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Reflections on Sabo Public Policy Forum: 2010 Healthcare Reform

What Does It Mean for You (and the Nation)?

Khalid AdamBy Khalid Adam ’12

“Medicine’s role is to entertain us while Nature takes it course”


The quote from 18th-century French essayist Voltaire about the role of medicine in the continuum of life echoes the evolution of medicine’s role from one that was inherently pacifist to one that was rooted in dramatically extending both the length and quality of life with the use of technology and the scientific method. By the time French philosopher Voltaire wrote his famous quote, the pattern of human disease had changed little over the course of the previous 2,000 years, with doctors only offering hope and comfort for the ill.

In fact, according to British physician and columnist Dr. James Le Fanu’s monumental book, The Rise and Fall of Modern Medicine, the top-ten defining moments of modern medicine only happened over the course of the last 60 years or so with the discovery of penicillin in 1941. Before 1941 many great improvements were made in public health, allowing people to live longer and healthier. However, few of those changes had little to do with the practice of medicine. They had a lot to do with better housing and nutrition, safe water, and better hygiene, except for a few treatments like bone setting, insulin, and thyroid hormones. Usually patients got better on their own. Or in the case of Calvin Jr., they didn’t (Gratzer, 2006).

Many remember President Calvin Coolidge in 1924, then one of the most powerful men, crawling on all fours to catch a rabbit so his son could hold it while he was dying. This was after the 16-year-old son had one day developed a blister playing tennis without socks on the White House courts. “In his suffering, he was asking me to make him well,” remembered Coolidge; “I could not.” An administration of penicillin would have easily saved Calvin Jr.’s life, but penicillin hadn’t been discovered. It was discovered 17 years later after the fact; in fact, the majority of our most innovative and definitive medical discoveries were made in the last quarter century with the development of advanced antibiotics, steroids, lithium, and drugs that treated neurological disorders. It is for this reason and many others that the issue of health care is especially daunting to analyze and to set policy on because it seems to not follow long-held economic assumptions about supply and demand. Technological growth is so explosive that the CT scanner has been replaced by the MRI scanner, which is now being outdone by the PET scanner. Doctors are no longer as passive as they were; instead they were busy curing patients and using large sets of data to test whether one drug could have multiple uses (Gratzer 2006).

Conventional economic thought has it that there should be an inverse relationship between rapid technological strides and the total costs associated with health care, but the economic data shows otherwise. When economist Milton Friedman compared health care spending with the other sectors of the economy, he wrote:

The change in the role of medical care in the U.S economy is truly breathtaking … in 1946, seven times as much was spent on food, beverages, smoking, and tobacco as on medical care; in 1996, more was spent on medical care than on food and beverages. In 1946, twice was spent on transportation as on medical care; in 1996, one-and-a-half times as much was spent on medical care as on transportation (Friedman, 2001).

So just why has healthcare spending gone so much out of control consuming nearly a sixth of GDP spending in 2008? The answers to this question are different according to whom you ask. Liberals say it’s the health insurance companies’ greed and the government’s inability to take a more concerted effort at containing costs and in regulating the employer market for health insurance. Meanwhile, conservatives argue that it’s too much regulation that is driving healthcare spending out of control, citing the growing budgets of government welfare programs like Medicare and Medicaid as the main culprits. They also cite over use of healthcare resources as the main problem, making the problem of health care a ‘volume-control issue’. However, in spite of these differing viewpoints, a few observations are unarguably universal:

The science of health care has advanced rapidly over the course of the last 60 years, and this has an effect on prices of medical inputs.
Increased health costs that outpace the growth in GDP have adverse effects on the economic outcomes on industries with large percentage of workers with ESI (Employer-Sponsored Insurance); this results in the loss of output and by de facto, the loss of jobs in those industries.
The current trend in the growth of per capita GDP spent on health care is unsustainable in the long term.
Health spending in the United States has increased dramatically over the course of the past 50 years, from $27.5 billion in 1960 to $912.6 billion in 1993, and to a mind-boggling $2.4 trillion dollars in 2008 (Centers for Medicaid and Medicare, 2008). Using data from the Organization for Economic Co-operation and Development Percentage for U.S GDP spent on health care, it seems to be rising at an almost exponential rate (OECD, 2009). In 2017, it’s expected to reach all-time high of $4.3 trillion or 19.5% of the GDP and the effect of this spending on the economy is largely unclear. But the following fact rings a mostly lucid tune for health policy wonks. That the American healthcare system of health delivery is like a state-of the art fire department (circuitously referring to the explosive growth in innovation indirectly attributable to relatively a strong and a pro-inventor U.S Patent Office) functioning on an archaic transportation grid.

However some arguments from well-respected researchers have gained some credence. They call for a more sensible approach to the re-structuring of the delivery system into organized networks of providers. Their approach incorporates:

A comprehensive recalibration of FFS (Fee for Service) system, instituting outcomes-based performance system.
Creating episode-based payment to encourage cooperation among hospitals, physicians, and other care providers (Mechanic and Altman, 2009).
Policy recommendations that echo system-inefficiencies reform, like the one outlined by Mechanic and Altman for payment systems, are critical for creation of a system that equips consumers, governmental entities, and industry alike with perfect information (relatively of course) to make the most economic choices. Even so, an understanding of the information available to consumers is imperative in order to better understand the health choices they make. We expect the consumers of health care to be fully informed about prices, quantities, and the relationships of medical care and other inputs to levels of health. In reality consumers often have no clue, even about the mortality rates of hospitals in their networks. It seems there is less information in the public realm (consumers of health outputs) about the current health care system than there is about the satisfaction rates of hotel beds. It would only seem logical (believing choices about health care necessitate greater concern) that consumers make the most economic choice. This phenomenon is something that is not new throughout the health economy. In fact the markets for healthcare services and that for insurance are marked by significant degrees of asymmetric information and agency (the former encompasses situations where buyers and sellers have different levels of information while the later deals with situations where the lack of information, buyers, and sellers rely on each other to help make decisions) (Folland, Goodman and Stano, 1997). These phenomena, including the presence of Lemon’s Principles behavior in the market for health services, reverberate the commonly-held belief that American health care is incredibly all encompassing and complex. The risk for repercussions of any health reform can prove to be disastrous for incoming administrations. Since 1962 alone, seven presidents and ten congresses have considered the issue of national health insurance, but reform remained forever imminent (Eastaugh, 2001). Currently, 43 to 46 million Americans or 16 to 16.4% of the population have no health insurance with a growing number weary about losing their plans because of the potential for discovery of so-called “pre-existing conditions” (U.S. Congress, 2000). The working poor have no political power, and special interest groups like the insurance industry are against any change to the status quo. This fact remains harrowingly true.