My father is an immigrant who fled the Civil War in El Salvador during the 1980s and my mother is a descendant of Irish immigrants who arrived in New York searching for a better life. From our founding fathers who risked life and limb to confront the most powerful empire the world had ever known to our immediate fore fathers who left their homelands in pursuit of the American dream, we are a nation unafraid of risking it all for the transcendent desires of the human heart. It should come as no surprise then, that our nation has turned to another revolutionary battle that will forever change our great country. This time, the shot heard round the world will not be literal gunshots the likes of heard in Lexington and Concord but rather political shouts of ‘Medicare for All’ from the likes of Sanders and Warren. But is this revolutionary movement advancing the dreams of our forefathers or is it an attack on our values requiring a counter revolution to preserve our liberty?
The Tipping Point
There comes a moment where a problem that everybody recognizes reaches the point of no return where the status quo is untenable, and a radical solution becomes the only visible way out. In health care, rising costs that are increasingly applying pressure on government expenditures, employer expenses and consumer wealth have given political fuel to the ‘Medicare for All’ movement that seeks a revolutionary change to the system. Before delving into the revolution, it is worth exploring why health care costs are high in the first place.
Many believe that approximately 1/3 of health care spending is “wasteful” or in other words does not contribute to patient health or care quality[1]. With health care spending rising to 18% of the national GDP, this 33% equates to over $1 trillion of annual waste. Yet, the leper in the room that nobody wants to touch is that the main problem with the $1 trillion of “waste” is that…we are already willing to pay it! The ideal price of a commodity is an organic matching of supply and demand that reflects what the consumer is willing to pay and what the producer is willing to accept. Most individual consumers in America have been inorganically shielded from the actual cost of care which in turn has shielded the health care industry from having to focus on consumer value or cost. Government-sponsored insurance covers approximately 41%[2] of the population and pays for roughly 79%[3] of the cost of care. Employer sponsored insurance covers approximately 47%[4] of the population and pays for roughly 48%[5] of the cost of care. Both are funded with consumer dollars but are done so through payroll reductions (i.e., government programs through taxes and employer programs partially through contributions). The result is a system in which health care funding is largely driven by political desires to appeal to voters and staffing desires to appeal to employees as opposed to consumer desires for quality health care.
We all want to reduce health care spending but few like to acknowledge the full scope of employment opportunity and wealth the industry creates and what it would mean to truly lower health care costs in America. As former Princeton economist Uwe Reinhardt puts it, “Every dollar of health care spending is someone else’s health care income. Even when it’s fraud, waste or abuse.”[6] It’s easy to garner support for eliminating fraud, waste and abuse but as the quote points out, doing so would result in eliminating revenue, jobs and income, a much harder sell. Solutions to rising health care costs have naturally focused on the easier sell of efficiency measures but have failed to control costs due to a lack of attention to the harder issue of over funding. In a sense we have put the efficiency cart before the funding horse. In America, efficiency is certainly part of the solution, but lack of efficiency is not the source of the problem.
To understand the problem further, we need to first recognize the largest barrier to reducing costs. The following graph shows health care and overall job growth since 2005. The top line is health care job growth, the bottom line is overall job growth (which includes health care jobs).