The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Posts Tagged ‘Medical Costs’

The Need to Address Health Care Costs

Posted by Alan on July 10, 2007

While often fun, taking today’s trends and extrapolating them for several decades can lead to some absurd results (because the assumption is that nothing changes over the time frame). But they can also highlight the absurdity of today’s public policy.

Case in point: a study by the Congressional Budget Office on what the current rate of health spending growth will do to tax rates if left unchecked through 2050. (Here’s a copy of the CBO Health Care Cost Report). Among the results are an increase to the lowest tax rate from 10%-to-26% and an increase in the highest tax rate from 35%-to-92%.

The reason is that the annual growth in health care cost has exceeded growth in the nation’s Gross Domestic Product by 2.5% over the past 40 years. Continue this trend, uninterupted, for another 40 years and federal spending devoted to health care increases from 4.5% of GDP to 20% of GDP. Further assume no other funding sources are found and you need some pretty hefty taxes. Interestingly, the CBO cites health care costs as having a “significantly higher influence on the budget over the long term than other commonly cited factors.”

Would tax rates really increase by this much? It’s unlikely. Some external event would come along to mitigate the trends. The question is whether that external event will be unplanned for, unexpected and uncontrolled or whether it will be thoughtful and constructive.

As the health care reform debate heats up in Sacramento, it’s sad to note that controlling health care costs is so far back on the burner that it may as well be in the fridge. The political heat is on the easy targets: taxing businesses (oh, excuse me, those aren’t taxes, they’re “fees”) and busting insurance companies.

There’s a lot of room for improvement in the health insurance system. And employers may need to step up to be part of the solution in assuring universal coverage. But none of this will matter in the long run if a tough, serious debate on constraining health care costs isn’t started — and started long before 2050 arrives. All in favor of right now, please raise your hand.

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The Key to Long Term Health Care Reform: Control Costs

Posted by Alan on May 11, 2007

In March I wrote a post about how controlling health care costs is the key to meaningful health care reform. Seems to me it’s a topic worth revisiting as no one seems to be addressing it.

The facts are simple. When someone needs medical care there’s only four sources to pay for it:

  1. Taxes;
  2. Premiums;
  3. Out-of-Pocket (the patient’s pocket, to be precise); or
  4. Charity (someone else’s pocket, usually the hospital’s or doctor’s).

That’s it — if someone can think of other sources, please let me know. So you can twist the health care coverage system into any shape you like and it doesn’t change the reality that medical costs are increasing faster than general inflation or wage growth. And it’s going to continue to do so as the population gets older, technology changes more quickly, and consumers demands and values evolve. This last point is often overlooked.

It used to be when you a family member drank too much, they were shunted off to the bedroom when company came. The lucky ones got introduced to AA. Now it’s recognized, accurately, as a medical problem and people expect the medical establishment to step in. Similarly, drug problems used to be handled by the criminal justice system. Now it’s a medical problem. These shifts, and others like them, aren’t wrong. They’re a smarter way to deal with serious problems. And they add to the cost of health care.

What all this means is that, unless the current health care reform debate changes soon, when California passes a health care reform package it will fail to address the underlying problem. It won’t quite be “sound and fury, signifying nothing,” but we will be back debating the issue again — sooner than later. That’s because no one is tacking the root cause of the challenge facing our society: how to prevent ever increasing health care consumption — and the cost of that care — from taking over the economy.

Ironically, Senator Sheila Kuehl’s SB 840 has the best chance of raising the issue. By establishing a single payer for care it could lead to a discussion of what happens when the state doesn’t have the money for all the care that’s required. Of course, the bill’s supporters don’t dwell on that question because they know if the debate focuses on rationing they lose.

But Oregon managed to have an honest debate about rationing. Dozens of town hall meetings were held to establish what services would be covered and what wouldn’t. From what I understand, it was a healthy discussion (you’ll pardon the pun) and the resulting public policy has been widely accepted.

I don’t mean to suggest rationing is the only way to control health care costs. I am suggesting that Oregon had political leaders willing to raise tough questions about health care costs. Until California’s leaders show similar courage, we’re going to be spending a lot of time, effort and resources on secondary issues. Those secondary issues (for example, how health care coverage is sold, who pays for it and whether people have to buy it) are important. But by themselves they can’t overcome the challenge we face. And that means we’ll be mired in a health care reform debate again all too soon.

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Health Care Costs is the Key, But Few Pay Attention

Posted by Alan on March 4, 2007

Daniel Weintraub gets it. He’s a long time political writer for the Sacramento Bee. And when it comes to health care reform, he gets it.

In the February 27, 2007 edition (Editorial Section, page B7 — click here to see the article), Weintraub writes, “Any plan that does not seriously address the underlying costs of health care will only move responsibility for those costs from one place to another.”

He goes on to quote the CEO of the California Health Foundation, Mark Smith, who notes, “Much of the discussion about making health care more affordable … assumes that what we are trying to make more affordable is the insurance policy…. But the insurance policy at some point really just pays for the underlying care, and it’s the underlying care which is too expensive.”

In short, it’s the cost of health care which is behind the cost of health insurance.  The logical conclusion is that our goal should be health care cost reform. Yet the debate seems mired in reforming health care coverage. And I have to confess to being as guilty as the next guy. The CAHU Healthy Solutions plan I helped author is long on reforms to provide access to health care coverage, but short on details for reducing the cost of health care itself.

Why? First, because controlling health care costs is tough. Second, because health care access is where the political action is.

Controlling health care costs is tough, very tough. As an earlier post in this blog points out, medical cost inflation, driven by an aging population, new technologies and increasing customer expectations, greatly outpaces overall inflation. (For a tool that shows just how much of an impact this can have, check out Tom’s Inflation Calculator ).  Several of the health care proposals address the edges of the cost issue. For example, both Governor Arnold Schwarzenegger’s and CAHU’s Healthy Solutions plans advocate wellness and healthy living programs among other ideas. But most of the plans being debated in Sacramento, fail to attack health care costs head on. Even the one that arguably does, Senator Sheila Keuhl’s single payer plan, SB 840, proposes cost control tools which will be costly and complicated to implement and may not work at all, especially on a single-state basis.

With legislative leaders and the Governor focusing on health care access, so do stakeholders like CAHU. All parties know Weintraub is right: controlling health care costs are the key But no one wants to be out doing the hard work of addressing that issue when the governmental process may pass a law that raises your taxes, harms your clients, or destroys your profession.

As a result, the key issue gets neglected. Fortunately, not by everyone. As Weintraub notes in his article, several folks are trying to tackle this issue. Let’s hope they succeed — and they get the attention they deserve.

Posted in Health Care Reform, Health Insurance, Healthcare Reform, Politics | Tagged: , , | 1 Comment »