Is the failure in framing health policy due solely to the incompetence of our policy makers or are there other systemic factor in play? In past posts we have attributed policy failure to the lack of understanding on the part of policy makers of the business models affecting healthcare; their adherence to political ideologies as if they were sacred religions; their fostering misinformation to support a political position; and their failure to engage in bipartisan deliberation.
Tyler Cower in Bloomberg (July 20, 217) offers an interesting insight on the issue. He posits that American healthcare spending is typical of our nation’s habits and mores. Household savings rates have been falling since 1980s as annual individual consumption per capita continues to rise. Americans consume a lot more of everything than Europeans and our healthcare spending is another example of that tendency. We spend a lot on health care because we spend a lot period. In addition, we look on better health care as an investment in longevity, comfort, and lifetime earnings.
Americans are impatient and, as a result, we will pay for superior service. We are relatively intolerant of long waits and we are not sufficiently focused on the long-term solutions of exercise and good diet. We are willing to go to extreme lengths to keep medical patients alive, rather than giving up hope, even when less intervention might be the more rational medical decision.
This is an interesting concept that challenges the cost-control goal of health policy. It does not let our policy makers off the hook. Let us follow the money.
U.S. GDP is roughly $18.5 trillion. The federal government has a unified expenditure budget (including social security expenditures) of $4.7 trillion. State expenditures are $2.2 trillion, so between the federal and state governments, one-third of our annual income is taxed and spent by government. Social Security and Medicare account for $1.6 trillion dollars of federal spending, roughly one-third of our total expenditures. Social security has its own revenue stream and trust fund; Medicare is paid for out of the federal budget. Social security is projected to only be able to pay 75% of benefits by the year 2035 without some adjustment. Simple: increase taxes, reduce benefits, or some combination of the two. Medicaid spending is $545 billion, growing at 9.7% annually. Same solution: increase taxes, reduce benefits, or some combination of the two. The interest on our debt is $225B. Out of a total of roughly $4.7 trillion, these non-discretionary expenditures represent 56% of our total spending. Add to that another $362 billion for safety net programs, and two-thirds of our federal budget is either non-discretionary or politically untouchable.
This numbers indicate that government will find it increasing difficult to join in on America’s spending spree. If we do not want to go broke, and we do not want to leave people hanging out on a limb, then we need to set a course that everyone can commit to over a longer period, like a decade or more. Well, that is a non-starter because no one can be assured they will be in office ten years from now except the President, who knows for sure that he/she will not be. But these types of complex problems defy simple solutions; they require reasonable people to point us in the right direction and have the leadership courage to not only stick with the program but to make the adjustments necessary along the way to make it work.
Jack Militello and John McCall
University of St. Thomas Center for Innovation in the Business of Health Care.