A Financial Argument For Universal Healthcare In The US

Please note: I have followed the healthcare business very closely for more than 25 years, but I am neither an economist nor a professional healthcare policy wonk, which may show up in this article. I welcome comments challenging or adding to my thesis.

Most of the arguments regarding extending universal healthcare to all US citizens are ideological. They focus on broad questions about the appropriate role of the federal government in addressing citizens' needs, rather than the practical outcome that can be expected if a given policy is implemented.

I would argue that it's time to put aside such ideological battles and focus on the expected results a given policy might achieve. If we hope to tame healthcare expenses, deliver high-quality care and serve the greatest number of people, we have to focus on how to channel the money we spend on healthcare effectively.

And I contend that biases aside, there are completely rational, non-ideological reasons to institute universal healthcare access in the US.

I would argue that it's time to put aside such ideological battles and focus on the expected results a given policy might achieve.

In all candor, such a conclusion does support my deeply held ideological position, which is that pegging access to care to a patient's ability to pay is unconscionably cruel and a disgraceful state of affairs for such a rich nation as ours. But I also contend that people who disagree could still find common ground if they focused more on financial and commercial realities than their beliefs about what ought to happen.

A misshapen system

For decades, virtually every major law and reg impacting the healthcare industry has been reactive, addressing short- and medium-term issues. As a result, the US healthcare system is extremely uncoordinated and fragmented, a misshapen mess barely navigable by professionals, much less patients. The current system has been shaped by lurches back and forth in the market and evolving federal laws and regulations, rather than a coherent vision for the future.

Fueled in part by these inefficiencies, healthcare spending has continued to expand. According to the Centers for Medicare & Medicaid Services (CMS), it now accounts for 17.8% of the US Gross Domestic Product. This translates to $3.2 trillion in spending, or $9,990 per person. (Research appearing in Health Affairs also notes that part of this growth can also be traced to expanded access to insurance under the Affordable Care Act, but that deserves a separate discussion.)

At present, meanwhile, there seems to be little hope that spending will slow down. In fact, the US Department of Health and Human Services predicts that healthcare spending will rise 5.8% each year between this year and 2025. The agency also projects that when final numbers are tallied for 2016, total spending will hit $3.35 trillion, or $10,345 per person, despite slower growth of 4.8% expected for last year.

While people can put off some elective healthcare services, virtually everyone will need access to medical care at some point regardless of their means. So "market forces" won't save us.

Of course, according to traditional economic theories, competition between providers, insurers, and suppliers should help to control these costs. But for complex reasons, competition offers at best a weak check on such spending. For example, one lesson gleaned from Economics 101 is that if demand stays high regardless of how products and services are priced, vendors have no reason to lower prices. And that's how healthcare works. While people can put off some elective healthcare services, virtually everyone will need access to medical care at some point regardless of their means. So "market forces" won't save us.

Another attempt at controlling healthcare costs is the widespread introduction of high-deductible health plans in force. Unfortunately, this is unlikely to address structural problems in healthcare. While they are promoted as a means of tempering voluntary healthcare spending, HDHPs merely impose barriers to care. People need healthcare when they need it, and such deductibles result in people getting much higher-cost treatment later, generating further systemic inefficiencies in the healthcare system.

Ultimately, healthcare costs are on their own trajectory, particularly with the growth of the aging population and its attendant higher healthcare needs. Also, just 10% of patients account for almost two-thirds of spending, and 5% account for nearly half of the spending in a given year. Therefore, efforts to suppress spending by engineering in disincentives to use the system are likely to fail.

With costs for this top 10% averaging $54,000 per person per year, few could afford the full cost of care alone. On the other hand, few policymakers would dare suggest excluding them completely from the system.

Fundamental ACA flaws

At this point, we come to the Affordable Care Act which, though it provided important opportunities for coverage for millions, is still fundamentally flawed due to the economics of the healthcare industry. In short, while it may be a beneficial kludge, kludge it remains.

The Affordable Care Act attempts to solve the problem of paying for the sickest 10% by requiring everyone else, including the healthiest 50%, for whom costs average under $700 per person, to buy some form of health insurance. This requirement has generated much resistance from some Americans, but it at least results in cost-sharing that can support an insurance model.

However, despite attempts to lower insurance costs by pitting health plans against one another, premiums have continued to increase dramatically.

Looked at one way, the law has been a success. Not only has it decreased the number of people without health insurance in the US to below 10%, but program costs have been less than expected, though it should be noted that healthcare cost growth has slowed sharply in recent years as well.

However, despite attempts to lower insurance costs by pitting health plans against one another, premiums have increased dramatically, up 56% in Minnesota, 40% in North Carolina, 53% in Pennsylvania, and 116% in Arizona in 2016. Moreover, they were predicted to jump an average of 22% this year.

Of course, the immediate effect of such premium increases on consumers has been cushioned somewhat by the tax credits provided for by the law. However, with consumer tax subsidies expected to hit an average $870 a year per person, and enrollment expanding. an argument can be made that this growth in expenses is unsustainable. Last year exchange subsidies cost $56 billion, and if the ACA is still in effect in 2019, such spending may exceed the law's cap of 0.504% of GDP. In that case, some enrollees will end up covering more than expected.

What's more, with health plans dropping out of the exchanges -- and exchanges in five states offering access to only one insurer in 2017 -- it seems unlikely that the hoped-for competitive effect will emerge. This does not bode well for the future of the ACA model.

That being said, repealing the ACA and replacing it post-haste is unlikely to produce results. As flawed as it may be, it probably represents the best consensus possible given that ideological opposition to instituting a universal healthcare scheme is deeply entrenched and uncompromising at present.

In other words, to paraphrase Winston Churchill, the ACA is the worst form of national healthcare, except for all the other forms that have been tried.

Bang for the buck

All this being said, deliberations over the future of the Affordable Care Act are something of a sideshow. Regardless of what happens with the ACA, it is likely to prove a stopgap measure, as little can be done to change current healthcare cost drivers if our market-driven system remains unchanged. And under these circumstances, healthcare costs will likely remain a crushing burden on our national economy for the foreseeable future. The only way to get out of this hole is to get more bang for the healthcare buck.

For that reason, I believe a very strong argument can be made for providing national coverage. More importantly, I believe such an argument crosses the ideological divide and relies on observable facts.

Regardless of what happens with the ACA, it is likely to prove a stopgap measure, as little can be done to change current healthcare cost drivers if our market-driven system remains unchanged.

One concrete reason to consider universal coverage is that by 2025, the government at all levels should account for 47% of all healthcare spending, including Medicare, Medicaid, and the VA healthcare system. This includes paying the exorbitant costs of patients who may be considerably sicker than they might otherwise have been once they are approved for Medicaid or age into Medicare.

While it's difficult to pin down exactly what lack of healthcare access costs these programs, it's likely to be considerable, as lawmakers are already acknowledging. In fact, the premise that maintaining continuous healthcare coverage is important to controlling costs is built into several ACA replacement proposals, which would only cover consumers' pre-existing conditions if they maintain their existing policies.

In making the case for a universal healthcare alternative, my assumption is that "Medicare for all" would be an excellent vehicle for such coverage, for a multitude of reasons.

According to data from the nonpartisan Congressional Budget Office and CMS, one of the strongest arguments for extending Medicare to all is that it is measurably more efficient than private insurance.

For example, Medicare spending rose by an average of 4.3% each year between 1997 and 2009, while private insurance grew at a rate of 6.5% per year, CMS notes. Also, the CBO predicts that private insurance costs will continue to grow faster than Medicare over the next 30 years -- and the private insurance equivalent of Medicare would cost almost 40% more in 2022 for a typical 65-year-old.

In addition, CMS estimates that Medicare administrative costs are only about 2% of operating expenditures, while private insurers estimated in 2011 that they spent 17% of revenue on administrative costs.

Financial benefits

Once we assume that a single insurance body covers all Americans, the financial benefits of providing national healthcare become even more apparent. As illustrated by the Affordable Care Act, underwriting health insurance risk for all becomes steadily more feasible as a wider mix of insureds enters the pool. In other words, larger groups spread risk, making the controversial coverage demands of the Affordable Care Act unneeded.

Private insurers will never be able to have a similar impact [to CMS] on cost and efficiency

More importantly, for this argument, consider the clout that a single unified Medicare plan for all would have. At present, roughly 55 million Americans are covered by Medicare, which accounts for 20% of all US healthcare spending. Given the cash flow generated by insureds, who typically need more services than younger people, Medicare policies have a very substantial impact on providers, including their pricing of services and pursuit of efficiency and quality improvement efforts.

This effect could be multiplied dramatically if all 324 million people in the United States were covered by a single, experienced, and demonstrably efficient entity like the Medicare program. Private insurers will never be able to have a similar impact on cost and efficiency, particularly given ongoing, massive mergers between giant industry players which arguably reduce competition.

It's the efficiency, stupid!

As noted above, those who oppose universal healthcare cite ideological reasons for doing so, including a belief that "government can't get it right" and a sense that citizens aren't entitled to benefits.

That being said, the realities of healthcare costs and the impact those costs are having on our economy and collective well-being affect people on every point of the political spectrum, so we need to get beyond parties and look at numbers. When it comes down to it, providing healthcare isn't about defending a political position. To coin a phrase, it's the efficiency, stupid!

I urge opponents of universal healthcare to consider that we could greatly improve the health of everyone by pooling the extraordinary sums we already spend and using those dollars more effectively. It's time to act. No nation can afford infinitely rising healthcare costs, a suppressed economy, and a sick citizenry.