The Blog

Unintended Consequences

Bending the health care cost curve would lead to longer waiting times, fewer jobs, and worse Medicare.

11:00 PM, Nov 18, 2009 • By STANLEY GOLDFARB
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Here we are half way to an overhaul of health insurance and nowhere on a path to actually controlling health care costs. A question rarely asked is whether such costs really should be controlled--for such controls could result in very serious unintended consequences.

Looking to other nations in the developed world does not give comfort to those who strive to control health care spending. The 4.3% per year growth in U.S. health care spending places it in the middle of the developed countries comprising the Organization of Economic Cooperation and Development (OECD) where the average growth rate is 3.8% per year. We have a slower growth rate than Portugal, Luxembourg, Iceland, Denmark, Ireland, Japan, and Spain--all patients with government controlled health care systems. The reasons for this growth in Europe is the fact that European nations had restricted health care access for years and in these nations, pressure to increase the availability of heath care services has become acute. Canada's health care spending growth was 3.1%, less than the average, likely as a result of simply using American health care availability as a means of reducing capital spending on health care facilities in our northern neighbor. The VA system does the same by using private health care institutions to provide the high tech care not available at most VA hospitals. It is a cheaper way as long as someone else made the capital investments. This all means that adding 30 million individuals to the waiting rooms of American health care facilities will hardly yield a "bending of the health care cost curve" even if we go "all in" on a government-run system. Rather, the first unintended consequence will be filled-to-capacity waiting rooms and long wait times for the next appointment with your physician.

In a year in which we have committed over 750 billion dollars to create (or save?) American jobs, it is a bit curious to realize that we are hell bent on trying to reduce growth in one segment of the economy that has been enormously successful in creating jobs. As documented by the Bureau of Labor Statistics, the health care system accounted for over 360,000 new jobs in the U.S. in 2008. In most small American cities, the local hospital is one of the most important employers. If we are successful in restraining the growth in health care spending, which segment of the economy will take the place of the reductions in health care? If we cease being the most innovative health care economy in the world, what will replace the pharmaceutical jobs, the research positions, the nurses aids, the laboratory technician positions, and the generous income taxes that well paying jobs filled by nurses and physicians generate? Green jobs? Will nurses and lab techs become builders of windmills?" The second unintended consequence will be the contraction of many local economies as more hospitals close due to falling margins. In case you think the latter is hyperbole, by 2005, nearly 20 private hospitals had shut their doors in the Delaware Valley in as many years, according to the Delaware Valley Healthcare Council. And that occurred without the proposed 500 billion dollar cut in Medicare spending.

Seniors will bear a burden that has been terribly understated. Medicare beneficiaries have the option of receiving medical coverage either through the traditional fee-for-service program or by joining private Medicare Advantage plans, which generally offer better benefits and lower costs for enrollees: All Medical Advantage plans cover the standard benefits offered by traditional Medicare, including hospitalization, outpatient and physician care, diagnostic services, laboratory tests, and other services, often with lower cost-sharing than under traditional Medicare. In the original Medicare plan, cost sharing is a substantial burden at 20% of physician costs. Most Medical Advantage plans also provide coverage for services that traditional Medicare doesn't pay for, such as vision and dental care, added preventive services and protection against catastrophic medical costs. Additionally, most individuals who subscribe to Medicare Advantage plans receive more comprehensive prescription drug coverage than under the standard Medicare Part D plan. A key part of the plan for funding all the bills under consideration is effective elimination of Medicare Advantage plans as they are more costly to the government than traditional Medicare plans.

As Robert Moffitt of the Heritage Foundation has pointed out,

"Medicare Advantage plans are not 'overpaid' if the value of the benefits that they are providing is factored into the calculation. Under traditional Medicare, seniors need to pay an additional pre mium and buy supplemental coverage to secure the missing benefits they need or the extra benefits that they want that are not included in the traditional program. With Medicare Advantage, beneficiaries are getting access to an integrated package of bene fits, just like their fellow citizens who purchase group or individual insurance in the private mar kets, and can dispense with the hassle of two pay ments for separate insurance products. Meanwhile, the reliance of lower-income seniors on Medicare Advantage reduces their reliance on Medicaid, a welfare program, and thus produces reductions in Medicaid spending."

So another unintended consequence will be a gutting of an effective program and a cost shifting of the benefits of the program onto seniors and onto state budgets for Medicaid.

Finally, recent research from the Rand Corporation has suggested that the only effective way to control health care costs will be a "bundled payment" system. This means a fixed amount of money will be available for clinical care and when the money is spent, the care ceases or is deferred--or the provider of care is likely to lose money. This is the managed care scenario so disliked by Americans in the mid-1990's and the inevitable precursor of some form of explicit rationing of care. This may be necessary, but real political courage would consist of a frank acknowledgement of this reality. I guess we will not hear that from our political leaders. More likely, they will ask our forgiveness for this "unintended" consequence rather than our permission.

Stanley Goldfarb MD is associate dean of clinical education at the University of Pennsylvania School of Medicine and a nephrologist.