Sally C. Pipes, President & CEO of the Pacific Research Institute, has written a superb book, The Top Ten Myths of American Health Care (2008). Her analysis bears a close look.
Myth One: Government Health Care is More Efficient. Figures used to justify this claim ignore costs government mandates impose upon private insurers; all 50 states impose cost-increasing mandates, with the average state imposing 38 mandates. Medicare routinely underpays, passing on costs to be picked up privately. Medicare does not count as costs such things as salaries & marketing expenses under Part D--the drug benefit part of Medicare. Studies show Medicare wastes up to 1/3 of money it spends. Medicaid, which is bankrupting New York State, is riven with fraud--one study found 40 percent of NYS Medicaid expenses to be based upon fraudulent claims. The past decades hugely popular SCHIP--State Children's Health Insurance Plan--covers 6 million children. But SCHIP also covers 600,000 adults in 14 states; in 6 states there are more adults than children using SCHIP. SCHIP goes to families earning up to 300 percent of the poverty level. Processing claims takes an average of 127 to 177 days in the public sector, versus 89.5 days in the private sector.
Myth Two: We're Spending Too Much on Health Care. In 1950 the average American spent $500 annually on health care, which accounted then for 5 percent of GDP; in 2006 the average individual cost was $,7026, and health care consumed 16 percent of GDP. (Adjusted for the more than 8-fold inflation since then, the 1950 average figure would be $4,147 in today's dollars--thus the true rise on HC costs is 1.7 times, not 14-fold.) Other factors driving up costs are benign: rising life expectancy, fewer premature deaths due to things like heart disease, leaving more people to die of old age. Also, HC is nowhere near the 5.4 percent of total household expenditures, close to the 4.5 percent spent on clothing, but far less than the 40.8 percent spent on housing, 18.3 percent on transportation and 18.2 percent on food.
Myth Three: Forty-Six Million Americans Can't Get Health Care. in 2007 there were 46 million Americans--6 million of them children--classified by the Census Bureau as uninsured, then 15.3 percent of the population. But those uninsured for a brief period are counted equally as those without insurance for the entire year. Some 38 percent of the uninsured have incomes of at least $50,000 per year. Over 10 million uninsured are not US citizens. Many young people self-insure (which makes sense for everyday problems but is risky for catastrophes). As many as 14 million Americans--including 5 million of the estimated 8 million children without insurance--are eligible for insurance but have not enrolled. Some 8 million "working poor" Americans are without insurance and need it, but can (and often do) get care at hospital emergency rooms (enormously inefficient, though).
Myth Four: High Drug Prices Drive Up Health Care Costs. In 2007 drug costs were $2,600 per household. They are key for managing chronic diseases, which make up 85 percent of total health care costs. About 6 in 10 Americans have at least one chronic disease, and such problems account for 79 percent of physician visits and 82 percent of hospital admissions at Johns Hopkins. Drugs, however, are far cheaper than surgery, and have replaced surgery in many chronic disease management protocols. For every 5,000 to 10,000 compounds under development, 5 make it to clinical trials and one to market. RD costs are covered by only two in ten drugs, with an average per drug of $1.3B. The costs of unsuccessful drugs must be absorbed by the successful ones. But 65 percent of drugs purchased in the US in 2007 were generic brands.
Myth Five: Importing Drugs Would Reduce Health Care Costs. Drug importation from Canada is popular in the US. But the US spends four times as much on drug R&D as the UK and 17 times as much as Canada. Generics are often cheaper in the US. Canada allows patent theft, so US drug companies make deals to sell drugs in Canada at lower prices, leaving American consumers to pick up R&D costs. American firms account for 90 percent of new drugs worldwide, and thus venture capitalists invest 15 times as much in US firms as overseas. The Congressional Budget Office estimates that allowing drug importation will reduce total HC costs only one percent, hardly worth the damage to drug R&D in the US.
Myth Six: Universal Coverage Can Be Achieved by Forcing Everyone to Buy Insurance. A better way is to allow more closely tailored policies. Young people might purchase a catastrophic-only policy, but pass on a one-size fits all policy, often required by state HC mandates. Employer costs are raised by forcing companies above a threshold size to either provide health insurance and partly pick up the tab (the employee portion is tax-deductible), or else pay a specified percentage into state HC funds--so-called "pay or play" mandates. Some 60 percent of Americans thus purchase insurance through their employer, and thus don't see their HC cost bill in full. (The employer, of course, extracts his HC contribution by paying lower wages than otherwise would be offered; this is a hidden cost of the third-party payer system of HC.) Two other HC mandates drive up HC costs: "guaranteed issue" - forces insurers to issue policies to all who ask; "community rating" - forces insurers to issue policies without regard to pre-existing conditions, on a on-discriminatory basis.
Myth Seven: Government Prevention Programs Reduce Health Care Costs. Up to 75 percent of HC costs result from lifestyle choices, with 10 percent attributed to obesity alone. But "obesity" is defined by government statisticians by Body Mass Index, under which many celebrities and athletes are deemed "obese"--think New England Patriots QB Tom Brady, Brad Pitt & California's Governator! Worse, those who live healthy lifestyles wind up costing society the most, as they die of old age, and wither away while HC costs in the final phase of life skyrocket.
Myth Eight: We Need More Government to Insure Poor Americans. Roughly 37M Americans, 12 percent of the total, live under the officially-defined poverty line (the 12 percent figure has changed little over the decades). Why in 2003 did only 69.5 percent of primary physicians accept Medicare patients? Well, how about because for a one-hour consultation, Medicare pays the princely sum of $20! As for Medicaid (government-funded HC for the poor), the federal government pays an average (varies widely by state) of 57 percent of Medicaid expenses ($338B in 2007); yet Medicaid still consumes an average of 22 percent of state government budgets--more than education--and is estimated to consume 60 percent of Florida's 2015 state budget. Medicaid passes off immense administrative costs, in the form of regulatory compliance, to the private sector (as the IRS does). Medicare & Medicaid administrative costs are much higher.
Myth Nine: Health Information Technology is a Silver Bullet for Reducing Costs. With 90 percent of doctors and over 2/3 of hospitals still keeping paper records, computerizing HC records--HIT, or Health Information technology--is a favorite cause of reformers. A 2005 study by the RAND Corporation found potential savings of $77B annually if HIT is well implemented. But that is only 3.3 percent of the $2.3TR Americans spend on HC every year. and since when does government efficiently implement such programs? Private doctors are ahead of the public sector in implementing HIT.
Myth Ten: Government-Run Health Care Systems in Other Countries are Better and Cheaper Than America's. Much is made of how Americans spend more per capita and as a share of GDP than Europeans. America also lags in certain HC areas, such as infant mortality. Part of that is lifestyle issues--obesity, for instance. Part of that is urban pathologies that lead to high rates of infant mortality, which reduces overall US life expectancy. Yet Americans who do not die from car accidents or homicides outlive their European counterparts. But socialist countries ration HC by queuing--standing in line. Waiting lists are far longer. In Canada the average wait time between seeing a primary care physician and a specialist is 18 weeks. Doctor shortages are common. In Nova Scotia officials use a lottery to ration access. US doctors are better paid, and put far more advanced technology in their offices. Even the US public sector is better: It funds roughly five times as much R&D as Europe does. Finally, queuing never stops senior officials from jumping line--if need be, going outside their country to find specialized care, often in (naturally) America.
Health care maven Regina Hertzlinger sees market reforms as a better way to change HC. American Enterprise Institute HC scholar Robert Helm cites three roadblocks to HC reform: employer-subsidized HC, Medicare & Medicaid. The three 800-pound gorillas of HC will likely stymie constructive reform.
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