ISSUE ANALYSIS:

The Health Care Elephants in the Living Room

The Wall Street Journal published a telling story on November 18, 2009: "Germany Strains to Fund Health Care for All." Its author, Vanessa Fuhrmans, does a fine job of reviewing "the world's oldest publicly-sponsored health-care system," founded in 1883 when Bismarck was in charge. We are told that costs there are escalating rapidly, as fewer younger workers are paying into the system while large numbers of people are reaching retirement age. The Germans are having to consider making changes to a system they like as it is. Could be they'll have to move to a two-tiered system: everybody gets basic insurance, and anyone wanting more than that would buy supplemental coverage. The Germans, reports Ms. Furhmans, are resisting this idea because they consider universal health care to be "a basic right."

Accompanying the story is a chart sourced from the Organisation for Economic Co-operation and Development (OECD) showing the percentage of gross domestic product that member countries are spending on health care. In Germany, the per-capita annual cost of health care is $3588 per year—10.4% of their GDP. By contrast, Americans are spending 16% of GDP on health care, or $7290 per person per year—the highest of all the OECD countries.

Yet unlike the other OECD countries, the U.S. healthcare "system" does not cover all its citizens—not by a long shot. Why is it that the U.S. spends so much more than its peer countries, and still cannot manage to assure that all Americans have decent health care coverage?

Who, what, when, where, how, why, and how much: These are the essential questions any journalist or politician, let alone ordinary citizen, should be asking about this economic disconnect. Strange, isn't it, that these questions aren't being addressed? Have American reporters gone brain-dead, or is something else going on that could explain this extraordinary oversight in reporting?

Well, consider that the overall costs calculated by OECD include such things as expenses for advertising for medicines and medical services. Think how many advertisements we see on TV and in print media in the U.S. that boost the alleged virtues of prescription and over-the-counter medicines. How much revenue would our media lose if costs were contained by not permitting such advertisements, or at least capping these expenses? Pretty substantial, right? We could call this the Don't kill the Golden Goose reason for failing to report the costs related to medical advertising, which of course is paid for by consumers through the costs of the medicines, either directly or through their insurance plans.

Then, too, there's the fact that the "health insurance industry" is mammoth; it represents over 12% of the U.S. economy, according to William J. Baumol, a New York University economics professor, among others. Some of that "industry" is related to fluff: advertising, profits, public relations and lobbying costs, and so on; but it's not all fluff. Related industries include, according to Yahoo Finance's Industry Center, biotechnology, diagnostic substances, drug delivery, drug manufacturers (generic and patent), drug-related products, health care plans, home health care and related insurance plans, hospitals, long-term care facilities, medical equipment (appliances, instruments and supplies), medical labs and research, medical practitioners, and specialized health services. All of these sectors' combined products and efforts are added to the overall health care cost per person, driving up the per-capita cost. To which we can add the prison and military industries, because our tax dollars cover the health care of inmates and military personnel, too. These industries represent lots of jobs, of course, and no one—especially not in today's challenged economy—wants to suggest taking steps to pare down the "industry" in a significant way. We could call this the Don't Kill off the Workforce argument for justifying keeping the status quo as much as possible.

In 2003, Harvard University's then-president, Lawrence H. Summers, delivered a lecture on the economics of heathcare during which he asserted that, according to an article by Harvard Gazette staff reporter Alvin Powell, "health care...is the most important force in the nation's economy, when one considers not just its direct economic impact, but also the role it has played in increasing life expectancy and improving overall health." Curiously, while Summers called for improved efficiencies to reduce costs, he didn't mention that many peer countries provide better health care than the U.S., and have longer life expectancies, despite our spending so much more to support the "industry." This would be the Don't Look for Solutions Anywhere Else argument.

Reducing healthcare costs while preserving jobs would be difficult, but we must do it. Jobs that may be lost in the healthcare field because of these economies could be made up for by creating more jobs in other sectors of the economy once businesses no longer carry the heavy burden of providing such expensive health insurance for employees.

First off, we could establish fees (as Medicare does) or cap profit margins of the for-profit healthcare industries. This is done by peer countries, most notably Japan. Or we could phase in extra taxation as profit margins exceed certain limits, with the additional tax going to offset, for example, costs for Medicaid. Or we could cap dividends that could be issued to stockholders. All of this would be painful, and intrusive, but healthcare is often about pain for individuals who lack it. Pain is pain; share it.

Some observers focus on the inefficiencies of dealing with the bureaucratic differences of dealing with the myriad of private healthcare insurance providers. Administrative costs in the U.S. are about 31%, versus 16.7% in Canada, which has a single-payer system. Adopting such a system could go far to alleviate such waste in the U.S., but the single-payer option dropped off the radar screen early on in the current health care insurance debate. Again, jobs could be lost in the process, but would be balanced by insurance affordability and broader access to care (more customers needing service).

How much could we save by finding other ways to punish criminals, including decriminalizing certain non-violent drug offenses? By scrapping the draconian three-strikes-and-you're out rule? By discharging from prison anyone over, say, the age of 70? Keeping minor offenders out of the criminal justice system (another U.S. "system" in desperate need of reform, but that's a story for another day) would make them more employable; they could contribute to the overall budget with their taxes, and provide for their families, lifting that cost from the public.

How much could we save in medical costs by limiting involvement in military conflicts to defensive maneuvers only?

How much could we save by breaking out the costs of health care industry lobbyists and political contributions, and putting caps on such spending?

We—or at the very least, our media—should be asking all these questions, but they're not. The "healthcare debate" has blinders on it: it's all about kicking, or protecting, the "for-profit" insurance companies, but many other aspects of this issue also need reform if we are to bring down health care costs.

We need a common-sense overhaul of the health care system so we can get maximum value for the money spent. Instead, we're getting a piecemeal picture that prevents us from coming together as a nation to do the right thing. We're diverted by charlatans and alarmists who are fanning fears of change, of "rationing," of huge costs increases.

We need to go to the "Goals Grid" approach:

What do we want to achieve? An equitable, high-quality and cost-efficient healthcare system that covers everyone.

What do we want to preserve? Freedom of choice of providers, jobs, and quick access to care when needed.

What do we want to avoid? Substandard care, a system that doesn't cover everyone, major cost increases, overblown ad budgets for medicines, an ongoing increase to the federal deficit.

What do we want to eliminate? Duplication of services in saturated markets, waste of all kinds, inefficient administrative bureaucracies.

This focusing exercise is only the beginning, but it makes a good start. Only when we gather the facts and see how they fit into the big picture will we be able to move forward in a logical and effective way.

And while we're at it: could we please make this a fun exercise? Because all this stress over "health reform" is, well—going to make some of us sick. Not to mention that failing to do this reform will result in tens of thousands of premature deaths of our fellow citizens due to lack of access to care, or because they seek care too late due to lack of health insurance coverage.