The Costs Associated with Socialization of Healthcare

The purpose of this post is to provide a general idea of cost and feasibility of this model. Despite the featured image, this is not the same model as Congressman Bernie Sanders described during his run for presidency. This also is not a recommendation for a healthcare model of best fit. I will state again, this is a post based on feasibility.

Socialized Healthcare, also known by some as Universal Health Coverage (UHC), is defined as a government-regulated system for providing health care for all by means of subsidies derived from taxation (1). An example of this in the United States is the Veterans Health Administration, where the government both finances and is involved in delivery of healthcare. UHC on the other hand, is a more encompassing term and also includes single payer systems such as Medicare. The government finances these systems but healthcare providers are privatized. For the purposes of this post, the more inclusive term of UHC will be used.

Socializing healthcare was a major platform this past year for presidential candidates during the election. There were many proponents both for and against this concept in the United States. The main argument behind UHC promoters was to change our increasingly costly pseudo-free market model of healthcare to reduce costs and improve coverage. According to the Centers for Medicare and Medicaid Services (CMS), in 2015 healthcare accounted for 17.8% of the Gross Domestic Product. This number is projected to rise to 19.9% by 2025 as well. As of this moment in time, the United States is the only developed nation on earth, which does not have universal healthcare (3).

A reason for this lack of social progression is likely based on the United States foundation on capitalism. This has created a free market basis of health insurance that pays providers based on the fee for service system and is driven by market forces, where the providers can determine cost of their business based on supply and demand. A common argument states that due to the supply/demand principle, UHC will cause increased demand with the same supply of healthcare providers. This has been speculated to reduce the quality of care due to reduced payment along with a shortage of physicians, surgeons, physical therapists, and other healthcare providers. There currently is a developing shortage of general practitioners due to the lower rates of reimbursement than those who specialize (11). At this moment in time, insurance is the main driver of healthcare practice. Insurance intervention via incentivizing primary care would sway students and healthcare practitioners towards the more demanded primary care positions, which would improve job satisfaction, reduce wait times, and improve access to care for the public. This would negate the argument that those with socialized medicine must face longer wait times to see their physician. It is unlikely that this would affect the economy, but rather the roles of physicians within their respective fields.

Speculative economic models are primarily based on our current hybrid system and relationships to other countries that utilize UHC. Because of this, based on country and variables chosen, the constructs are frequently inaccurate and can have large disparities. For example, some models that include 100% payment by government for all services rendered may not have complete accuracy, as rarely will countries using UHC pay for elective procedures such as plastic surgery. The promoters of UHC propose that the United States would have an overall savings on healthcare. This is true, but does not tell the entire story. Overall tax dollars would increase, but savings would be made in the private sector of healthcare and eventually lower the overall cost over time and reduce the inflation of costly services. The last yearly reporting in 2015 by the Organization for Economic Co-operation and Development (OECD) revealed the United States as highest priced healthcare for a developed country at $9,451 per capita total spending of which $4,672 was public spending (4). The next closest country was Luxeomborg, who utilizes UHC at $7,765 per capita of which $6,520 was public spending. If UHC was enacted, it is likely the government would use these public vs. private spending comparisons to project an end goal.

Many issues arise with the numbers economists publish when extrapolating these public vs. private spending models with between country comparisons as well. This is that they cannot account for the amount of money spent on behavioral factors, such as malpractice. The United States in 2015 had greater than 1.3 million registered lawyers with the American Bar Association, which accounts for 70% of the world’s lawyers (5). Because of this, overall spending is increased due to risk of lawsuit.

Another reason application of numbers and figures is difficult is because America has the world’s largest population of obesity. The OECD reports that 70.1% of U.S. citizens were measured to be overweight or obese (6). Excess weight accounts for a plethora of chronic conditions including metabolic disease, myocardial infarction, cerebrovascular accident, and more (7). All of these increase lifetime spending and have made a huge impact on the health savings pool for current Medicare beneficiaries.

These chronic conditions play a large role in cost and number of pharmaceuticals purchased as well. The United States ranks fairly low with pharmaceutical spending at 12.3% of total healthcare costs. However, when taken from a per capita basis, the U.S. is highest at greater than $1,112. The next closest ranking country is Canada, who spends $772 per capita (6). It is less probable that with healthcare reform, the country will change pharmaceutical prices. Historically, this group has massive lobbying power and argue that their prices are regulated based on need for profit and continued research and development of these drugs.

Even with these factors taken into account, most models provide resultant savings with UHC. Gerald Friedman in 2012 provided an economical analysis of a single payer system, which he termed “Medicare For All”. He quoted a total of $570 billion in healthcare savings attributed primarily to reduced administrative burden (8). Friedman proposed that government funding would have to increase and could be done through tax increases by 0.5% on financial transactions such as stocks and equities, bonds, and options premiums. This would generate revenue of greater than $220 billion based on 2009 values (9) and could be collaborated with a tax imposition of 6% on those in the top 5% of wage earners. If this idea was feasible, it would simplify billing operations required by hospitals and private clinics, and improve reimbursement rates for providers who accept lower paying insurances such as Medicaid.

Screen Shot 2017-05-22 at 4.40.55 PM
Friedman Model

Others such as Forbes propose similar models, but the primary insurance type for patients being catastrophic coverage. This plan would be in place from birth until Medicare eligibility and would (still) be free for those who are under the federal poverty line (FPL) or Medicaid eligible. Those with current health insurance would still maintain their insurance, but also have 100% coverage supplemented catastrophic insurance as a secondary. They estimate that those at the FPL (about $28,000 per year income) would pay “a few hundred dollars” deductible. They estimate that the majority of those in the plan would pay less than $2,000 per year in premiums, which is half of the cost of a typical single-person policy. Their objection to the Affordable Care Act is that it covers “too much”. With a total 10-year cost of $180 billion as projected by the CBO, they estimate their plan would cost around $95 billion in comparison (9). This catastrophic UHC could also improve hospital’s abilities to provide pro bono services without being fiscally irresponsible by providing reimbursement for costly emergency procedures.

What has not yet been introduced is the future trend toward money allocation to preventive services. Forbes did include in their analysis a statement on 100% coverage primary care physician visits and preventive services such as statin drugs, anti-asthma medications, and childhood vaccinations. These are all services, which have been proven to reduce overall healthcare spending by preventing chronic, more costly pathologies. For example, education and prevention of chronically elevated high blood pressure may reduce risk of stroke or heart attack and future hospitalization.

The common theme in these health care estimates, which are heterogeneous in nature based on factors and coverage, is overall reduced cost to all that are below the top 5% of earners. Despite funding by sliding scales based on income, overall costs to the middle class are reduced by cheaper services because through minimized administration. While this seems logical in nature, consumer reaction to these prices may not follow the same line of thinking. As a broad generalization, U.S. citizens do not want to pay more money in taxes, especially if they believe those tax dollars are paying for other person’s benefits (top 5% of earners). What many do not realize at this time is that in the future taxes will rise no matter what the healthcare system is. In a system of UHC, there is a planned change to the tax structure instead of our current model consisting of progressively increasing costs of services rendered, increased costs of administration, and a system, which is convoluted and opaque for consumers. According to the Urban Institute in Washington, Medicare beneficiaries on average put in $722,000 in Social Security and Medicare and take out $966,000 in benefits (10). A system such as this is not sustainable, and may benefit from an increase in taxes and allocation of money to reduce overall cost of living. In the end, based on the principles described in this post, the cost of socializing healthcare may be an initial bout of consumer frustration due to rising taxes followed by more money to providers and improved access to healthcare with reduced total healthcare cost and burden of chronic illness.

Thanks for reading,

-Jared Burch, PT, DPT


References:

  1. Socialized Medicine [Def. 1]. (n.d.). Merriam-Webster Online. In Merriam-Webster. Retrieved May 22, 2017 from https://ahdictionary.com/word/search.html?q=socialized+medicine.
  2. NHE Fact Sheet. (2017, March 21). Retrieved May 22, 2017, from https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html
  3. Fisherman, M. (2012, June 28). Here’s a Map of the Countries That Provide Universal Health Care (America’s Still Not on It). The Atlantic. Retrieved May 22, 2017.
  4. OECD (2017), Health spending (indicator). doi: 10.1787/8643de7e-en (Accessed on 08 May 2017)
  5. Lawyer Demographics Tables. (2015). American Bar Association. (Accessed on 08 May 2017)
  6. OECD (2017), Overweight or obese population (indicator). doi: 10.1787/86583552-en (Accessed on 22 May 2017)
  7. NIH Fact Sheet. (2017). National heart, lung, and blood institute: overweigh and obesity. National Institutes of Health. Retrieved May 22, 2017.
  8. Friedman, G. (2013). Funding a national single-payer system. Healthcare-now. org. Np, nd Web, 9.
  9. Hagopian, K and Goldman, D – Capital Flows. (2014). How to achieve universal healthcare at half the cost. Forbes. Retrieved May 22, 2017.
  10. Jacobsen, L. Medicare and social security: what you paid compared to what you get. PolitiFact. Retrieved May 22, 2017.
  11. AAMC. New research confirms looming physician shortage. Association of  American Medical Colleges. Retrieved May 22, 2017.

 

 

Featured Image Credit: slate.com

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