Health Economics

Introduction

We have all heard the stat. The US spends 16% of its GDP on health care. That number, of course expected to rise over the next decade has been at the forefront of most healthcare discussions I have seen in the news the past two years. That number, thrown at the feet of our President with a note that says fix me. Fix it he shall try. President Obama has been pushing his healthcare reform since the primaries and now two years into his first term some groundwork has been laid. The people want healthcare, the government needs to be efficient at giving healthcare and the country needs to be the best at producing healthcare. Finding this happy medium between the three is a very challenging and time consuming issue but it is underway. The House and Senate are trying to create bi-partisan legislations that allow the government to "bend the cost curve." Which appears to be the best way to achieve everyone's ideals, from the governments point of view.

Bending the Cost Curve

In economic terms anytime you talk about the cost curve these days, it is usually about shifting it down or reducing the costs. It makes sense to want to reduce costs so you can be the most financially efficient company/firm/country around. When it comes to healthcare however, reducing the costs may not be totally possible. Sure, we can spend less but at what cost. At what point can America spend as little as possible and still be regarded as one of the healthcare powers both in innovation and procedure. This is something that I can be fairly sure that President Obama never wants to know the answer to. It is for that reason that this is stated as "bending the cost curve." Bending the curve to me means that you may not be able to curb spending altogether but maybe you can control the rate at which the spending increases. Make our purchasing a little more informed and efficient; focus our means to the areas that need it most and not the areas that will give us the biggest return. Thinking like this is smart because you need to wrap your head around every little detail before you pull the trigger.

Main Issues in Reducing Health Care Spending

This idea does come with some issues. Reducing healthcare spending, albeit necessary, will never be something that we may see in our lifetimes. Three reasons really hit this point home. First is that no matter what, the United States wants to, needs to be the best at everything it does. It is necessary to have the best equipment, newest innovations and best approaches to cure people. In order to have those things, money must be spent. At the risk of losing all these titles, will the US reduce the investment it took to get them there? I don't think so, not with the mentality of this generation. The second issue is what if the US agrees to reduce spending, how could they possibly decide what the priorities are? It would be such a mess with everybody coming from every corner, explaining why their cause was the best and why everyone else's was subpar. It would be a lose-lose situation for whoever the decision maker would be because regardless of what you choose to reduce spending on, a good portion of the country will be against that decision. There are very few healthcare issues in this country that even 75% of the country would agree on. The last issue is that people in this country are (for lack of a better term) brainwashed. They are spoiled that someone else will take of them, for little to no charge to them, that they don't really know how to take care of themselves. Now I don't mean hygiene, talking somewhat serious injuries that could require medical attention but that medical attention could be done at home. People are so quick to say they have the worst thing possible, so they run to the ER with no idea of the repercussions it has on everyone else who really has an emergency. These reasons are the big ones why healthcare spending will never decrease in my lifetime: because the government can't let it, because even if they let it what would they cut, and because beneficiaries would go crazy.

Work in Progress

Of course this cost curve bending doesn't come easy. It takes a very long time to actually understand a problem, even longer to figure out where the problem is coming from and even longer, maybe forever to be able to fix it. Recently there have been some steps taken to try to fix the problem and even though they are in the very early stages it is necessary to analyze them to see what merit they have and if they could one day pick up enough steam to fix the spending crisis. Below are some plans that have been brought up in legislation, what challenges they pose, how the roles of the active parties will change and what effects will these bills have on those parties.

House Proposal

The house proposal features many different areas of focus however only four were discussed in the Health Affairs article and those four will be the focus of this section. The first part of the bill includes a permanent reduction in the annual updates to Medicare's fee-for-service rates [1]. The only exception is Physician services which would actually get an increase of 245 billion dollars. The next part of the bill is that payment rates on the Medicare Advantage would be cut which would save about 156 billion dollars [2]. Medicare advantage plans also called Part C, are essentially Medicare parts A and B covered by a private insurer [3]. One advantage is that these private insurers could offer coverage in areas that Medicare cannot. The interpretation that I have about the reasoning for these cuts is that they want all Medicare beneficiaries to be under government funded healthcare, not private insurers. These cuts could be an incentive for insurers to stay away from Medicare patients and for Medicare patients to keep their A and B plan through Medicare. The next part of the bill focuses on closing the "doughnut hole" in the Medicare part D drug coverage gap by reinstating drug maker rebates for "dual eligibles" (individuals enrolled in both Medicare and Medicaid)[4]. As is well known, Medicare Part D was established to reduce the out of pocket costs for prescription drugs by Medicare beneficiaries. One problem with this however is a controversial coverage gap also known as the "Doughnut Hole." In this doughnut hole, at a certain point, your coverage stops until some catastrophic cap point when the coverage kicks back in again. For example, in 2010 anywhere between 2,830 and 4550 spent on prescription drugs will be out of pocket costs to the beneficiary [5]. Anywhere below or above that range will be covered up to some percentage by Medicare. The goal of this part of the