Issue brief: Health care

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CBS

The Electoral Issue:

Health care is expensive and getting more so, squeezing private enterprise and driving up the deficit. Millions of Americans are uninsured which leads to bankruptcies and anxiety.


The Challenge:

How to lower costs and expand coverage without a drop in quality.


Problems:

Cost

The share of the economy devoted to health care increased from 7.2 percent in 1970 to 17.9 percent in 2009 and 2010. Costs are projected to rise to 25 percent of GDP in 2025. This amount was 48 percent higher than in the next highest spending country (Switzerland), and about 90 percent higher than in many other countries that we would consider global competitors. Despite the rate of spending, Americans do not have appreciably better health outcomes than people in other developed nations.

The two main drivers of cost are improvements in technology and the uninsured. A systemic driver of high costs is America's fee-for-service healthcare system, in which providers are compensated for each procedure, not for the outcome of care. This system provides providers an incentive to pad their bills by performing as many services as possible, while providing no incentive for patients to decline unnecessary procedures. The rising cost of health care is the number one cause of increased deficits. (See CBS Policy entry on the budget.)

The high cost of care and inefficiency is a drag on business productivity because those dollars cannot be spent on investment and employees. Health care benefits, at 12 percent, are the most expensive benefit paid by employers. "That kind of a cost, compared with the rest of the world, is like a tapeworm eating at our economic body," Warren Buffet told the Associated Press in 2010.

Coverage

Among the 34 OECD countries, only Mexico, Turkey, and the United States do not have universal health care coverage. Almost 50 million Americans did not have health insurance in 2010 - 16.3 percent of the population. The percentage of uninsured individuals varies greatly on a state-by-state basis -- Texas has the highest proportion of uninsured residents, at 24.6 percent. Massachusetts has the lowest, at 5.6 percent. Generally, states in the Northeast, Midwest, and Pacific Northwest have a greater share of insured residents than states in the South and Southwest.

The biggest gaps in coverage were seen among foreign-born non-citizens, low-income families, and young adults between 19 and 25. The healthcare costs incurred by those without insurance are eventually shifted to those with insurance in the form of higher premiums. A 2008 study from Families USA, an advocacy group that supports coverage expansion, determined that the average family pays $1017 per year in higher premiums to help cover the cost of the uninsured.

A majority of Americans (55.3 percent in 2010) receive medical insurance through their employers, but this number has been eroding as rising costs lead companies to determine that providing coverage is too expensive. In 2000, 64.1 percent of Americans had employer-provided health coverage. The decline in employer-provided coverage has been especially pronounced among businesses with fewer than 10 employees.

If you are not covered by your employer, insurance is expensive or unavailable. Only five percent of nonelderly Americans receive coverage on the individual market. Many uninsured Americans are only one medical diagnosis away from bankruptcy.

In 2009, a study by the American Journal of Medicine reported that medical debt was the number one reason behind bankruptcy filings in the U.S., accounting for 62 percent of personal bankruptcies. Even those with health insurance can find their coverage dangerously lacking: the New York Times reported in 2009 that approximately three quarters of people pushed into bankruptcy by medical bills were actually insured when their medical problems began.

Health Care Entitlements (Medicare, Medicaid, and CHIP)

Federal health care programs, including Medicare, Medicaid, and the Childrens' Health Insurance Program (CHIP), comprised 21 percent of the 2011 federal budget, totaling $769 billion dollars. Nearly two thirds of this amount went to Medicare, the health-insurance program that covers approximately 48 million disabled and elderly Americans. The remainder went to Medicaid and CHIP which provide health care to 60 million low-income children and families and are co-funded by states.

These costs are projected to rise dramatically in coming years as the weak economy increases enrollees and the population ages particularly increasing Medicare costs.

According to Congressional Budget Office projections, spending on Medicare and Medicaid, which equaled 5.5 percent of gross domestic product in 2009, is predicted to rise to 6.6 percent by 2020 and could conceivably reach 10 percent by 2035, consuming more than half of all federal tax revenues. And the spending growth may be larger than meets the eye. The Medicare Sustainable Growth Rate, dubbed the "doc fix", was created in 1997 to curb medical spending by setting payment targets for physicians administering to Medicare patients. The measure has required yearly reductions in physician payments since 2002, but Congress has blocked the reduction every year. Abandoning the doc fix by freezing physician payments between 2012 through 2020, according to the Simpson-Bowles deficit commission report, would cause an additional $267 billion in Medicare spending.

Primary Care Shortage

America has a growing shortage of primary care physicians who can help curb medical costs by addressing problems before they require the expensive intervention of a specialist.

The American Association of Medical Colleges has forecast a shortage of 124,000 physicians by 2020, with 37 percent of that shortage in primary care. America currently has approximately 100,000 primary care doctors, and the American Academy of Family Physicians projects that we will need 139,531 in 10 years. At the current rate, American medical schools are graduating only half the necessary number needed to meet this demand.The shortfall is expected to be even more dramatic after 16 to 32 million additional Americans enter the insurance market due to the Affordable Care Act despite provisions in the act meant to encourage more doctors to choose primary medicine.

Due to the high cost of a medical degree, many graduating physicians choose the more-lucrative path of a specialist instead of a general practitioner. Between 2002 and 2007, the number of medical school students seeking to practice family medicine declined by more than 25 percent. In 2008, the Journal of the American Medical Association reported that only 2 percent of medical school students in their final year were considering a career in general internal medicine.

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