Healthcare costs crush competitiveness.

Until the 1980s, despite spending much less on health care, Americans were doing better than other countries in their health outcomes (Frakt, 2018). Something happened to US health care spending after 1980. Confronted with fiscal pressures, as the share of gross domestic product (GDP) absorbed by health care spending began to get serious, other nations put measures in place to hold down spending but the US did not. The differential between what the US and other developed coun- tries pay for prescriptions and for hospital and physician services has continued to widen over time. Suppliers of medical inputs marketed costly technological innovations (Callahan, 2009). They found ready customers in hospitals and medical practices eager to keep up with rivals in the medical arms race. In 1980, health care expenditures in the US were $256 billion, exploding to nearly $2.6 trillion in 2010, a ten- fold increase (Meissner, 2013). Health care expenditures spiked further to $3.8 trillion in 2019. What began as a small gap in performance when compared to other countries is now a yawning chasm.

The per capita spending on health care in the US towers over all other developed nations, and yet health care outcomes as reflected by key health indicators are at best average. In other words, the US health care system consumes far more resources to produce the same or worse health care outcomes as compared to the health care systems elsewhere. For example, the US spent $11,582 per capita in 2019 compared to $5,418 in Canada, $4,653 in the United Kingdom, $4,823 in Japan, and $4,224, the average of the Organization for Economic Cooperation and Development (OECD) countries (OECD, 2020). In total health care spending, the US spends 17.7 percent of its GDP, which is almost the double that of the average spending of 8.8 percent of GDP for the OECD countries. In a comparison to the overall performance of the health care systems of 11 developed countries, the US was found dangling alone with high health care spending and low system performance (Schneider et al., 2017). Seven countries (Australia, Germany, the Netherlands, New Zealand, Norway, Switzerland, and the United Kingdom) bunch together and perform higher than the other four countries (Canada, France, Sweden, and the USA). Canada, France, and Sweden show mediocre performance with the US being the laggard.

The US health care system is a case of feast or famine. On the one hand, insured patients receive overly excessive care, generating mistakes and injuries that lead to about 30,000 deaths each year (Terhune, 2017). On the other hand, 45,000 deaths occur annually due to the lack of health care access; the lack of access has been suggested to be associated with a greater risk of death in uninsured adults by 40 percent (Meissner, 2013).

“The ballooning costs of health care act as a hungry tapeworm on the American economy” (Buffet quoted in Associated Press, 2018a). For example, over a decade (1999 to 2009), health care cost growth wiped out real income gains of nearly $5,400 per year for an average US family (Auerbach & Kellermann, 2011). If the US health care system could perform as that of the health care systems in other developed countries, an American would pay $4,000 to $6,000 less for health care costs per year.

The rising rates of health care insurance premiums prevent employees from getting any salary increases. For employer- sponsored health insur- ance, the costs keep creeping higher, leaving little or no money for employers to offer salary increases for their employees. From 1999 to 2009, while the average US salary grew by 38 percent, the health care premiums grew by a whopping 131 percent (Healthcare Imperative, 2010). The Centers for Disease Control and Prevention terms the increase in US health care costs over and above the general inflation in the economy as a ‘greed factor’.

The system insiders – private health insurers, hospitals/h ospital networks, pharmaceuticals/ medical device makers, and physicians/ medical professionals – have successfully propagated the myth that the rising cost of health care in the US is due to an aging population (Reinhardt, 2019), which is not quite true. The US, with one of the youngest populations among developed nations, has the highest per capita health care cost and more than double the per capita health care cost of Japan, which has one of the oldest populations in the world. The real driver of US health care costs is the per capita spending on health care (Horowitz, 2018).

According to a 2010 report by Healthcare Imperative, if prices of other commodities had grown as quickly as health care costs since 1945, a dozen eggs would cost $55, a gallon of milk $48, and a dozen oranges $134.

Back- of- the- envelope calculations comparing the prices of ser- vices and products in the US health care industry with other industries encapsulate how overpriced and inefficient the US health care system is. For example, if automobiles were priced similarly to ser- vices and products in the US health care industry, a midsize family car might cost about $200,000 or more. Similarly, if an airline industry priced its services like US health care providers, an airline ticket from New York to Los Angeles might cost something like $20,000 or $30,000 and the ticket might have to be purchased a year in advance and when you show up on the airport with your ticket, you might not find your seat or flight.

A Source of Anxiety, Insecurity, and Despair for Many Americans

The soaring costs of health care in the US are a source of severe financial burden and distress to Americans as evident from the fact that over 60 percent of all personal bankruptcies are medical (Himmelstein, Thorne, Warren, & Woolhandler, 2009). Most Americans, even those having insurance, are one major illness away from bankruptcy (Rosenthal, 2017).

A commonly unrecognized source of suffering for many Americans is health care insecurity. Health care insecurity is a sense of vulnerability, lack of control, and worry that individuals feel about getting the health care they need (Tomsik et al., 2014). As health care costs keep rising, more people seem to be skipping physician visits. Americans fear large medical bills more than they do a serious illness. Thirty- three percent of surveyed individuals in a study conducted by the University of Chicago and the West Health Institute were “extremely afraid” or “very afraid” of getting seriously ill (Gillies, 2018). About 40 percent said paying for health care was more frightening than the illness itself. Further, the survey found 54 percent of the participants received one or more medical bills over the past year for something they thought was covered by their insurance.

The fear of losing health care insurance undermines job and geo- graphical mobility in Americans. For example, the Affordable Care Act, offering an option where individuals can get health insurance, has reduced ‘job lock’ or staying with a suboptimal job to keep health benefits, with an estimated 1.5 million people choosing to become self- employed as they can get an affordable health insurance of their own. A streamlined and integrated health insurance system that allows Americans to take their health insurance wherever they go could be quite liberating for them.

Wasteful, Starving Other Sectors of Economy

The US health care system on its current trajectory is simply unsustainable (Institute of Medicine Report, 2012; OECD, 2020). A recent review of 54 unique peer-reviewed research publications on the waste in the US health care system estimates the total annual waste to be in the range of $760 billion to $935 billion, accounting for approximately 25 percent of the total annual health care spending in the US (Shrank, Rogstad, & Parekh, 2019). This waste is more than the entire US defense budget in 2019. It is also more than the total Medicare spending in 2019. The estimated ranges of total annual cost of waste in the US health care system in the six commonly identified domains of waste are as follows: failure of care delivery ($102 billion to $166 billion), failure of care coordination ($27 billion to $78 billion), overtreatments ($76 billion to $101 billion), pricing failures ($231 billion to $241 billion), fraud and abuse ($56 billion to $84 billion), and administrative complexity ($266 billion).

The waste in the health care system, which is approaching a trillion-dollar mark annually, is wiping out efficiency, productivity, and wealth created by other industries and other parts of the US economy (Girod, Hart, & Weltz, 2018; Horowitz, 2018; Manufacturing Institute, 2013; Milliman Medical Index, 2020). A news article entitled “Health Care Will Bankrupt the Nation” sums up the extent of the problem in the US health care system rather well (Riedl, 2017). By straining national, state, and family budgets, the US health care system is contributing to the starvation of other vital sectors, such as infrastructure and education, which have contributed notably to America’s wealth, ingenuity, and competitiveness:

“If the US budget collapses after hemorrhaging too much red ink, the main culprit will be rising health care costs”, but not the entitlement programs such as social security (Horowitz, 2018). Absent some workable solution, spending on health care is likely to sink the federal budget, generating levels of debt that would hold back the economy and potentially spark a global crisis of confidence in United States’ ability to borrow. Federal spending on health care (mostly Medicare and Medicaid) rose from 14.4% of all federal outlays in 1990 to about 31% in 2018 – one of the main reasons the national debt grew to $21.5 trillion in 2018 (Wolf- Mann, 2018). Alarmed by the costs of health care in the United States, the Chairman of the Federal Reserve, Jerome Powell, noted: “It’s no secret: It’s been true for a long time that with our uniquely expensive healthcare delivery system …, we’ve been on an unsustainable fiscal path for a long time” (quoted in Wolf-Mann, 2018).

One of the factors contributing to the decline of American manufacturing may very well be the high cost of health care in the US. In the ten years ending in 2012, employer costs for employee health care insurance increased by 66 percent – an increase in the structural cost disadvantage for US sfirms of 5.2 percentage points (Manufacturing Institute, 2013). Over the years, employer-p rovided health care costs have been growing much faster than the prices of products and services they sell. In 2018 in the US, the total cost of insurance for a typical family of four eclipsed $28,653, according to the Milliman Medical Index (2020). The employer contributed $16,368 and the employee contributed $12,285 ($7,703 as payroll deduction and $4,582 as out-o f- pocket costs). The employer’s contribution of $16,368 per employee adds to the cost of production in a significant way, making US manufacturing less competitive. One way to deal with the prohibitive costs of employee health care and to remain competitive for manufacturers is to move their production overseas.

A scrutiny of the 2018 uprising of school teachers across many states such as Arizona, Colorado, Kentucky, North Carolina, Oklahoma, and West Virginia suggests that the funding cuts due to rising health care costs over the last two decades underlie these resentments and uprisings (Yan, 2018). For example, protests in West Virginia were ini- tially sparked by the state government taking away the health insur- ance coverage of school teachers. The cost of health care keeps rising at a much faster rate than the rate of inflation and increase in national income, thus leaving no money in state budgets for salary increases of teachers. School teachers across the nation have poor salaries and need to do other jobs, in addition to teaching, to be able to support them- selves and their families. The annual waste in the US health care system of $760 billion to $935 billion is more than ten times the annual budget of the US Department of Education of $60 billion in 2019. Further, while the annual health care expenditure on Medicare in 2019 increased by 4.6 percent and projected to increase by about the same rate in 2020, the annual budget of the US Department of Education in 2019 shrank by $8 billion from 2018 and is expected to dwindle further in 2020.

Similarly, the US infrastructure – roads, airports, and power and electricity – has been deteriorating for quite some time. At one time, the US had by far one of the best infrastructures in the world, but not anymore. Even developing countries have either already caught up or catching up the US in the overall quality of their infrastructure. An international traveler is not likely to be too impressed with many airports in large US cities.

Unsafe, Poor Clinical Outcomes

Patient safety remains a major concern in the US. A study by researchers at the University of John Hopkins concluded that medical errors with 2,51,454 deaths annually was the third leading cause of deaths in the US after heart disease (6,11,105 deaths) and cancer (5,84,881 deaths), but well ahead of the fourth cause, chronic respiratory disease, with 1,49,205 deaths (Makary & Daniel, 2016). Why so many medical errors in US health care? They occur because of poorly coordinated care, fragmented insurance networks, and unwarranted variation in phys- ician practice patterns that lack accountability.

The life expectancy in the US, a crude indicator of overall health of a nation, has shown a downward trend from 2015 to 2017: It fell in 2015, stayed level in 2016, and declined in 2017. Overall, the statistics show a downward trend in life expectancy in which Americans have lost 0.3 years of life. These statistics are a wakeup call that the US is losing too many of its citizens, too early and too often to conditions that are preventable (Sheridan, 2018). A baby born in 2017 in US is expected to live about 78 years and 7 months on average, which is three years shorter than a baby born in Canada.

The opioid crisis resulted in over 52,000 deaths in 2015, 64,000 in 2016, and 70,000 in 2017. A closer look suggests that most of these deaths were avoidable; they occurred because the US health care system was not functioning properly (Associated Press, 2018b). Similarly, the response to the COVID-1 9 pandemic suggests that the US health care system has performed rather poorly. The US having only 4 percent of the world population accounts for about 20 percent of the total number of COVID- 19 global cases and deaths. A Sydney-b ased independent body, Lowry Institute, ranked the US a lowly 94 among 98 countries in COVID- 19 response (Pandey, 2021).

Scam Like Features of US Health Care System

Chapter 2 considers that greed (crony capitalism or institutionalized corruption) may be the major driver of the US health care system dysfunction. The key players in the system have been successful in rigging the system to their advantage. The Merriam- Webster terms scam as a dishonest way to make money by deceiving people. The Business Dictionary defines a scam in a business setting as a fraudu- lent scheme performed by a dishonest individual, group, or company to obtain money or something else of value. The Urban Online Dictionary provides a more comprehensive definition of a scam: scam is a contrived scheme or process designed to surreptitiously, deceitfully, and materially benefit the perpetrators at the expense of the victims. A scam involves providing or selling goods or services, knowing them to be unfit for the purpose, while implying or claiming fitness in order to elevate the mon- etary value and generate undeserved revenue. A description of the US health care system by Belk (2018), a physician, sounds so similar to the definition of a scam:

The simplest answer is that the money is going into the pockets of the many providers of health care. After all, for any great decep- tion to work, all or most of the players in the deception have to be paid well enough to not ask too many questions or cause trouble. You can’t run a major con game unless everyone necessary to make the con work is happy enough with their role to not want to cause trouble.

Conclusion

This chapter laid out the unhealthy state of the US health care system. The US health care system is causing pain and suffering and is a source of anxiety and insecurity in many Americans. It is inordinately expensive as a significant number of Americans find it beyond their means. For the last several decades, the rising costs of health care premiums have prevented employees from getting significant salary increases. Despite the US health care system being one of the most expensive in the world, it does not particularly render high quality and safe care as system insiders would like us to believe. It is wasteful and sucks vital resources from other critical sectors of the economy for its own maintenance. It has undermined the competitiveness of US manufacturers because high health care costs add to the cost of production and services. In sum, there is a serious dysfunction underlying the US health care system; it needs to be fully understood for it to be fixed, a topic explored in Chapter 2. It may not be an accident the way the system is. Powerful players seem to have contrived it the way it is and are deriving benefits in hundreds of billions of dollars every year.