Op Ed

It’s the Health Care Costs, Stupid

Universal coverage is unaffordable without a system of managed health care.

By - Aug 13th, 2019 01:49 pm
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Doctor.

Doctor.

Ezekiel Emanuel, one of the nation’s gurus on health care economics, got it right when he said the battalion of democratic candidates has been debating the wrong issue: coverage, when the main issue should be affordability.

It’s pretty simple economics: if medical prices soar to the moon, it’s obvious that people are going to go uncovered because they can’t afford the premiums, deductibles and co-insurance.

Even the taxpayers can’t afford universal coverage if the costs aren’t brought to heel.

Let’s look at the $60 trillion over ten years (my number) that the Bernie Sanders Medicare for All would require in terms of higher taxes – if management disciplines aren’t brought to bear to lower costs.

The most likely tax to raise for under-managed universal coverage is the payroll tax. It’s a big enough tax base to get the job done, as opposed to taxing the rich, a relatively small tax base.

Employees and employers already pay a combined 13.85% payroll tax for Social Security and Medicare.

On top of that, as an reference point, my company and its co-workers pay $5.8 million for health care, and the annual payroll of $25 million. That’s an additional 23% of payroll.

But, and it’s a big “but,” Serigraph and other well-managed self-insured plans run at 30% below the national average. So, figure a least 30% of payroll to cover health costs at the average organization.

That 30% plus the 13.85% point to a payroll tax of about 44% for under-managed universal care. (It would be about 37% if managed with the best practices. See below.)

The citizens of this country might go for the 37%, but probably not the 44%.

Remember, half the citizens are also paying state and national income taxes, state sales taxes and local property taxes. That build-up of taxes would put a majority of citizens at well over 50% of pay going to the government.

Senators Sanders and Elizabeth Warren don’t do the above arithmetic. It would be a hard sell at the ground level where the voters are.

Fortunately for more economically astute candidates, there are managerial practices that, if combined with intelligent regulation, could get the health care done for all Americans. Let’s go through the potential cost-cutting solutions, starting with Emanuel’s government answers.

The private marketplace for drugs is not working. It’s a non-marketplace. Emanuel suggests national negotiations and maximum drug prices. Price controls don’t work well in most sectors, but nothing else has worked either.

Another path is to enable Medicare, the biggest payer in the land, to bargain drug prices.

Emanuel proposes more government intervention through a national clearing house for medical bills and payments.

And he calls for value-based payments, like a bundled price of $26,000 for a joint replacement. Such fixed, transparent prices are being widely adopted by corporate payers.

Beyond his list, these are the best practices and disciplines that also drive down costs, and therefore prices, such as:

  • Toyota-like lean disciplines in hospitals and clinics. These quality and cost disciplines are just taking hold in the health industry. Payers need to push the industry for quality and value metrics.
  • Incentives and disincentives to make all patients think like consumers. Health Savings Accounts are an example.
  • A medical home for every American so proactive primary care can take the place of lots of expensive specialty care.
  • In the medical homes, institute intense chronic disease management to keep people out of dangerous and expensive hospitals. For example, every diabetic can and should be under control. Private companies have proven that on-site of near-site clinics can cut costs by 20% or more. Every health plan should require a “home.”

If one of the candidates wakes up and starts talking seriously about affordability and management of costs, listen up. That would make him or her a real problem-solver, not just a sound bite demagogue.

John Torinus is the chairman of Serigraph Inc. and a former Milwaukee Sentinel business editor who blogs regularly at johntorinus.com.

Categories: Health, Op-Ed, Politics

3 thoughts on “Op Ed: It’s the Health Care Costs, Stupid”

  1. mkwagner says:

    What is wrong with your argument? Let’s start with your assumptions. (1) Your number of $60 trillion is twice what other experts are predicting. It is easy to run up the amounts when you start with an over-inflated starting point. (2) This is the fallacy so many who oppose a Medicare for all make, you are layering the costs on top of current costs. Let me ask you, how much more profitable would your company be if it did NOT have to incur the 30% (your number) for health care? (3) Our current healthcare system with its multiple insurance organizations has a whopping 20% overhead costs. That is a huge factor in the cost of our current healthcare system that would NOT be part of a single-payer system.
    Let’s address the heart of your argument. Yes, we would need to shift our healthcare system to better manage costs. That does not mean a rationing of care. (To be quite frank, if you think our current system doesn’t ration care, I have a bridge I can sell you.) What it does mean is we have to shift from a pathological to a preventive approach to providing care. What that means is instead of treating people for illness, we focus on preserving health. It means working with patients to manage their health in order to prevent much of the health challenges we currently face. This will require a shift in healthcare delivery. We will need more ancillary providers e.g. physician assistants, nurse practitioners, dietitians, midwives etc. and fewer doctors particularly specialists.
    The cost of transitioning our current pathology-based to a preventive-based system will not be cheap, estimates range around $32 trillion over 10 years. Of course, were we not to transition, the cost of our current system is estimated to be somewhere in the neighborhood of $50-60 trillion (I wonder where you got your original number?) overall, a cost savings.
    Keep in mind, some of the transition has already begun as a function of the ACA. Nurse practitioner, physician assistant, midwife and doulah programs are springing up all over the country. These healthcare professionals will meet the critical needs of our under-served populations.
    I’ve looked at a number of the plans being proposed by democratic presidential candidates (they are by no means monolithic). Most plans incorporate a transition period, which would extend the length of the transition but lower the cost per year while giving businesses and individuals time to adjust. None of the plans I’ve seen call for the elimination of private insurers. Instead of being the primary payer, however, they would offer supplementary coverage.
    one last comment, our current healthcare system is the most expensive in the world and provides, at best, mediocre results. As a business man, would you accept such high costs for mediocre results in your own business?

  2. Barb- West Bend says:

    The cost of healthcare is obscene. Doctors recommend pills, surgery and/or physical therapy, and if you ask the doctor what this will cost…they have no idea. It is a Business, and prices will rise to whatever the market can take. There is no accountability by doctors, hospitals, clinics, pharmaceuticals, or insurance companies. You will get excellent health care as long as you can afford the best health insurance. Many people avoid medical care as they can’t afford the deductible/co-pays. Our health care system is for profit…and when you see the salaries of CEOs…you know who is reaping the profit. With Medicare you get to choose your doctor and the government sets the allowable costs for all medical care procedures. Medicare pays 80% of the allowed cost and the patient is responsible for 20%. The patient may buy a supplementary plan to cover the 20% costs. Doctors remain in “private” practice. Medicare helps control medical costs. Let those who love their employer provided healthcare,,,keep it. Let those who prefer to buy their health insurance through insurance companies, do so. Everyone must have coverage, and the poor must get Medicare insurance subsidized by taxpayers, including coverage of the 20% patient cost. Taxpayers are already subsidizing private companies’ Advantage Plans.

  3. TransitRider says:

    Drug prices are a major driver of increased medical costs because drugs are increasingly priced based on their value (how much will people pay to stay alive?) rather than actual cost. That’s why essential things like insulin have shot up in price. Other countries prohibit this, which is why drugs in Canada are often much cheaper than those in the US.

    How about a “excess profits” tax on overpriced pharmaceuticals (and other medical devices) to encourage cost-based pricing?

    Any drug sales more than, say, 10% above the actual cost (manufacturing, distribution, and R&D) would be subject to this tax, which would be steep (perhaps 50% over and above the regular corporate income tax).

    While the object of the tax wouldn’t be to raise money, any proceeds could be used to subsidize medical insurance for the poor.

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