Health Care in America: Confronting the Future
Looking at Cost, Quality and Access
Summary of presentations by
Dana Goldman, Ph.D., senior economist and director of RAND Health Economics, and
Elizabeth McGlynn, Ph.D., associate director, RAND Health; and director, Center for Research on Quality in Health Care
How do we spend our health care dollars?
 Creating a health care system that works for everyone will require bold measures. But before bold measures can be developed and adopted, citizens must understand what drives the cost of health care and how to improve the quality of care from an objective, analytical perspective.
Since 1960, health care spending has risen from 5.1 percent of the Gross Domestic Product to nearly 15 percent in 2000. One reason we are spending more money is that we are wealthier as a nation, Goldman said. (See Power Point presentation.)
Of the $1.6 trillion spent in 2002, more than one half of health care dollars in the U.S. were spent on hospital care or physician and clinical services. About 10 percent paid for prescription drugs, another 9 percent went for nursing home and home health care and 10 percent supported dental/other professions and another 10 percent paid other expenses. About 7 percent was
spent for administration.
How fast are costs rising? The U.S. is about in the middle when it comes to industrialized countries. “Our costs have not gone up any faster than a lot of other countries,” Goldman said. “Some places like Canada have been able to control costs but places like the United Kingdom haven’t. If you’re worried about costs going forward, then a single-payer insurance program may not be the answer.”
What drives up costs?
Health care spending rises exponentially with age. We are an aging society and age is strongly correlated with spending. Average spending for Americans age 65 and over was $12,271 per person in 2000. This compares to $2,761 per person for those under age 65. About 20 percent of the over-age 65 group spending is for nursing home care.
By 2030, the United States would have 84 million elderly instead of the current projection of 71 million. Under this scenario, projected health care expenditures on the elderly would rise from $621 billion to $934 billion, a 50 percent increase from spending in 2000.
“We definitely face a Medicare crisis. This will be especially apparent when the baby boom hits 65 about 2010,” Goldman said. Currently, about 12.5 percent of the population is over 65 right now and that is growing. “If you were worried about health care costs now, just wait,” he warned.
Advances in medical technology also contribute to higher costs, Goldman said. This is a situation that must be reckoned with. Consider, for example, the impact of a compound to extend lifespan. Say this compound would extend life expectancy by 15 years and would be taken by everyone at the cost of $1 a day.
“This technological risk must be managed. We have to be cognizant of how we affect medical technology and how we ration it,” Goldman said. This scenario raises such questions as: Is this a lifestyle drug? Would we ask people to pay out of pocket?
Who pays the bill?
Since Medicare and Medicaid were established in 1964, the federal government’s share of health care spending has increased while spending by private insurers has decreased. State and local government spending has held relatively steady, though these governmental units spend more in real dollars. Essentially, for Americans under age 65, private insurers pay the bills. For those over 65, the federal government – through Medicare – covers the costs.
For individuals, the percentage of out-of-pocket spending on health care dropped from about 55 percent in 1960 to under 20 percent in 2002. However, at the household level, Americans spend more out-of-pocket in real dollars, Goldman said. Specifically, individual spending went from $280 per person in 1960 to $744 per person in 2002. That’s a 165 percent increase.
In California, workers pay about 25 percent of their health insurance premiums while employers pick up the rest, according to a 2002 study by the Kaiser Family Foundation and Health Research and Educational Trust.
However, Goldman noted that workers essentially pay for all their health insurance even if it appears that their employers pay part or all of the costs.
“In reality, most of the cost of health insurance is coming out of foregone wages,” he said. “When you talk about an employer mandate, that’s not right. You’re just making people pay and they’re paying through the workplace. … Ultimately everyone pays. It’s just a question of do you pay it now or pass it on to the next generation or someone else.”
What about the uninsured?
California has a larger proportion of uninsured than the rest of the nation. In 2001, 20 percent of Californians under the age of 65 were uninsured, while 17 percent of Americans in that age group didn’t have insurance.
“This is a place for incremental reform,” Goldman said. “The very poor have access to some public programs while people who are low income in the 18- to 24-year-old category are the uninsured. They are making choices not to spend on health insurance. The question is: Do you require them to pay or subsidize them?”
How attached are the uninsured to the employer-based system? About 81 percent of the uninsured families are working. Of those families, 69 percent have at least one full-time worker. The other 12 percent have at least one part-time worker.
“Could we cover the uninsured by working through an employer-based system? The answer is yes,” Goldman said. The question is: How would you do that? Would employers have to offer health insurance? The problem is that employer mandates often exempt small firms because the cost of health insurance is too much of a burden. Thus, “if you want to reach people through an employer mandate, you’re going to have to do something about these really small firms (3-19 employees).”
Can we hold down costs?
Since 1996, health insurance premiums rose rapidly. California experienced a slightly higher rise than the rest of the nation.
Looking for savings in administrative costs does not help much, Goldman said. “They’re pretty flat as a share of premiums. The important point to realize is that [holding down] administrative costs may represent a savings but what that’s not going to do is change the rate of savings. They’re a one-time savings. Canada and the UK are bracketing the US in terms of growth in health care spending.
“In short, just wringing inefficiencies in administrative costs out of the system will not ultimately control health care costs.” he said.
Controlling other kinds of costs offers more potential but is difficult to do. Consider how the rising number of machine and procedures for magnetic resonance imaging (also known as MRI) affects spending. From 1993 to 1999, the number of MRI procedures rose about 50 percent.
How do you control access to those technologies? “The brute force method of doing that is to increase the co-pay,” Goldman said. “What you’d really like to do is have the people we want to get access to the MRI machines to have access when they really need it. But we don’t want them to get access to an MRI machine if they just twisted their knee or the doctor is just worried about liability.”
When RAND researchers studied the effect of cost sharing on general health or a person’s functioning ability, they found that it didn’t matter whether people received free care, paid 25 to 50 percent of the cost or paid 95 percent of the cost. There was no statistically significant difference in physical functioning, mental health status or general health among the three groups.
“Asking people to pay more doesn’t seem to affect their health in any aggregate way,” Goldman said. “This may not hold true for prescription drugs, however.”
What role does the cost of prescription drugs play?
Though there has been much hand-wringing about the rising costs of prescription drugs, Goldman said that only about 10 percent of health care spending goes for medications.
How much is due to price going up vs. we’re using more? Utilization growth has a lot to do with it, Goldman said. Direct-to-consumer advertising played a significant role in increasing the use of prescription drugs. “We don’t know if that’s a good thing or a bad thing. If you get people to go to their doctors because they may have a condition, that can be a good thing.”
“The real question is: Should we limit access to drugs? We don’t have good answers.” Goldman said.
What constitutes quality?
Though we’ve made significant advances in measuring and reporting on quality, we know a whole lot less than we’d like to know, according to Elizabeth McGlynn. The information that is available is often difficult to interpret. And, the available sources of information often give us different answers. Underuse and overuse is where we have the most data and where it is the most difficult for individuals to judge for themselves, she noted.
“Quality has multiple dimensions and we’ve become increasingly concerned that we spend the money wisely,” McGlynn said.
What does the research show? American adults receive care that meets quality standards about half of the recommended care they need, McGlynn said. It doesn’t matter what your problem was in the acute, prevention or chronic category. “We’re getting it right about half the time,” she said. Thus, there is room for substantial improvement.
Quality of care for heart and lung problems – one of the biggest and costliest set of health problems – varies widely. Though we’re doing a pretty good job on coronary artery disease, we’re providing the proper care only 40 percent of the time for pneumonia and atrial fibrillation, McGlynn said.
Significant variation also exists in the management of such general medical problems as cataracts, ulcers, depression, low back pain, headaches and diabetes.
For example, we’re doing a pretty good job of properly treating adults with cataracts (nearly 80 percent of the time) but we’re not doing it at all with alcohol dependence (about 10 percent of the time), McGlynn said.
“One of the big problems is not identifying people with alcohol problems,” she said. “Under treatment of diabetes, which is often linked to heart attacks and strokes, is another big problem. Studies show we treat diabetes properly only about 40 percent of the time.”
Care for geriatric conditions is also poorer than care for general medical conditions, McGlynn observed. And, while the elderly get the proper treatment about 80 percent of the time, they’re only likely to get preventive care about 40 percent of the time. End-of-life care is particularly lacking, she said.
In assessing the quality of care in various cities around the country, researchers found that “you aren’t safe anywhere.” A study published in 2004 showed that the percent of recommended care ranged from 50 to 60 percent no matter where it was assessed.
“We have not solved the quality problem. We want to find a mechanism to get this information more routinely available. It is harder to solve if you don’t know where to start, although our data show it may be good to start anywhere,” McGlynn said.
Does it matter if standards are met? Thirty-six percent of the elderly had no pneumonia vaccine. Sixty-two percent of people over age 65 have not been screened for colon cancer. It matters that we meet these standards, McGlynn said.
Consumer-directed health care
As costs started climbing precipitously in the late 80s and early 90s, insurers responded by saying, “We’re going to get some market power and we’re going to fire back.” Managed care worked for a few years. But then a backlash occurred. And, consumers said, “We’re not going to take this. We want to go to the provider we want.”
Employers are interested in getting employees more involved in their health care. But if they’re going to make choices, they need good information, and providers are looking at their results. “They know they’re going to have to explain what they’re doing. With any luck, that’s part of what we can drive,” McGlynn said.
“Public investment will be required. We need to increase the ease of data retrieval and to have standard methods for reporting data. I think we can provide a way to do something in California and provide a model for the rest of the country,” McGlynn concluded.
Written and reported by Melinda Voss, founding executive director of the Association for Health Care Journalists and a staff writer at The Des Moines Register for twenty-six years.
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