why the medical bill keeps growing

Economists say only radical reforms can bring costs under control

THE dry report from the Department of Health and Human Services last month said the nation's spending on health care increased 10.5 percent in 1990 to $666.2 billion. Health expenditures, the press release added, "claimed" 12.2 percent of total national output in the United States, up from 11.6 percent in 1989 and 7.3 percent in 1970. And spending had been growing at about the same double-digit percentage for three years.Yawn? Old news? Then here's something of an attention-grabber. There's little evidence that the huge jump in health-care spending, from $250 billion in 1980 to $666 billion last year, has done much to improve the health of the American people. Benefits are "very low" relative to the extra costs, says C. Eugene Steuerle, a senior fellow at the Urban Institute in Washington. Nobel laureate economist Milton Friedman, writing on the op-ed page of the Wall Street Journal last week, applauded the conclusion of a British physician that bureaucratic medical systems can act "like 'black holes,' in the economic universe, simultaneously sucking in resources, and shrinking in terms of 'emitted production. "The scientific foundation for the practice of medicine is extremely weak," comments Victor Fuchs, a Stanford University economist and pioneer in the area of health-care economics. Physicians, he notes, do not have an adequate understanding of the benefits and risks associated with various therapeutic or diagnostic procedures. "This is inherent in the complexity of the human body or human condition." Another expert on health-care economics, Henry Aaron of the Brookings Institution in Washington, says it is difficult to determine how much good the extra expenditures on health care have accomplished because other factors are at work. These would include levels of environmental pollution, automobile accidents, smoking, drinking alcohol, unsafe sex, urban violence, and so on. "These are more important for mortality rates than health care," he says. In a new book, "Serious and Unstable Condition; Financing America's Health Care" (Brookings), Mr. Aaron writes: "Despite the unprecedented breadth and pace of advance in the science and technology of medical care, no solid scientific basis exists for many medical services. Some services are demonstrably overused and some underused, but few have been subject to rigorous evaluation." New technology, a major element in the runaway costs of health care, can offer benefits in comfort if not in general health, Aaron adds. For example, a multimillion dollar magnetic resonance imaging machine, which uses radio waves to take pictures of the body's internal structure, can save a patient from painful exploratory surgery. Since all the extra spending on the care of sick patients has had less success than doctors would like, it has become increasingly popular in the medical fraternity to call for lifestyle changes. "Despite the superb achievements of medicine," writes Joseph D. Beasley, MD, in "The Betrayal of Health: The Impact of Nutrition, Environment, and Lifestyle on Illness in America" (Random House), "our best hope for a healthy life is not medical care but self-care. Current medical evidence, which implicates violations in lifestyle, environment, and diet as the driving forces in chronic diseases, shows that many of us are not conducting our lives in a healthy way. Health as a subjective behavior is ignored in favor of health as an objective entity, that the designated expert (the doctor) ensures and maintains." Declines in some forms of behavior (smoking, drinking, unsafe sex) indicate the spread of such health concerns among Americans. At the same time, however, health care and its costs have become a major political issue in the United States. Democrat Harris Wofford won the special Senate election in Pennsylvania Nov. 5 after making nationwide health insurance a centerpiece of his campaign against former Attorney General Dick Thornburgh. That was quickly noticed in Washington. By Nov. 7, Senate Republicans offered comprehensive legislation to provide basic medical care to most of the 33 million Americans who lack health insurance. The 19 senators contended that the White House was moving too slowly to develop a health-care program. The next day, President Bush told a press conference after the NATO summit in Rome that before the 1992 elections d like to have a comprehensive health-plan that I can vigorously take to the American people." Mr. Wofford had picked up a new vibration in the nation: Many Americans are not only concerned about being laid off; they are alarmed about losing their employer-provided health insurance coverage in a time of soaring medical costs. The distribution of health-care costs has become the most contentious issue in contract negotiations between trade unions and management. More than 30 health-care proposals are floating around Capitol Hill. A coalition of big business, labor, and medical groups last week offered a national plan that it says by the year 2000 would cost about $600 billion less annually than if the present system continued. In the states, health-care costs are busting budgets and causing political storms when governors and legislators attempt to trim costs. State payments for Medicaid, the federal/state program of health care for the poor, took 13.6 percent of the average state budget in fiscal year 1991, ending last June 30. The proportion was only 10.2 percent in 1986. "We're going to go broke at the state level if we don't do something about it," Gov. Booth Gardner (D) of Washington was recently quoted as saying. Medicaid provides medical services to some 27 million low-income Americans, costing the federal government an estimated $61.6 billion this fiscal year and the states $45.4 billion. New laws increasing the services that must be covered plus the general rise in health-care prices have sent costs soaring. Yet the program cannot afford to cover many people living below the federal poverty line. And its reimbursements are sufficiently low that many doctors won't treat Medicaid patients. "Current arrangements for financing health care cannot endure," Aaron wrote some months back. Steuerle calculates that at the present rate of increase, health-care costs will reach 16 percent of national output within a decade. Costs, he notes, cannot continue indefinitely rising at 10 percent or more per year. Something must give. As health-care costs rise, less money is available for other government goals such as education and poverty reduction. "Roughly speaking," Steuerle told an American Enterprise Institute conference last month, a typical worker already loses 8 to 10 percent of earned income simply to support current government health programs. National health legislation could raise that even more. When fully implemented, a typical health bill (that of Dan Rostenkowski (D) of Illinois, chairman of the House Ways and Means Committee) would raise tax rates on cash wages for those participating in this government plan by up to 11 percentage p oints or more. This would not apply to those covered by private health insurance. Uninsured workers would be paying health costs through the government rather than directly to health-care providers. Another statistical fact: In 1992, direct federal, state, and local expenditures on health care of about $315 billion (excluding tax subsidies) could have been purchased for only $204 billion if health-care prices had risen only as fast as the price index for other goods and services. "Without this excess medical inflation, therefore, governments could have purchased $111 billion more in goods and services, health or otherwise, without raising taxes," Steuerle says. Why are health-care prices rising so fast? One basic reason, the economists say, is the third-party system of payments for health care. Most of the costs are paid for by private or government health insurance. (Of course, the insurance agencies get their money from taxes or premiums.) "As a result," writes Aaron, "patients have every incentive to seek care that they think will bring even modest benefits and have little reason to consider cost. If physicians selflessly executed their patients' wishes, they would render such care. If the added inco me physicians earn when they prescribe more care were to influence their decisions, they might provide care that produces no benefits at all; and in the absence of clear and widely understood standards for care, they might even provide harmful services." Other important factors include: * The compensation of health-care workers has risen sharply relative to the average pay in other occupations. * The average age of the population has increased and will continue to do so well into the next century. Per capita spending on people over age 65 is 4.2 times that on people under age 65. * Malpractice insurance and litigation, though widely regarded as a major cost because of doctor concern with the issue, has been exaggerated as an element in rising health costs, experts say. Some of the "defensive" medical measures it prompts provide some medical benefits. Further, malpractice insurance rates fell in 1989 and 1990 as a result of tougher tort laws, changed medical practices, and less-sympathetic juries. * The proliferation of medical technology explains the growth of health-care spending more than any other factor, says Aaron. It adds to the menu of feasible treatments and diagnoses, often at considerable cost. These in some cases reduce invasiveness in the body, thereby increasing the number of patients who are likely to seek such expensive care. The list is long - CT scanners, organ transplants, dialysis, bone-marrow transplants, and so on. The challenge of health-care reform, says Aaron, is to preserve financial access to health care for those who now have it and extend it to those who now lack it, but simultaneously to slow the growth of expenditures on low-benefit care. So far all the measures to restrain health care costs, though perhaps having some effect, have not stopped costs from rising at double-digit percentage rates. Further, it is expected that technological change will remain the dominant factor in future cost increases. If that technology improves health care, that will be good, notes Aaron. Aaron figures that most efforts to restrain rising costs (curtailing the generosity of insurance, reform of the malpractice system, more analysis of the effectiveness of medical procedures) cannot work on a sustained basis. "A sustained reduction would require the curtailment of care that is beneficial but is deemed to be excessively costly, in other words, the rationing of health care," he concludes. "Successful cost-control will require rationing of services to the very ill." Rationing, however, is a politically and ethically controversial issue. But, says Fuchs, "no country in the world can afford to give all people all the treatment that might do them some good." Fuchs holds that only a major change in the political climate and a radical change in the health-care system will slow rising costs. "Modest changes, modest reforms, will not make much of a difference."

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