The U.S. health care system is an unsustainable mess. Medical spending is rising at twice the rate of income growth. Medical prices are rising at three times the rate of consumer inflation. National health expenditures are approaching one-fifth of the economy. Currently the government funds about half of health care. In the coming decades, medical spending is on track to crowd out much of the other public services the government provides. There is a solution; we just haven’t tried it yet.
The Affordable Care Act (ACA) was sold to the American people as a means to fix those problems and make health care affordable. The vehicle to achieve this — implausibly — is a requirement that we all must purchase overpriced health insurance. In addition to stipulating the benefit package Americans are allowed to have, ACA regulations also force insurers to accept all enrollees — including people in poor health. Moreover, each person’s premiums must reflect average health in a community rather than individuals’ health status. In insurance parlance this is what’s known as guaranteed issue/community rating. The law does allow charging some people more based on their age, such as charging people in their late 50s more than the rates paid by people in their 20s. But premiums cannot be higher for enrollees with high medical bills.
How does this work in practice? Not very well! For Obamacare to work, an army of young people need to willingly pay $3,000 per year in premiums knowing they will not even come close to reaching their $3,000 deductible. An average of about one baby is born to women sometime in their 20s. But that’s about the only major expense a 20-something will incur. For their part, hoards of healthy 30-somethings all need to all pay $3,500 annually for health coverage that provides them few tangible benefits. Healthy 40-somethings need to chip in $4,000 in premiums for a $4,000 deductible they will never reach; and healthy 50-somethings need to cough up $6,000 in premiums for a $6,000 deductible most of whom will never surpass. Sounds like a bargain, right? To make health care “affordable,” millions of Americans need to spend thousands per year on health coverage that pays virtually none of their medical bills. In other words, access to affordable care under Obamacare is premised on the idea of that most people necessarily must get a raw deal. Obamacare is premised on overcharging most people to offset the higher costs for the few enrollees who would otherwise find their coverage unaffordable if charged premiums based on their own health risk.
Average health spending per capita in the United States is around $8,600 annually. But it’s not distributed evenly. About 80 percent of the enrollees are healthy. They collectively consume only 20 percent of the health care dollars used; about $2,150 per year on average. However, some people are ticking time bombs. The least healthy 20 percent spend an average of about $35,000 yearly.
- About 10 percent of the population has health concerns accounting for 17 percent of spending.
- Another 5 percent have serious health concerns accounting for 16 percent of health spending expenditures.
- The next 4 percent consumes nearly one-quarter of health care dollars (27 percent), while;
- The sickest 1 percent of patients accounts for 20 percent of spending.
Think about that for a moment: the sickest 5 percent of the population consumes nearly half of all health care dollars. Of course, most of those are not really genetic losers. Many are merely aged seniors in their last months of life.
Obamacare purposely attempts to make health care affordable by forcing the healthy 80 percent to shoulder more of the costs for the unhealthy 20 percent. But that does not make care affordable; it merely shifts the costs from one party to another. Consider how absurd this is: we could all share the nation’s medical bills if we merely sent a check to the government for $895 a month. That is sufficient to pay an equal share of national health expenditures and includes an extra 20 percent so the government could contract with insurers to negotiate with hospitals, process claims and eke out a profit. Of course, that is not likely to work since a lot of kindergarteners cannot be trusted to pay their fair share out of their lunch money. It also illustrates how much money we are spending as a nation on medical care.
The bottom line: we will never get a handle on runaway health spending until we get a handle on what to do about the 20 percent of the population that consumes 80 percent of health care dollars. We don’t necessarily have to throw them under the bus, or put them on an ice floe to drift out to sea where they die of exposure. Multiple studies have found that about 30 percent of medical care is wasteful, unnecessary or possibly even harmful. If we could better manage the care provided the sickest 20 percent of the population we could possibly reduce expenditures by one-quarter or more.
The perverse way Obamacare attempts to make health care affordable is both unconscionable and ineffective. Moreover, it will do nothing to reduce the rising cost of health care. Rather than disrupt the lives of the 80 percent by overcharging them to prop up an unsustainable health care system, why not improve the way medical care is provided the sickest 20 percent?
An earlier version of this Health Alert appeared on Town Hall.