The Wrong Healthcare Issue

Right now, the House Republicans are fighting to get enough votes to pass their bill to repeal and replace the Affordable Care Act, aka “Obamacare.” The Democrats are staunchly opposed. Both sides are arguing over the affordability of healthcare and access to healthcare insurance.

As far as I can see, they’re both circling around wrong tree, chasing each other’s tails. Insurance is only a symptom of the greater problem, and trying to deal with symptoms is not only expensive, but will also postpone dealing with the real problem, which continues to worsen. That problem? Healthcare costs. People need insurance because healthcare costs in the U.S. are effectively the highest in the world, and the vast majority of Americans don’t get as good healthcare as nations spending far less on healthcare.

In 2015, U.S. health care costs were $3.2 trillion, making healthcare one of the largest U.S. industries, nearly eighteen percent of Gross Domestic Product, but fifty-five years ago, healthcare only comprised five percent of GDP.

Part of the reason for the cost increase is emergency room treatment, the most expensive single aspect of current healthcare, making up one-third of all health care costs in America. And a significant proportion of emergency room care occurs because people can’t get or afford other treatment for various reasons.

Another component of rising costs is the continuing increase in the costs of drugs and medical devices. According to Forbes, the healthcare technology industry was the most profitable U.S. industry sector of all in 2015, notching an average profit margin of 21%, with the most profitable company of all being Gilead Sciences with a 53% profit margin. And no wonder, given that the list price for the top-20-selling drugs in the U.S. averages more than twice as much as those drugs as in the E.U. or Canada.

While the pharmaceutical industry pleads high research and development costs, a GlobalData study showed that the ten largest pharmaceutical companies in the world in 2013 spent a total of $86.9 billion on sales and marketing, as opposed to $35.5 billion on research and development, almost two and a half times as much on marketing as R&D. Those ten companies had an average profit margin of 19.4%, ranging individually from 10% to 43%, with half making 20% or more. And since Medicare is prohibited by law from negotiating drug prices for its 55 million beneficiaries, the program must pay whatever price drug makers set.

The U.S. medical technology market exceeds $150 billion a year in sales, and in 2015 the gross profit margin for the medical equipment and supplies industry averaged 12.1%, according to data from CSImarket.com.

Studies of doctors’ compensation show that over the past twenty years, that, in general, physician compensation has increased far less than all other components of healthcare. In fact, annual earnings actually declined for the typical physician between 2000 and 2010. Annual earnings for physician assistants and pharmacists have increased at a greater rate. More to the point, as a percentage of total national healthcare costs, U.S. physician wages are small – approximately 9% – a number among the lowest in the developed world.

Hospitals’ costs have increased significantly, but not because they’re making money. A Health Affairs study analyzed hospital income and costs of more than 3,000 hospitals nation-wide and found that fifty-five percent of hospitals lost money on each patient they served in 2013. This does raise the question of whether non-profit hospitals are paying more and more, possibly too much, for high-priced administrators apparently required by the bureaucratic and legal maze generated by the interweaving of private and public medical systems, government regulations, and insurance company requirements. Studies indicate that administrative costs make up twenty to thirty percent of the United States health care bill, far higher than in any other country. American insurers, meanwhile, spent $606 per person on administrative costs, more than twice as much as in any other developed country and more than three times as much as many, according to a study by the Commonwealth Fund.

Then add to that the skyrocketing costs of malpractice insurance and often excessive court judgments in medical tort claims cases.While the amount is subject to dispute, it’s not inconsiderable and also adds to costs.

Unfortunately, neither the Affordable Care Act nor any proposed Republican replacement will do anything to deal with what I’ve mentioned, and what I’ve mentioned are only the most obvious causes of ever-increasing health care costs.

7 thoughts on “The Wrong Healthcare Issue”

  1. John Prigent says:

    An interesting analysis. We in Britain tend to think that our NHS is running out of money because of health tourists who arrive and need expensive hospital treatment, and because of doctors and hospitals that don’t even consider asking for non-contributors to pay for their treatment and medicines. In fact they refuse to even consider asking! But a major factor is also the expanding bureaucracy with ever-increasing numbers of ‘managers’ who know nothing about medical matters, and it seems that the US has the same problem (though perhaps not as many health tourists).

    1. R. Hamilton says:

      We have our share; some Canadians not obtaining satisfaction via their system, and the occasional very wealthy sort from the Middle East showing up at premiere facilities like the Mayo Clinic or Johns Hopkins.

      I think we were better off when pharmaceuticals could not be advertised, and there has been talk of banning it, but I question whether a ban could be written that would not be thrown out in court.

      I’d like to see some market-based solutions (not single-payer!) to cost control…

      1. Nathaniel says:

        What we have right now IS the “market-based solution”. The idea was to encourage (or force, if you prefer) everyone into the insurance market to create a big enough risk pool to defray costs.

        It hasn’t succeeded as far as reducing private costs for various reasons, but the notion that is hasn’t because it’s not “market-based” is at this point more a theological assertion than an economic one.

        1. R. Hamilton says:

          When it comes to not handing 1/6th or so of the economy over to the control of the government, I’m all for theology.

          1. Nathaniel says:

            And when it comes to HEALTH CARE, (which, as it consists of enabling and extending and bettering the quality of human life, is far far more than merely an economic engine,) you can worship however you like, but horror ensues when you need to inflict your religious convictions upon the rest of us.

  2. Jeff says:

    Another well thought out piece, Lee. Thanks.

    I turned off the TV this morning after one Republican Senator spoke about how this is about letting people go to whatever doctor they want… I have good insurance and it isn’t who I want, it’s who my insurance company wants me to see. I was reminded of this earlier this week when I had to find an provider near my daughter’s college for her to see.

  3. Tom says:

    https://www.washingtonpost.com/news/wonk/wp/2017/03/24/the-disease-killing-white-americans-goes-way-deeper-than-opioids/?tid=pm_pop&utm_term=.104f1ac3b74e
    Access to health care may be even more important to the US than we thought.
    This article in the Washington Post gave me pause in my bias against Trump voters. Perhaps when one is in physical prime and cannot control one’s destiny by hard work, then it does not matter whether the angel you look to has wings or horns.

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