How to Shave $1 Trillion Out of Health Care

By VICTOR R. FUCHS, The New York Times, MARCH 14, 2014

Americans spend more than 17 percent of GDP on health care; other high income industrial democracies spend only about 11 percent. The 6 percent difference in our $17 trillion economy amounts to $1 trillion.

The excess in the United States is primarily attributable to a more expensive mix of procedures and services, higher prices paid to drug companies and physicians, and inefficiencies in the financing of health care. There are undoubtedly cultural differences between the United States and other countries, but it is also true that Swedes differ from Italians, Germans from French, and the English from all of the above.

What these countries have in common that distinguishes their health care systems from the American is universal insurance for basic care, a larger share of government in financing health care (typically about 75 percent of the total versus 50 percent in the United States), and more aggressive control of expenditures.

What could Americans do with that trillion dollars each year and what would we have to give up if our health care system became more like those of our peers?

In the United States, the private sector pays about one-half of the health care bill; federal, state and local governments pay the other half. Assuming the same split in savings from a more prudent system, the private sector could keep half of the trillion dollars for consumption and investment, while the other half could be used for public investment. For example, $500 billion could:

—Increase expenditures on highways, bridges, tunnels, and other infra-structure by 50 percent. Annual cost: $100 billion

— Increase annual salaries of K-12 teachers by an average of $25,000. Annual cost: $100 billion

—Fund a two-year apprenticeship program for one million men and women ages 17-24. Annual cost $80 billion.

— Provide a first-class pre-school experience for all four-year olds. Annual cost: $80 billion

— Provide additional teachers for arts, music, math and physical education in K-12 and expand counseling in high schools. Annual cost: $70 billion.

— Fund R&D for renewable sources of energy. Annual cost: $40 billion.

—Fund R&D for waste disposal (including nuclear) and reduction of pollution. Annual cost: $20 billion

— Fund after school sports programs for young people 8-18. Annual cost: $10 billion.

To free a trillion dollars from health care, what would we have to give up? The answers come from statistics compiled by the Organization for Economic Cooperation and Development, which includes 34 countries, mostly advanced industrial democracies, that I used to compare United States health care with the average OECD country.

— Fewer visits to specialists and a higher proportion of physician visits to primary care providers.

— A sharp reduction in the number of high-tech procedures such as MRI and CT scans.

— A reduction in aggressive medical interventions for the very sick elderly.

—Longer waits for access to specialized care and high tech interventions except for emergencies.

—Less privacy, space, and amenities for in-hospital patients. The number of beds per capita would actually increase as would the number of physicians.

Would these changes have a significant effect on health outcomes? Probably not. Differences in life expectancy between and within developed countries depend more on genes, psycho-social and physical environments, socio-economic factors, and personal behaviors (smoking, diet, exercise) than on differences in health care expenditures.

Tradeoffs like these might attract many Americans, probably a majority. But there are individuals and groups that would clearly be made worse off by such changes. Profits would fall for manufacturers of drugs, devices, and equipment. High-income physician specialists would face substantial reductions in fees and fewer opportunities for specialty training and practice. Hospital revenue would fall. Many smaller insurance companies would be redundant. The loss of prompt access to specialists and high-tech diagnostic and therapeutic interventions and the reduction in privacy and amenities in hospitals might be particularly missed by higher income patients.

Although a majority of Americans might favor the tradeoffs, the political prospects for reallocating the trillion dollars are not good. The United States political system, with its separate houses of Congress and an independent executive branch, augmented by expensive primary battles and long election campaigns, provides many “choke points” for special interests to block or reshape legislation. Escalation in their lobbying and financial contributions also has a significant influence on health policy. In the absence of a severe political or financial crisis, the United States probably will continue to ignore the potential trillion dollar tradeoff.

Victor R. Fuchs is Professor Emeritus of Economics and Health Research and Policy at Stanford University, and author of “Who Shall Live? Health, Economics and Social Choice.”

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