Health Care

In the United States, the ability to live and maintain a healthy lifestyle comes at a significant cost. In order to understand the extreme expense of health care, a deep and thorough analysis of the health care system is necessary. When probing into the U.S. health care system, there are two distinct elements that are in need of discussion. First are the financial outlays related to health care. This would include health care in terms of gross domestic product (GDP), in comparison to other countries, and in terms of various private and public programs available. Second is the outcome of these financial outlays measured in terms of quality. Quality can be measured by evaluating the extent to which health care is made available and affordable to constituents of the U.S. Ultimately, the conclusion can be made that health care in the U.S. is not perfect and there are several ways in which to reform it. Americans spend more money on health care than they do on food.1 Health spending in the United States accounts for approximately 16 percent of GDP.2 In dollar terms this is more than $2 trillion or $7,000 per capita.3 This number has catapulted since the early 1960s, when health spending was a mere 5.2 percent of GDP.4 The two largest government health care programs, Medicare and Medicaid, account for $401.3 billion and $310.6 billion, respectively.5 Medicare provides health care for the elderly, and Medicaid provides health care for the poor. The other largest chunk of health care spending is done by businesses, which accounts for $496.8 billion spent in 2006.6 The other share of the $2 trillion is purchased by single-payers. This provides a comprehensive macro perspective 1

Krugman, Paul, and Robin Wells. 2006. "The health care crisis and what to do about it," New York Review of Books, 53 (March 23). 2 Pear, Robert. 2008. "Health spending exceeded record $2 trillion in 2006," New York Times (Jan 8). 3 Ibid. 4 Ibid 1. 5 Ibid 2. 6 Ibid.

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of domestic health care expenditures; however, it does not provide adequate scope of the exorbitant amount of spending compared to countries around the world. According to the McKinsey Global Institute, “the United States spends some $477 billion – $1,645 per capita – more on health care than their peers.”7 The comparison was made to 13 OECD countries, which are considered comparable to the U.S. One could argue that the United States may have a higher prevalence of disease necessitating increased health spending, but the same study dispelled that notion indicating that the reason the U.S. spends more is attributable to controllable factors.8 The McKinsey Global Institute pinpoints several specific inputs of the health care system that are well above comparable country’s spending averages. “The cost of drugs to the system contributes to higher spending by an estimated $66 billion […] $57 billion is incurred by outpatients and $9 billion is consumed in hospitals and outpatient procedure centers.”9 What is especially surprising about this statistic is that U.S. patients consume approximately 20 percent less prescription drugs compared to other nations. This suggests that the price of prescription drugs in the U.S. is significantly higher, apparently 50 to 70 percent higher, than in peer countries.10 The large price inflation may be the result of America’s propensity as an early adopter of pharmaceutical products, which are patent-protected and are sold at far higher prices. “Physicians total compensation attributes an additional spending […] of $58 billion, of which $50 billion arises from their remuneration from salaries, professional fees, or a combination of these […]”11 U.S. physicians are compensated as much as 7

Agrisano, Carlos, et al. 2007. Accounting for the Cost of Health Care in the United States. San Francisco: McKinsey Global Institute. (Synthesis) 8 Ibid. 9 Ibid. 10 Ibid. 11 Ibid.

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double, in some cases, compared to physicians in OECD countries. Reasons for excessive compensation are rooted in the unique U.S. structure of remuneration.12 Physicians will often follow a fee-for-service format which encourages seeing more patients. The McKinsey Global Institute followed up on this contention and found that U.S. physicians see 1.6 times more patients than do physicians in other countries.13 The necessity of all these check-ups is immediately put into question based on the similar health conditions of individuals in OECD countries. With such high costs of health care, one would expect the quality to be equally as high. A reasonable gauge of quality for a health care system could be based on the availability of care in the system. The U.S. has significant issues with availability. According to the Kaiser Commission on Medicaid and the Uninsured, 45 million Americans under age 65 lacked health insurance coverage in 2004.14 This accounts for 18 percent of the non-elderly population. Of those who do receive health care, 61 percent receive it from employer-sponsorships, 16 percent from Medicaid/Other public programs, and 5 percent from private non group coverage.15 There are several factors intrinsic to each of the insuring methods that impede insuring the uninsured. For instance, employer-sponsored health insurance is voluntary with a significantly larger percentage of the uninsured represented by employees of small- to medium-sized companies. Employer-sponsored group plans cost approximately $4,000 per year for individuals and $11,000 for a family of four in 2005.16 Due to these high costs, some small- to medium-sized companies may be unable to provide this benefit to 12

Ibid. Ibid. 14 Kaiser Commission on Medicaid and the Uninsured. 2006. "The uninsured: A primer." Washington, DC: Kaiser Family Foundation. 15 Ibid. 16 Ibid. 13

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employees without sacrificing employee salaries or wages. With a considerable amount of small- to medium-sized businesses in the U.S., this automatically leaves several individuals out. Medicaid, a public health insurance program for the poor and disabled, is rather selective about who they are willing to insure. The poor have an uninsured rate twice that of the national average, but based on income or other categories of eligibility several poor individuals may be barred from Medicaid.17 Furthermore, according to the Annals of Internal Medicine, millions of Americans with chronic diseases like diabetes or high blood pressure are also having an especially hard time getting insured.18 The report estimates that close to one-third of all uninsured have some sort of chronic disease. Clearly, there are many barriers to entry in the U.S. health care system. It is an issue that affects individuals across all races, ages, and income levels. The consequences of an uninsured citizenry are significant and harmful to society. Being uninsured affects access to health care services. Many uninsured postpone or entirely forgo needed care because up to 40 percent do not have a regular physician or place to go for treatment, compared with just 9 percent of insured individuals.19 Further, once uninsured individuals seek out health services, a significant number of them do not follow through with filling out drug prescriptions or administering further medical tests due to high fees. Underlying the abovementioned practices of the uninsured is an inbuilt incapacity to seek out preventive care. “Consequently, uninsured […] patients are diagnosed in later stages […] and die earlier than those with insurance.”20 This is an 17

Ibid. Abelson, Reed. 2008. "Millions with chronic disease get little to no treatment," New York Times (Aug. 5). 19 Kaiser Commission on Medicaid and the Uninsured. 2006. "The uninsured: A primer." Washington, DC: Kaiser Family Foundation. 20 Ibid. 18

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unfortunate reality of the uninsured, yet there are certain reforms which may make health insurance more widely available through affordability. Lowering the high cost of drugs in the U.S. health care system could be a potential road to decreasing the burden of health care. Law makers are urged to shorten the length of time on pharmaceutical patents. Patent protection allows drug makers to keep the price of their drug unnecessarily high. Drug makers literally maintain a monopoly over the drug, which is fundamentally and ideologically unfair. Once the patent expires, a generic form of the drug can be produced quickly, which is cheaper than the overpriced original, yet performs the same function. The potential cost savings of this could be enormous and would assist in converging expenditures in the U.S. health care system with other advanced economies. There is a potential drawback to this policy, however. A shorter patent protection length equates to lower profits for drug makers and may drive business out of the U.S. However, further analysis on the elasticity of the pharmaceutical market is necessary in order to make a clear determination on this detriment. Word Count: 1,262

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