagine the level of healthcare in the mid-60’s is not comparable to what we experience today in this country.    Some have put forth that at least 50% of the increase in healthcare costs are due to the growth of technology used in healthcare.   The reader can find the links at left to be most useful in looking at the current level of understanding of the trends in costs and their drivers, the economics or model that results from the system as it has evolved over the past 40 years.  These web pages and the links to more info found therein are intended to raise the level of understanding as to what we have in our current state of healthcare.   It is presented to enable the reader to delve into this topic of what we have, why it costs what it does, and what the source of a better system might be.

I would put forth that we do have a problem in healthcare in this country, and that it is a structural one.    Our best practice in the States is the best in the world.   Our technology is the best in the world, and largely because it is developed here in the States.   Why do we have a problem then?  Why can’t competitive forces work to make costs lower and allow the incorporation of new technology to not drive costs to the extent that they seem to have?   I can offer the semiconductor sector as an example of a perhaps even higher level of new technology per year, and yet the costs come down consistently across the entire industry.  

What makes healthcare different?

It is seen more as a right or a necessity rather than a service or a good.    This debate is very real at the moment, in the political arena, and it needs to be thought through carefully before proceeding to any definition of a solution.    Every where one turns there are stories of the effects of the high cost of healthcare, and what a devastating effect this has had on patients with catastrophic illness, from bankruptcies to loss of homes, and so on.   Is our healthcare industry just raking in profits for large companies?  Read the data in the links at left, and the answer will be a probably not.  Is the level of technology just too much of a cost driver that we cannot overcome our own innovation?  No, that is not the answer.   Are we treating healthcare as a must have service that someone has to provide?  Yes that seems closer to reality.

The following video is an attempt by the interviewer to understand the answer to whether or not healthcare is a right or not.  The definition of a "right" should be clear, but is clearly not.  Connor tries to make the distinction between a procured service and a claim to that service.  This is an essential distinction in this debate. Many see healthcare is something that someone should just provide to them, and not have to pay anything directly for it.   Obama campaigned on the platform that it was a right, which is a big difference to wanting healthcare to be inexpensive and available to all.  that distinction needs to be made for the debate on healthcare to progress..

 

What is driving this view?

Historically it goes back to the 1940’s in a tax bill that made it highly advantageous for companies to offer healthcare without paying taxes on the money used.   So it was a benefit to the employees and employers.   Both had a tax benefit.   The ramp to a “right” continued in the 60’s when Medicare and Medicaid were institutionalized.   Medicare is the biggest driver of uncertainly in Federal budgets in the future.  Currently the unfunded (through employee taxes) portion of Medicare is over $30 trillion, yes trillion.    The portion of healthcare annual expenditures that is government based is 45% and rising.   Medicare serves 45 million people currently, and in a few decades, under the current system, will serve close to 90 million, as the population ages.  There are many things wrong with Medicare and Medicaid, and many analyses done over the years, some presented on the page Medicare at left. 

What is wrong with increasing care for all, making it readily available to seniors and poorer folks?

There is nothing wrong with them receiving care, but with the approach taken for the past 40 years the outcome has been to reduce the competitive forces operating.    Some would say so what, that is the price of a caring society, after all so many other countries are doing even more government assisted healthcare.   Even current political arguments are saying that we need to provide healthcare for all, that this is our social obligation.  I admire the compassion and share it.   However the best approach to take is to use the free market forces to make healthcare more readily available to more folks.  

Do read the analysis on the uninsured at left.  It breaks down this question and begins to define a part of a better solution.   This is a strong driving element in the policies that are being considered, so check this out.  So before we turn to the over view of a proposed solution, let’s look further into the nature of the problem.  The link at left on economics details this further, as do many books and links indicated above.    There are also a variety of myths about healthcare that also have developed over the years.  It is useful at some point in your inquiry to read these, as they provide insight not only into specific issues, but also into the level of critical thinking and analysis that has been used in the past.   The level of analysis in healthcare, it can be safely said, has lost its acuity over the years, just as the business acumen has. 

In short, it is quite revealing that the best analyses of the healthcare industry, displaying the most sound economic and business thought process came from consultants or observers outside the healthcare industry.  I can without equivocation state that for the semiconductor industry this would never be the case.  The best analysis would come from within the industry, from participating business folks, and it should be the case.  It would be the case for the healthcare industry if solid business acumen still existed within the industry.  

Why is this level of competitive thinking so much different and so suppressed?

It is simply put because the competitive pressures have been systematically attenuated.   If you asked a healthcare executive today to answer honestly the question:  would lobbying in Washington DC be more effective than adding an electronic record system for patients, I believe that the answer would be lobbying is more effective.    I believe that this answer would be the prevalent one for several past decades.    I believe that the answer further lies in the thought that government is slowly changing the business dynamic through laws, programs, and mandates all at the Federal and State levels.  Medicare procedures permeate the industry. 

In the economics page, link at left, the notion of how a buying decision, who makes it, and how that affects the marginal pricing is a key element in trying to both understand the problem and as well the form of any attempt at a solution.  There are some portions of the healthcare industry that have shown strong downward price declines, and these are key to observe and analysis, for they effectively say, in summary, that when the buyer worries about pricing and quality, and is in charge of this decision for themselves, the results are driven by market competitive forces.  It is a critical understanding to achieve before evaluating any form of a solution.  

A good analogy is based on the microeconomic example of a buyer faced with having complete access to information and control over price, etc. vs. a buyer that is forced into using a third party buyer, one who is not rewarded with insuring the buyer’s satisfaction.  In essence that is what we have today in healthcare in the US, and in most countries around the world.    The US has one of the lowest percentages, within the countries classified as OECD, of buyer involvement in healthcare purchases.   Imagine if you walked into a store and saw no prices and had few choices.  Imagine what effect these circumstances would have over years to the price and motivation within this hypothetical market.   This best describes the condition of the healthcare industry in this country today.   Only about 13% of all purchases are controlled today, down from nearly 45% in the early 60’s.  This slow erosion in buyer influence is not helpful in strengthening market competitive forces, and in fact, has lead strongly to the lack of any competitive drivers over the industry. 

Parts of cosmetic surgery however are very competitive, primarily because as elective surgery, they are paid directly by the buyer/customer.  What other industry has driven costs down which also has this breaking apart of the buyer and customer decisions?  I do believe there are none.  Setting wage and price controls causes scarcity, as we learned with the attempt at this policy during his presidency.   Not only did it drive scarcity but also lead to increased prices.   It had the exact opposite effect intended.   Many of the political policy proposals will lead to the same outcome as wage and price controls.  Since the healthcare industry is the largest industry in the country, installing such controls with the predictable outcomes, would affect adversely the entire economy, and as well slow the rate of medical technology development and quality of care. 

What form should the solution take?

Read on brave reader, for the unraveling of the last 40 years is part of the solution, and putting the customer back in control with cost sensitivity is the other.