Few topics are more controversial today than health care reform. An individual’s feeling about how to fund health care and whether health care is a right or a privilege is generally rooted in a combination of philosophic, political, and moral values. And while most Americans would agree that reining in health care spending is a worthy goal, these personal beliefs affect our perspective regarding the best approach to achieving this aim. They add an emotional element to an issue that truly is an economic problem.
The economics of health care
So, what are some key facts about the economics of health care? First, according to the Centers for Medicare & Medicaid Services (CMS), national health care expenses grew 5.8 percent to $3.2 trillion in 2015—about $9,990 per person—and accounted for 17.8 percent of the gross domestic product (GDP). CMS projects that health care spending will grow 1.2 percentage points faster than the GDP per year between 2015 to 2025. As a result, health care’s share of GDP spending is expected to rise to 19.9 percent by 2025.1
Medicare spending grew 4.5 percent in 2015, which was a slight dip from the 4.8 percent growth in 2014. Medicaid spending, however, has risen steeply in recent years. More specifically, federal Medicaid expenditures increased 12.6 percent in 2015.1
The number of uninsured individuals has dropped dramatically since the advent of Medicare and Medicaid. In 1963, 23.4 percent of Americans were uninsured. That percentage dropped to approximately 10 or 11 percent after Medicare and Medicaid were instituted.2 That number rose to about 16 percent in 2010 and dropped to approximately 9 percent in 2015.
Despite all the money funneled into health care and the expanded availability of health insurance coverage, some individuals argue that patients in other developed countries experience better outcomes with less spending per capita. However, this argument does not capture the full spending picture. In other economically developed countries, for every $1 spent on health care, about $2 is spent on social services. In the U.S., for every for $1 spent on health care, about 55 cents is spent on social services.3
In addition, we tax approximately 18 percent of the GDP. Medicare, Social Security, and interest on consumer debt accounts for a total of 16 percent of taxes on GDP—meaning 2 percent in taxes is left for education and other social welfare programs.3
Health care reform proposals
Health care financing has been at the heart of every major effort to reform the nation’s health care system, and it remains the case in the most recent debate over the future of the Affordable Care Act (ACA). The increase in Medicaid spending and the decline in the number of Americans who are uninsured noted previously are both attributable to the implementation of the ACA, which expanded access to care primarily by increasing the affordability of individual/non-group health care plans and expanding Medicaid eligibility. How one feels about these developments, again, is traceable to the individual’s philosophic, political, and moral beliefs.
In fact, approaches to addressing the shortcomings in the ACA and health care reform in general are divided along partisan lines. Approximately 85 percent of Democrats indicate that the government should have a role in health care delivery and favor leaving the ACA largely intact or replacing the legislation with a single-payor system. Meanwhile, 65 percent of Republicans state that government should not have a significant role in health care, and the Republican-controlled Congress and White House have sought to repeal and replace the ACA.4
Republican proposals to replace the ACA tend to focus on cutting taxes and reducing health care spending. Initial efforts called for cutting Medicare and Medicaid spending, as well as subsidies for individual insurance plans. More recent efforts would shift all the cuts to Medicaid and to subsidies. For example, the Senate version of the American Health Care Act (AHCA) would eliminate the ACA’s marketplace subsidies and enhanced matching rate for the Medicaid expansion and replace them with a block grant. This legislation also would convert Medicaid’s federal-state financial partnership to a per capita cap and allow states to waive the ACA’s prohibition against charging higher premiums for individuals with preexisting conditions. It also would eliminate the controversial individual mandate that requires all Americans to either purchase health insurance or pay a penalty.
Expanding access while controlling cost
So the question now comes down to, are we going to dismantle the ACA and get tax relief, or are we going to move further in the direction of universal coverage? And, if we move to expand access, how are we going to pay for it?
The good news is that some health policy experts argue that the U.S. could pay for expanded coverage by eliminating waste. Former CMS Administrator Don Berwick, MD, MPP, and RAND researcher Andrew Hackbarth, MPhil, for example, contend that the following forms of waste account for at least 21 percent of U.S. health care spending:5
- Failures of care delivery
- Failures of coordinated care
- Administrative complexity
- Pricing failures
- Fraud and abuse
In the aggregate, elimination of these forms of waste would reduce health care spending by as much as $1.3 trillion annually.
Surgeons can contribute to waste reduction through excellent performance and by questioning the pricing structures and for-profit approaches applied in many of our institutions today. We can help policymakers develop alternative payment methodologies and commit to providing value-based care.
These are challenging times, and the American College of Surgeons has voiced its concerns about the potential effects of the AHCA on patient access to high-quality and safe surgical services and is committed to helping surgeons engage in the quality improvement activities and the educational programs they need to provide high-quality, cost-effective care.6 Our commitment to improving efficiency and reducing waste will help to establish the economic platform on which it will be possible to expand access to care for all Americans. We assume this responsibility as advocates for each of our patients and for our profession.
- Centers for Medicare & Medicaid Services. NHE Fact Sheet. Available at: www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html. Accessed September 27, 2017.
- Obama B. United States health care reform progress to date and next steps. JAMA. 2016;316(5):525-532.
- Bradley EH, Taylor LA. The American Healthcare Paradox: Why Spending More Is Getting Us Less. New York, NY: Public Affairs, 2013.
- Bialik K. More Americans say government should ensure health care coverage. FactTank: News in the Numbers. Available at: www.pewresearch.org/fact-tank/2017/01/13/more-americans-say-government-should-ensure-health-care-coverage/. Accessed October 2, 2017.
- Berwick DM, Hackbarth AD. Eliminating waste in U.S. health care. JAMA. 2012;307(14):1513-1516.
- American College of Surgeons. Letter to Sens. Mitch McConnell and Charles Schumer. Available at: www.facs.org/~/media/files/advocacy/federal/acs%20grahamcassidy%20hr%201628%20092217.ashx. Accessed September 28, 2017.