When it comes to health care, rhetoric and reality live in separate universes. Many members of the incoming Democratic majority attacked the drug and health insurance industries in their winning campaigns. But if they try to make that rhetoric their policy, they will quickly discover that curbing those industries' power - necessary as it may be - is only a start on dealing with the problems of our health care system.
Rising health care costs are not just an artifact of high drug prices and insurance company overhead. Drugs account for just 10 cents of the health care dollar. And even if we were to go to a single-payer system and eliminate the administrative waste and profits of the insurance sector entirely, we'd still be facing skyrocketing health care costs.
Medicare costs, just like insurance company premiums, are rising at 9 to 10 percent a year. Eliminating insurance company waste would present a one-time savings only. It may be enough to get the uninsured into the system, but it's not a long-term solution to what ails health care.
Why are overall health care costs rising so rapidly? There are two main reasons: one on the demand side, and one on the supply side.
On the demand side, America is aging, like most advanced industrial societies. Older people consume more health care resources. Moreover, people who get sick today are likely to need expensive, long-term care for chronic conditions. In the 1980s, overweight, out-of-shape smokers dropped dead from heart attacks. From a health care cost point of view, that wasn't very expensive. Today, we treat them for their diabetes, pulmonary and cardiovascular conditions. They live longer. But everyone pays.
On the supply side, what we're paying for is increasingly costly interventions of dubious value. Everyone in the system -- the drug, device and diagnostic test makers, in concert with physicians and hospitals that earn piece-work rates for deploying their wares -- has an interest in claiming "advancing technology" leads to better care. No one has an interest in objectively measuring patient outcomes.
As a result, total health care costs have gone up 70 percent since 1995, with health care accounting for 16 percent of our economic output in 2004. It would be one thing if we were getting real bang for that buck, but we're not. We have worse health care outcomes at higher cost than any other advanced industrial nation on earth. According to the Organization of Economic Cooperation and Development, our nearest competitor in health care spending is Switzerland, which is more than four percentage points behind the U.S. Life expectancy? We're 22nd out of 30 nations.
Not all economists view this as a problem. Those who worship at the altar of free markets and rational choice theory say rising health care costs are a mere artifact of consumer preferences in a wealthy society. In their view, as our collective income rises and the cost other goods falls (think about the real prices of airline tickets, food, cars and computers compared to what they were two decades ago), consumers are expressing their preference to use their surplus income to buy admittedly pricey health care goods. As long as we're getting value for money in terms of health care outcomes - a point recently argued by Harvard health care economist David Cutler in the New England Journal of Medicine -- why worry?
When 47 million people are uninsured and health insurance premiums are rising four times faster than wages, there's plenty to worry about. The health care system is like a 1970s-era Cadillac - overpriced, inefficient, and filled with unnecessary features. If health care were a tradable good, you'd see our market flooded with alternative health care systems. But it's not. And the result is that any business facing international competition is at a structural disadvantage because of what it has to pay for health care. Indeed, total health care costs are about to exceed total profits for U.S. business.
One option, of course, is to give up competing and become a nation that does little more than take care of our sick, old and infirm (this is a variant of the philosophy, first articulated by an official in the Reagan administration, "Computer chips, potato chips, what's the difference?") As companies facing international competition go down the tubes, our health care system can expand to fill the gap.
One of the best-kept secrets of this decade's economic expansion is that the bulk of new jobs were created in health care fields. Between 2001 and 2005, the nation added a total of 1.6 million jobs. But nearly every one was in a health-related business. While General Motors and Ford were announcing tens of thousands of layoffs, hospitals added 400,000 jobs. Worried about decimated newsrooms? There may be a job for you in a physician's office, a sector that added over 250,000 jobs. Did your call center job go to India? Not to worry. Nursing homes added 200,000 jobs caring for our sick, elderly parents.
With the aging baby boomers entering their high health care cost years, the nation is either going to bring economic and health-related discipline to this out-of-control sector, or it will give in to it, which will decimate the rest of the economy. Even John Rother, the top health care lobbyist for AARP, the 20-million strong senior citizen group, recognizes that. "It's ultimately about costs," he told a post-election forum last week.
When Democrats get back to Washington this week, they will put Medicare drug price negotiations (the Bush-backed 2003 plan prohibited it) at the top of their agenda. It's a start. But it's not yet a plan.