The Perpetual Health Care Crisis

I began teaching health policy almost thirty years ago with Odin Anderson at the University of Chicago
Graduate School of Business. Like me, Odin was a sociologist, and one of his hobbies was tracking the sociology of our nation’s “healthcare crisis”.  He found that the health care “crisis” waxed and
waned (as measured by press mentions and journal articles), but never disappeared.   It had been going on for twenty years by then, so I guess we’ve now been in “crisis” for fifty years.  The American health care “crisis” is not acute illness – rather it is like a chronic disease which flares up periodically, accompanied by fresh prophecies of impending doom and calls for someone on a white
horse to fix the problem.

From 1970 to 1993, health costs roughly doubled as a percentage of GDP. All the way along, prophets
of doom  forecast that the country would simply fall apart when health costs exceeded 8%, then 10%, etc. .  Our economy somehow continued growing and innovating, and the health system  got steadily
more capable at managing our illnesses the entire time. No-one  I know would trade our present, very expensive health system for the cheaper one we had in 1965 or 1980. 

Then, during the mid- 1990’s, a remarkable thing happened.  For the first time since people began
tracking the statistic, health costs remained dead flat as a % of GDP for eight years in a row.  It is remarkable how little attention this flattening got from the “crisis” mongers.  When we finally get this year’s spending numbers from the CMS Actuary, my forecast is that the Health costs will have been flat as a percentage of GDP for the past five years if you include 2007.  Five years isn’t “momentary”,
as Brian Klepper characterized this latest pause.

At the very same time, death rates from our three major killers continue falling, and the health of our most fragile citizens, the elderly, has continuously improved. From 1982-2004, the percentage of people over the age of 85 who are institutionalized has fallen by almost half. Acute MI admissions to the nation’s hospitals have fallen 19% in the past three years.  Overall, there are a million fewer hospital admissions today than in 1982, despite a 30% increase in our population. This didn’t happen by accident, but by sensible changes in payment policy and by continuous innovation in technology and care provision. Of course, we’ve been in “crisis” the whole time.  There is a huge public policy disconnect here.  If containing health costs were popular, you’d probably see more of it. And it isn’t just our own chaotic system that has struggled to constrain health costs, but virtually every other national system to which our own health system is unfavorably compared. Tony Blair threw tens of billions of pounds at the British National Health Service to loud public applause.

Most Americans feel that the more we spend on health programs, the better off we are, as long as someone else pays the bill. The Congressional Democrats’ big problems with the Medicare drug benefit, and recently with SCHIP, was that we weren’t spending anywhere near enough.  So the idea that the rising cost of care is a “problem’ but that we continue hurling money at the system should tell us something about our political culture.    

For all their whining about costs, American businesses have been active facilitators of health cost
growth, by concealing the actual costs from their employees with massive, tax supported subsidies, tolerating inflationary open ended fee-based payment of providers and adding new benefits as they become available.   Those companies who have gotten beyond the whining and actually engaged
their employees with consumer directed health plan designs have been rewarded by halving their cost growth.   Perhaps Mr. Klepper has oversampled the whiners and undersampled the businesses of who have actually been proactive in redesigning their health benefits. 

Businesses that played Santa Claus at the bargaining table with their health benefits and completely
sheltered their employees from the cost have had the worst problem.  It is hard for a dispassionate observer to understand why this is a public policy problem; it was terrible, short-sighted management, and its consequences are now being felt in the decline of these industries. The fact that some businesses have figured out a better way to manage their costs should raise questions about how much of a public policy problem corporate cost growth really is.  If we really want to help business, we’ll figure out a way to cover the nation’s 47 million uninsured. (See the Health Affairs blog of 13 September 2007 for a discussion of this problem). 

My point wasn’t that health costs rising at double the rate of inflation is great news, but it’s WAY better than rising at 7 times the rate of inflation as they did in 2003.  To deny that we have made progress in the ensuing four years is not helpful.  To my mind, a $62 billion incursion into the 2003 health cost trend is, in fact, “meaningful” progress. Mr. Klepper, please look closely at the Kaiser Foundation data below.

Health cost inflation is, in fact, subsiding, not “skyrocketing”.  While this decline is certainly not; “permanent”, as someone who covers the “usual suspect” hotspots like pharma and biotech, medical devices and specialty medicine closely, I see no signs of a re-ignition as of this writing. This downtrend seems fairly durable.   The “fundamentals”, as Mr. Klepper put it, are changing right under his nose. 

For the very reason that the care is expensive, and that businesses are getting their workers to
bear more of the cost themselves, people are beginning to manage their own health risks more aggressively.  The potential for getting a significantly better societal return on our health care investment is very great indeed.  To achieve it, a lot more remains to be done.

My intent was not to suggest that everything is fine with our health system; it isn’t. Pollyanna doesn’t live around here.  The problem I addressed was that any good news about our health system (and a robust four year disinflationary cost trend is certainly good news) has become politically incorrect in a climate of Job’s Daughter handwringing and crisis mongering. The  “Ain’t It Awful”  School of Health Policy hasn’t
produced a lot of actionable solutions to the “crisis”.  (I certainly didn’t hear any solutions from Mr. Klepper, or any data either). It sure is fun complaining and pointing fingers though.  Keep your eyes peeled for someone on a “white horse” to save us from ourselves!  It’s the game, not the players, that
is neurotic.