How To Fix Us Healthcare

The US health care system delivers a mix of the admirable and appalling, and most Americans are happy with it. Because most people are fairly healthy at any given time and therefore use relatively few medical services, it can be difficult for politicians to make the case for big change. On the other hand, big change, in response to a perennial health care "crisis," has been the focus of well-documented initiatives now spanning more than 50 years.

We believe that fundamental solutions to today's refractory health care problems are mostly ideology-free. Furthermore, flexible implementation of these solutions is possible, whether through the current hybrid private/public system or through a single payer or fully privatized system.

The authors have a combined seven decades of experience working across health care business, actuarial services, patient care, managed care, and academia. We wrote this piece because we think that certain fundamental considerations should guide every discussion of health care reform. Otherwise, the cacophony of a disorganized debate will drown out potential solutions and leave us with the status quo.

Why Health Care Spending Matters

The US spends far more than any other country on health care, and yet many of our outcomes are worse. Approximately 18 percent of US gross domestic product (GDP) is devoted to health care, which amounts to more than $3.5 trillion dollars per year. The next biggest spender in the world is Switzerland at approximately 12 percent of GDP (exhibit 1). However, while Switzerland's health care system ranks among the very best in the world, the US has less to show for its exorbitant spending. Currently, for example, 13.7 percent of US adults are uninsured, and it has been estimated that the Medicare Trust Fund (Part A–hospitalization) could run out of money by 2026.

Exhibit 1: The US far outspends all other countries

Source: Organization for Economic Cooperation and Development. Health expenditure per capita. Paris, OECD; 2019.

Spending matters because excessive spending on health care results in lower wages, less spending on government services, and fewer investments. Employers and exchange plans respond to higher spending by shifting costs onto consumers through employee contributions, deductibles, and coinsurance. High cost sharing can mean oppressive financial burdens for healthy people and potential bankruptcy for seriously ill patients. Everyone knows someone with such a story. Spending and prices matter.

Furthermore, health care often is not even the main determinant of good health. Socioeconomic factors, such as education, discrimination, isolation, housing, security, food, exercise, and environment have proven to be more important drivers of a population's health. As US health care spending increases, government, employers, and individuals have less to invest when it comes to addressing the issues that have the greatest impact on people's health. Indeed, we suggest that the recent decrease in US life expectancy means that we may have reached a tipping point—that is, the more we spend on health care, the worse our health tends to be.

Why Does The US Spend So Much On Health Care?

As the late health economist Uwe Reinhart famously said, "It's the prices, stupid." We cannot attribute our high spending to aging—compared with populations of other advanced economies the US population is not older. And we deliver health care with about the same degree of inefficiency as other countries. Rather, some analyses have shown that higher prices are driven by effective local monopolies in the form of consolidated hospitals, health care systems, and physician practices. Others point to care fragmentation in our specialty-driven health care system, with its shortage and uneven distribution of primary care providers, increasing drug prices, and the roles of intermediaries in drug and supply industries.

What Can Be Done?

There's nothing wrong with our health care system that less money couldn't fix. Here, we describe our favorite, ideology-neutral targets and policies to address high spending:

Expect deflation for health care prices and spending. It's becoming cheaper and cheaper to manufacture just about everything. As the prices for computer chips, genetic sequencing, and many other services and technologies continue to steadily decline, the prices for health care should follow suit. It is time to let go of the comforting cliché "bend the trend." Prices in health care should deflate.
Expect drug prices to deflate. Bi-partisan support for some version of international pharmaceutical price indexing points to shared concern over this area of spending. Reform of US patent law, Food and Drug Administration rules, and other uniquely American legal, regulatory, and insurance structures could help advance lower-price competition for expensive drugs.
Reassess and minimize the cost of middlemen. The US health care system has long comprised a large class of intermediary organizations, such as wholesalers, distributors, group purchasers, and benefit managers. These and other vendors, which play essential roles in the US, have no counterpart in other countries. These organizations operate, in part, through rules that exempt them from "anti-kickback" statutes, and they should be an easy target for savings.
Accept that utilization review and other cost-management tools are good and necessary. The valuable, time-tested tools of the private health insurance industry should be consistently deployed, whether in a private, public, or hybrid system. Prior authorization, evidence-based reviews, and honest second opinions will ensure delivery of the best care possible, while guarding against undertreatment or low-value care.
Move further away from fee-for-service. Capitation and other forms of reimbursement and budgeting can help align incentives and reward entities that provide the best care.
Prioritize primary care. Primary care is consistently associated with better population health, yet compensation and investment in training have shifted away from primary care to specialist care. Potential strategies for restoring precedence to primary care might include changes in the way that we finance medical education and student debt, broader training and use of mid-level providers, public service programs for physicians operating in underserved areas, and a greater reliance on telemedicine.
Make cost reductions an integral part of consolidation. Consolidation and the creation of local monopolies under some circumstances may make sense but only if they succeed in reducing health care costs. We know that health system consolidation is a major driver of price increases, but regulators could use a variety of mechanisms to make cost reductions an integral part of certain consolidations—a strategy that has been successful in other industries.
Implement a Cadillac (excise) tax on lavish benefits. Overly generous benefits and low cost sharing are appealing to employees, but such employer health plans encourage unnecessary use of services and the use of more expensive non-network providers. This encourages high price expectations among providers and hurts the majority of the insured, most of whom do not have access to such generous plans. An excise tax on lavish benefits could dampen this dynamic.

Changes along these lines, which involve more than simple defunding approaches, would help to stabilize current health care spending while giving politicians time to work out more emotionally and politically charged issues, such as whether or how to change our current mix of employer-sponsored, individual, and public health insurance programs. Although politicians on both sides are eager to change the popular employer-sponsored system, an immediate solution seems unlikely.

Spending less on health care will solve many problems. We hope that health care reformers will collaborate and eventually arrive at the best strategies for spending less. Then they can enter into a debate about what to do with the money we save.