Healthcare Spending After the Recession

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Yesterday, the American Medical Association (AMA) and five other major groups representing doctors, hospitals, insurance companies, pharmaceutical companies and union members delivered a letter to President Obama pledging to cut the U.S. growth rate for healthcare spending by 1.5 percent each year from 2010 through 2019 [1]. The coalition’s efforts are intended to supplement upcoming legislation aimed at decreasing healthcare costs for families, businesses and the government.

The savings — an estimated $2 trillion over the next decade — would come from changes in the public-private partnership and include:

Administrative standardization, simplification and transparency.
Aligning quality and efficiency incentives among providers to reduce over- and under-use of healthcare.
Encouraging coordinated care and adherence to evidence-based best practices and therapies.
Reducing the cost of doing business by developing technology and regulatory reform.

Although the proposed health expenditure savings is small, experts say it’s significant [2]. The very fact that health industry leaders have stepped forward to voluntarily restrain costs is itself encouraging; these are the same groups that opposed the healthcare reforms proposed by President Clinton in the 1990s.

The growing burden of the American healthcare system

Indeed, with growing costs reform must come to the American healthcare system. A recent report by the Centers for Medicare and Medicaid Services (CMS) forecasts that growth in U.S. healthcare spending is expected to significantly outpace gross domestic product (GDP) growth in 2008 and 2009 due to the recession [3]. Between 2008 and 2018, the average annual spending growth by public payers (7.2%) is projected to outpace that of private payers (5.3%); as such, national healthcare spending is expected to reach $4.4 trillion and comprise 20.3% of GDP by 2018 [4].

To put those numbers in perspective, in 2008, national health spending was $2.4 trillion and comprised 16.6% of GDP.

What’s not being reported by the major media and perhaps the most frightening is that just two years ago, the Organization for Economic Cooperation and Development (OECD) projected that U.S. healthcare costs would consume approximately 20% of GDP by 2050 with dire consequences. We’re now looking at that occuring within the next decade.

Who’s job is healthcare anyway?

In 2007, U.S. households contributed $660.3 billion to healthcare spending, more than private business, state and local government, or the federal government [4]. Nevertheless, private business still contributed almost 60% more to private health insurance than households. An commentary on American Public Media’s Marketplace entitled Health care should be government’s job recently addressed the problem of U.S. corporations paying more for healthcare benefits than they’re earning in profits. In an age when U.S. companies can no longer afford to pay for health benefits, Matt Miller, senior fellow at the Center for American Progress and author of the book, “The Tyranny of Dead Ideas“, suggests that the larger truth is that “while having health insurance is crucial, it’s time we stopped looking to our companies instead of our country to help us obtain it” [5].

Miller continues, saying that:

America is the only advanced nation that operates much of its welfare state through corporations. This may have made sense 50 years ago, when medicine was cheap, a single breadwinner worked at a big company for 35 years, and American business dominated the world economy so that companies could pass on, through higher prices, the cost of much of the country’s safety net. But those days are gone. Today people switch jobs 10 times by the age of 40, and sky-high health costs make U.S. firms uncompetitive. Meanwhile, our archaic link between jobs and health care helps explain why 50 million people are uninsured, with millions more just a pink slip away from medical bankruptcy.

More about this proposal can be found in a Fortune editorial written by Miller in 2007 entitled Opening the Capitalist Mind. His commentary offers an interesting perspective on the linking of healthcare to jobs.

What’s your opinion? If you could reform one aspect of the U.S. healthcare system, what would it be?