While we devote 18 percent of our GDP to healthcare, not only is the health of Americans no better than the health of the citizens of other wealthy nations, but by some measures, it’s markedly worse. Clearly then, we are not getting much bang from our healthcare buck.
How much do administrative costs add to our national healthcare bill? Most estimates range from one-quarter to one-third of that bill—perhaps about $800 billion.
We know that our high healthcare costs are due mainly to high administrative costs and to the overconsumption of medical care. If these two costs could be minimized, our healthcare costs would be cut almost in half. In sum, each year we waste close to $1.5 trillion in resources because of our grossly inefficient healthcare system.
Before we consider a comprehensive plan to make our healthcare system much more efficient, here are seven smaller steps we should take.
1. Curb Malpractice Suits
Virtually everyone agrees that medical malpractice is a mess and needs to be fixed. Its costs include about $150 billion per year for tort litigation, defensive medicine, and malpractice insurance premiums. The way things stand now, the only winners are the patients who are successful in their lawsuits, and their lawyers. But their winnings are much smaller than our society’s losses. Not only do doctors waste tens of billions of dollars a year practicing defensive medicine, but some doctors are driven out of business by humongous malpractice insurance premiums—often exceeding $200,000 a year. For example, many OB-GYNs have given up the OB part of their practices, which carries the most risk, or relocated to places where malpractice insurance premiums are cheaper, such as rural areas.
Richard Thaler, an economist at the University of Chicago School of Business, suggests a way to dispense with malpractice insurance premiums altogether:
Those with a record of providing high-quality care at good value could apply to the government for a safe harbor from malpractice suits. Organizations that receive this status could require patients to waive their right to sue for adverse outcomes.
Another alternative to having doctors buy malpractice insurance premiums would be for the federal government to set up a fund to be used to pay medical malpractice victims. The total paid would be four or five billion dollars a year, which is about how much the courts award in malpractice suits. Then, instead of going through the courts, any patient claiming to be the victim of medical malpractice would go before a board of medical experts, which would determine how much money, if any, should be awarded in damages. An added benefit would be that doctors who were repeatedly called before the board could lose their licenses.
The most damage caused by the threat of malpractice suits is the consequent practice of defensive medicine. With the elimination of this threat, doctors would no longer have this incentive to prescribe unneeded lab tests, surgery, or drugs, saving tens of billions of dollars a year. These savings would be perhaps ten or twenty times the cost of setting up an alternative way of dealing with malpractice cases. The only losers would be the trial lawyers, a group that almost everyone loves to hate.
2. Create a Standardized Medical Insurance Form
A New York Times editorial made this observation:
Any doctor who has wrestled with multiple forms from different insurers, or patients who have tried to understand their own parade of statements, know that simplification ought to save money.
A standardized form would enable automated processing and save tens of billions of dollars a year.
3. Expand Population-Based Primary Care
Here is a proposal of Dr. Michael Fine, a physician who has written extensively about primary healthcare:
Population-based primary care is that system of healthcare distribution that assigns every person in a geographical area to a primary care practice accessible to that geographic area, and makes every primary-care practice responsible for the primary care of every person in that defined area. . . . Population-based primary care looks more like public libraries, public schools, and local police stations than it does like the hodgepodge system of private practitioners stacked in medical office buildings that we have now. Each neighborhood, town, or village of 10,000–20,000 people would have a primary-care center, providing robust primary care that includes 90–95 percent of the medical services used by that community’s inhabitants. . . . Primary care centers can be open 12 hours a day, eliminating the need for urgent care centers and limiting the need for hospital emergency rooms for all but life-threatening emergencies.
What do you think of having a population-based primary care system? I think it’s a great idea. In fact, we actually have such a system in place. During the administration of President George W. Bush (2001–2009), financing of community health centers in medically underserved areas was doubled. The program traces its origins to President Lyndon John-son’s war on poverty in the 1960s. Today there are about nine thousand sites serving more than twenty-two million patients, 70 percent of whom have incomes below the poverty line.
Getting good primary medical care is not just a problem for the poor. Americans wait longer to see primary care physicians than patients in Britain, Germany, Australia, and New Zealand. Newsweek observed that “26 percent of Americans . . . reported being able to see their doctor on the day they called, compared with 60 percent in the Netherlands and 48 percent in Britain.”
5. Alter the Pricing of Medical Procedures and Hospital Care
Because the prices of medical procedures vary so widely, it would be very helpful if the US Department of Health and Human Services posted the prices charged at all of the nation’s hospitals. This would enable insurance providers and individual patients to shop around for the best deals. Because of the spreading knowledge of the widely varying cost of these procedures, competition would force those charging the highest prices to lower them, or lose their business to other hospitals.
Similarly, the prices charged by hospitals for inpatient and outpatient services, as well as daily room charges, should also be posted.
A substantial and rapidly growing number of medical facilities are providing highly discounted services, charging all-inclusive fees for such procedures as knee replacements, rotator cuff repairs, and MRIs. Often called direct pay facilities, these medical practices do not accept healthcare insurance payments. This virtually eliminates high administrative expenses, and these savings are passed on to patients in the form of much lower prices.
Here are a few examples of these savings. A hysterectomy for which an insurance company is charged $54,000 costs just $11,000. The cost of a spinal fusion is reduced from $144,000 to $59,000. And a coronary bypass is provided for $51,000, rather than $253,000.
6. Lower the Cost of Prescription Medicines
The 2003 law that created the Medicare prescription benefit program expressly prohibited Medicare from either setting drug prices or even negotiating prices with pharmaceutical companies. If the law were amended to allow price-setting or negotiation, it would save insurers and individual patients tens of billions of dollars a year.
The federal government should also set price ceilings for prescription drugs and provide a directory listing the price and effectiveness of every drug.
7. Eliminate Medically Unnecessary Drugs, Operations, and Procedures
In a New Yorker article entitled “Overkill,” Dr. Atul Gawande reported that a study of more than one million Medicare patients disclosed many received tests and treatments that professional organizations had “consistently determined to have no benefit or to be outright harmful.” He went on to say, “In just a single year, the researchers reported, twenty-five to forty-two percent of Medicare patients received at least one of twenty-six useless tests and treatments.”
Surely Medicare officials themselves are derelict in approving payment for these procedures—and the medical practitioners themselves are complicit in providing these useless services. Clearly, this very costly problem needs to be addressed.
7. Improve Medical Care During the Last Year of Life
Over the next fifteen years the number of people who are sick, old, and frail will double. We also know that one’s medical bills usually shoot up in the last year of life. In fact, about 30 percent of all Medicare dollars are spent in the last year of life.
My father, who had lived independently until he was ninety-five, agreed to move to an assisted living residence, and then, finally, to a nursing home. He was painfully aware of his deteriorating mental capabilities and pleaded with every visitor to give him a gun and a bullet. Anyone who has ever visited a nursing home must wonder why terminally ill people are kept alive, often against their will, only to endure painfully imminent death.
Here are some examples of costly procedures and treatments that provide no benefits, but often cause discomfort or lower the quality of life:
- Feeding tubes, which can cause infection, nausea, and vomiting, but rarely prolong life.
- Hip replacements for people with advanced Alzheimer’s disease.
- Abdominal and gall bladder surgery and joint replacements on the very frail, leading to complications, repeat hospital stays, and placement in nursing homes.
- Aggressive chemotherapy for ninety-year-olds with heart failure, diabetes, and cancer.
- Tight glycemic control for type 2 diabetes, which is intended to prevent blindness and kidney disease, and are not expected to occur for another eight or ten years.
In the absence of a patient’s objections, the healthcare provider default position is to keep the patient alive. And if this effort requires several days in ICU or the use of expensive technology, then so be it—as long, of course, as everything is covered by the patient’s insurance. “One of the things that frustrates us all is to see care being provided in an absolutely futile situation . . . and doctors and hospitals are not accountable but are also being rewarded (financially) for that (futile care),” says John Santa, medical director for the Center for Evidence-Based Policy, based in Portland, Oregon.
A COMPREHENSIVE SOLUTION
What additional steps can we take to improve the efficiency with which we deliver healthcare? Clearly, we need a comprehensive solution that can come only on the national level. The Affordable Care Act, while certainly a step in the right direction, left intact a highly inefficient healthcare system.
Our nation’s healthcare is now paid for by the federal, state, and local governments, individuals, employers, and by thousands of insurance companies. This has created an extremely costly administrative nightmare for our healthcare providers. But under our plan, they will deal with just a single payer of all medical bills.
If we could do just one thing to create a better healthcare system, what would it be? We’ve already identified what is, by far, the most important factor raising our national healthcare bill—extremely high administrative costs. So the eight-hundred-billion-dollar question is, how can we drastically cut these costs?
For decades, American healthcare experts have advocated switching to a single-payer system, like those in Australia, Canada, Denmark, Italy, Spain, Sweden, and the United Kingdom. Instead of relying on a jury-rigged system of thousands of private insurance companies—each with its own set of rules, procedures, reimbursement schedules, and forms—to pay the lion’s share of our medical bills, why not relegate this job to a single organization with just one set of forms, rules, and procedures? This would obviate the need for healthcare providers to employ armies of workers to deal with all the insurance companies. And best of all, our nation’s healthcare bill could be cut by about one-quarter.
Medicare posts an easy-to-use schedule of reimbursement payments for healthcare providers. There are no negotiations because virtually all medical treatments are preapproved. Medical assistants submit the bills, and Medicare provides automatic reimbursement.
Our plan is to extend Medicare—which is now limited primarily to people who are at least sixty-five—to all Americans who choose to join. This will finally provide our nation with a single-payer, relatively low-cost system of universal healthcare. Everyone will be free to enroll, but no one will be forced to. Similarly, hospitals, physicians, and other healthcare providers will be encouraged to accept Medicare patients, but again—no one will be forced to.
Two very large groups of people will need to decide whether to join “Medicare for All.” For individuals and families now paying their own healthcare insurance premiums, their decision will be relatively easy: Which will provide better coverage and lower costs?
For those whose medical insurance is paid in part or fully by their employers, the decision of whether or not to switch to Medicare could be more difficult. Since, under our plan, employers will no longer be able to deduct the cost of healthcare insurance premiums from their taxes, few will continue insuring their employees. Their employees will have to decide whether to join Medicare or take out private healthcare insurance. If a small minority of employers continue to pay some or all of their employees’ premiums, some employees may choose not to join Medicare.
Medicare for All will not be free. After all, people now over sixty-five paid a Medicare tax equal to 1.45 percent of their wages for their entire working lives. This payment was matched by their employers. What seems likely is that under Medicare for All, the wages of everyone under sixty-five will be taxed at a rate of least 5 percent—a figure matched by their employers.
Medicare for All will be open to every American, but we know that one size does not fit all. Some people already have a better deal. Among the elderly, there are millions of veterans who receive free medical care from Veterans Affairs. Another group of people, largely drawn from the top 1 percent, enjoy so-called “Cadillac” healthcare plans paid for by their employers. As long as their employers are willing to pay for them, why switch to Medicare for All?
Some doctors and other medical providers refuse to accept Medicare payments. And there are a substantial number of individuals over sixty-five who are not on Medicare. Will anyone be required to join Medicare for All? No! Not one doctor or patient will be forced to join. Is Medicare for All a government takeover of healthcare? Again, no! Nearly all doctors and other healthcare practitioners will continue to work in the private sector.
A key part of our plan would be to no longer allow employers to deduct the business expense of paying for the healthcare insurance of their employees from their taxes. In this case, what the federal government will taketh away, it will more than give back by relieving employers of this massive expense, since nearly all their employees will now be covered by Medicare for All.
Although we will continue paying for our prescription drugs, their cost will plummet. Under current law, Medicare officials are actually prohibited from negotiating with pharmaceutical companies, resulting in much higher drug prices. Under Medicare for All they will be able to negotiate much lower prices in exchange for bulk purchases.
Many drugs, which are produced by American companies, are sold for five or ten times as much in our country than they are abroad. But there are legal barriers to reimporting these drugs to the United States, ostensibly because they may be “unsafe.” This blatant rip-off will end.
What happens to the seventy-two million Americans currently receiving Medicaid and CHIP (Children’s Health Insurance Plan)?Under Medicare for All, all these patients will be shifted to Medicare.
* * *
Medicaid Folded into Medicare for All
Under our plan, Medicaid and CHIP will be folded into Medicare. Doing this has three main advantages. First, it relieves the state and localities of a huge financial burden—about $100 billion, while eliminating layers of bureaucracy at the state and local levels.
Second, since the passage of the Affordable Care Act in 2009, the expansion of Medicaid has become a political football. Nearly every Republican-controlled state has refused to expand its Medicaid program to all its eligible citizens, even though the federal government would be paying the entire cost. But once Medicaid becomes part of Medicare, this issue will no longer exist.
And finally, receiving Medicaid carries almost the same stigma as getting public assistance. Medicare is perceived as being for those who have earned it, while Medicaid is seen as just another unearned handout given to the poor. Why perpetuate this stigma?
* * *
Before we talk about who wins and who loses under Medicare for All, we need to address two major shortcomings of the current Medicare system. First, we shall need to do something to discourage patients from treating medical care as a free good. A second shortcoming is the widespread reimbursement of unnecessary medical procedures. Perhaps the most effective way of discouraging them would be for Medicare to deny reimbursement.
What we’re proposing is a massive change in the way we deliver and pay for our healthcare. And while hundreds of millions of Americans will be much better off, and we will be able to deliver more and better healthcare for a much smaller cost, there will still be some people who will definitely not like our plan.
It would be virtually impossible to create a healthcare system that doesn’t leave some people worse off than before. But we can create one that has far more winners than losers.
The biggest winners are the thirty-two million Americans who currently have no medical insurance. Other big winners are all the people who will be able to secure much better medical care—often at greatly reduced cost. And then too, there are those healthcare providers who will no longer have to employ so many people just to deal with all the insurance companies.
Let’s consider how our plan will affect the firms that are no longer insuring their employees. Today, healthcare insurance premiums account for as much as one-third of a business firm’s total employee compensation. Sharing this massive cost cut with their employees, most companies will now be able to afford large-wage increases.
Still another big winner will be the American economy. Relieved of the burden of our extremely inefficient healthcare system, we will be able to devote more of our resources to such pressing needs as rebuilding our manufacturing base and our crumbling infrastructure.
Now let’s turn to the losers. By far, the two biggest losers will be the insurance companies and all the people who will lose their jobs, since their work will no longer be needed. Because there are so many jobs that need to be filled—from staffing nursing homes and childcare facilities to rebuilding our public transportation system and producing clean energy, we will find a decently paying job for every person who is ready, willing, and able to work.
Many insurance companies will be put out of business, but won’t that be in the great capitalist tradition of “creative destruction”? And because the giant pharmaceutical firms will be charging a lot less for thousands of prescription drugs, their profits will decline sharply. Another group of losers are the people who don’t join Medicare for All, but continue to pay the Medicare payroll tax. Still, it’s their choice.
There will continue to be a substantial sector of our healthcare system not associated with Medicare for All. It will include mainly the doctors and patients who choose not to join. We will continue to pay for non-covered medical procedures such as tummy tucks, face-lifts, and various other bodily “enhancements.” Also not included are dental care, nonprescription drugs, and visits to health spas.