Diagnosing the problem

Legislation to overhaul the U.S. healthcare system hasn’t emerged from congressional committees, yet it has gained enough momentum for the demonization of the reform effort to start in earnest. For example, Republican strategist Karl Rove called it “President Barack Obama’s government-run monstrosity” in an Op-Ed article Thursday in the Wall Street Journal. Other Republicans, hewing to the rhetorical line drawn by consultant Frank Luntz, warn of a trillion-dollar “government takeover” of the healthcare system a la General Motors or American International Group.

The hyperbole reflects not just the political stakes involved, but the economic and personal ones. Healthcare is a $2-trillion industry, and improving its delivery is literally a matter of life and death. That’s why the issue deserves a full-throated, no-holds-barred debate. As lawmakers spar over ways to improve the healthcare system, however, it’s worth keeping in mind the broad agreement among doctors, hospitals, insurance companies and consumer advocates about what needs to be fixed, and why it needs to be done now.

Rising costs

There are three fundamental and interrelated problems with healthcare in this country: It’s too expensive, the results aren’t as good as in other countries, and the insurance provided by government and the private sector leaves too many people uncovered.

The growing cost of care is the most pressing of these issues, despite the fact that it’s not even remotely new. President Nixon declared a crisis in healthcare costs 40 years ago, when Medicare and Medicaid were still in their infancy. (Five years later, he proposed national health insurance.) According to the Committee for a Responsible Federal Budget, total healthcare spending has historically grown 2.5 percentage points faster than the economy. Healthcare already makes up 18% of the U.S. gross domestic product; if the trend continues, it will consume more than 30% of the economy in two decades. Such an increase poses a critical problem for government programs, especially Medicare, whose tax revenues are expected to fall short of its expenses within eight years.

Consumers feel the cost increase too, as a drag on their incomes. Those who receive health insurance from their employers are paying more for it through higher premiums and out-of-pocket costs, slower wage growth or both. According to a new report from the Bipartisan Policy Center, workers’ monthly health insurance premiums grew almost 74% from 2000 to 2006, or more than six times faster than the U.S. median income. Of every $100 in payroll spending, $11 is diverted from paychecks into healthcare. Meanwhile, the increasing number of people whose jobs don’t supply health insurance, including the self-employed, have to bear the full brunt of the higher costs.

The increase is being driven by several forces, some of which are easier to restrain than others. Continual improvements in technology, which have lowered costs in most other industries, have boosted them in healthcare. The typical insurance policy (government or private) pays doctors and hospitals for each procedure performed on sick customersrather than for keeping them well, encouraging the overutilization of expensive new equipment and in-patient beds. Those policies also make many consumers insensitive to the cost of their treatments, reducing the market pressure that limits the ability of service providers in other industries to raise prices. Persistent shortages of nurses, medical technicians and other healthcare workers have pushed up their wages faster than the typical employee’s. At the same time, demographic and behavioral factors -- including an aging population and a high rate of obesity -- increase the demand for healthcare. Chronic diseases account for 75% of healthcare spending, and many of those stem from risky behavior.

Questionable quality

Dedicating so much of the economy to healthcare might be acceptable if the investment yielded the world’s best results, but it doesn’t. Despite spending far more per person and a far higher percentage of GDP than any other country, the U.S. lags behind other industrialized nations on most measurements of healthcare. These include higher death rates from medical errors and treatable diseases, and higher infant mortality, according to a 2006 study by the Commonwealth Fund. Defenders of the U.S. system often argue that patients in other countries face lengthy delays for care, especially from specialists or for elective surgeries. But the Commonwealth Fund study found that, compared with several other countries, “U.S. patients are notably less likely to have rapid (same- or next-day) access to physicians when sick or to find it easy to get care after hours without going to the emergency room.”

Even within the United States, there seems to be only a tenuous relationship between the amount of money spent on patients and the quality of care. Researchers at Dartmouth Medical School have looked at Medicare spending across the country, finding wide variation in the cost -- and, frequently, better results in regions where spending was lower. Nor have U.S. healthcare providers coordinated care for individual patients or helped them manage chronic diseases as well as their counterparts in other industrialized nations. Part of the problem is the slow, haphazard adoption of information technology, including digitized medical records, to guide patient care and prevent errors. Studies by the Rand Corp. in 2003 and 2006 found that U.S. patients receive the right care only about 55% of the time, and that the problem affects rich and poor, insured and uninsured alike.

Incomplete coverage

The rising cost of care also affects access to healthcare. The percentage of U.S. employers providing health insurance has dropped sharply this decade, from 69% in 2000 to 63% in 2008. Meanwhile, the number of Medicaid recipients swelled from 43 million in 2000 to 58 million in 2006, while the ranks of the uninsured have grown to more than 46 million.

There is a moral dimension to this problem: People incapable of obtaining health insurance are less likely to get care when they need it, and more likely to die from a preventable illness. A 2002 study by the Institute of Medicine found that the uninsured had a 25% higher “mortality risk” than the insured, leading to about 18,000 more deaths in 2000 than would have been expected had everyone been covered. The Urban Institute updated that research last year, raising the toll to 22,000 in 2006.

Even some who have insurance coverage find that it’s no guarantee that they’ll be able to find care or afford it. Health insurers have been scandalized by revelations about patients losing coverage retroactively after they filed claims for expensive care. More systemically, as Congress has held down Medicare and Medicaid reimbursement rates, the number of healthcare providers willing to treat those patients has dwindled. As a consequence, many of those covered by Medicare and Medicaid have to travel farther or wait longer for care.

The need for reform

The cost, quality and coverage problems are intertwined. Healthcare providers pass along the expense of caring for the uninsured and underinsured, raising costs for those who have insurance. Insurers respond by raising prices, which leads more employers and individuals to drop coverage. The low reimbursement rates prompt physicians to move into more lucrative careers as specialists, reducing the supply of the primary-care doctors who are vital to timely, high-quality care. And the perverse financial incentives in the system deter doctors and hospitals from aligning their interests with those of their patients. After all, the healthcare industry profits more from treating ailments than from preventing them.

These interrelationships complicate the task facing reformers in Congress, who are developing bills in five separate House and Senatecommittees. Lawmakers from across the political spectrum are eager to tackle the cost problem, but it’s difficult and possibly futile to do so without addressing the uninsured and government-insured patients who shift costs onto the rest of the market. Nor are there proven methods of controlling costs, researchers recently argued in the Annals of Internal Medicine, short of setting rigid spending caps, which the public has been loath to accept. It’s easier politically to expand insurance coverage, as Congress did earlier this year for children from low- and moderate- income families, but that’s expensive and doesn’t slow the rate of healthcare inflation.

The U.S. healthcare system isn’t a failure. It’s extraordinarily good at some things, such as developing new treatments. But its inefficiencies and gaps have created flaws so deep, the system cannot be sustained for long. Not enough people are receiving the care they need when they need it, and those who are pay too much for it. The problems are getting bigger and more complex. The longer we wait to solve them, the more intractable they will become.