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Healthcare Costs: Problem Statement and Solutions

Introduction

Most of us can imagine a loved one getting sick. It is a horrible thought but, in this fantasy (or possible reality), they are receiving treatment to get better. Now imagine that instead of going to see a specialty doctor, they are forced to use overcrowded free clinics and self-medicate because they are unable to afford a simple physician visit let alone continuous treatment. This is the reality for millions of Americans that are unable to afford the stratospheric healthcare costs either due to lacking health insurance, the inability to pay premiums or deductibles, or being overburdened with health bills after treatment forcing many families into bankruptcy. The situation is relevant and ever more pressing as healthcare costs in the U.S. are increasing significantly faster than any other industrialized nation for identical treatments and equipment, with the primary burden of costs falling on the general population, whilst the quality of care often remains lackluster (Hankin, 2020).

Existing solutions to this issue are superficial, attempting to increase transparency in pricing and efficiency of the healthcare system, but not addressing the market-based approach to medicine that focuses on profitability. The United States must adopt a single-payer healthcare system, successful in other nations, which allows for greater government control and provision of basic medical care for free to residents while also maintaining a private practice and insurance market necessary for specialized treatments or high-quality care.

Problem

The problem is that the burden of the high cost of healthcare is disproportionately placed on the general population and consumers of these services. Annual family insurance premiums rise by as much as 5%, averaging $19,616. Seniors can spend as much as $285,000 throughout their retirement on healthcare-related costs. Over 12 months, Americans borrow an estimated $88 billion and spend $126 billion from savings on healthcare alone to cover an unexpected health issue or a chronic condition. An estimated 48 million individuals are unable to cover the expenses of prescribed medication (Lawrence, 2019). Nationwide, the cost burden has increased from 28% to 30% in the last 6 years, during which family premiums increased by 27.7%, while median household income only rose by 19.8% (McCarthy-Alfano et al., 2019). The distinct difference between premium pricing and income increase is significant as these statistics directly impact the affordability of health insurance, without which it is virtually impossible to receive health care in the United States as the out-of-pocket costs are significant. Meanwhile, deductibles on insurance plans are also rising, contributing to the total cost burden on families that are not only faced with having to pay higher premiums but pay relatively significant amounts of upward of $4,000 annually in deductible payments (McCarthy-Alfano et al., 2019).

As mentioned earlier, U.S. healthcare costs are increasingly higher and rising more rapidly compared to other industrialized nations, the majority of which maintain single-payer systems where governments take on the majority of the burden of public health costs. However, even when comparing private care, there is a significant difference in the cost for the same drug or medical procedures, with the U.S. prices being two to four times higher (Hankin, 2020). Costs are inflated across the board, starting with basic costs for medications and procedures, ending with salaries and administrative costs. For many, the cost of healthcare is a struggle between life and death. Despite diabetes being extremely prevalent and insulin being a century-old drug with established production, treatment costs are skyrocketing. According to a 2019 investigation by USA Today, regular price hikes make insulin virtually unavailable to the uninsured and require cost-sharing by those with coverage. Type 1 diabetics must pay $5,705 annually for insulin, double from 2012, with anecdotal evidence suggesting many are forced to share with friends and acquire the drug from Mexico or Canada where it is significantly cheaper (Alltucker, 2019). The consideration that such steps have to be taken is terrifying, as there have been several cases already with people dying due to extreme rationing of insulin. The U.S. which prides itself on support for its people and excellent quality of healthcare is failing significantly in this aspect because of the structure of an existing system.

Meanwhile, administrative costs account for up to 8% of the national expenditures, while other countries range from 1 to 3 percent. Other areas, including costs of education for medical professionals being higher as well as research and development of new drugs, lead to pharmaceutical companies ramping up prices to justify investment costs (Blumberg, 2018). While there are some benefits such as excellent specialists, top facilities, and innovative treatments and drugs, the increasing costs are driven by market forces and economic elements such as inflation. It creates a vicious cycle of an exponential rise in healthcare costs that make the service that is essential and readily available in other countries, becoming increasingly unreachable to many within the U.S. population. The market capitalism system when applied to healthcare creates an inherent inequality as any market industry will have losers and winners, those who cannot afford the necessities and those who profit significantly. Unfortunately, when it comes to healthcare, a market system endangers people’s lives and well-being.

Current Solutions

The issue of rising healthcare costs is not new and has been ongoing for decades. Existing solutions that have attempted to address the problem have been largely ineffective or superficial. The latest major reform to healthcare came in the form of the Affordable Care Act (Obamacare) in 2009 which sought to reduce costs. However, the policy had many idealistic elements that were not as effective in practice. Obamacare did increase the rate of insured families, helping more to gain some forms of access to healthcare, but despite attempts of the policy to reduce costs by introducing electronic records and efficient, organized systems into healthcare, there was little impact on costs (Sullivan & Soumera, 2019).

At the policy level, the majority of price control strategies are adopted by the states rather than the federal government. These laws can be categorized into several categories of price transparency, benefit design, provider payment, provider networks, and market power. Transparency policies have been a popular aspect that seeks to clarify costs, particularly for consumers on what specific treatments will cost, and be aware of providers that are in-network or out of network that impact the cost of the health bill. President Trump recently signed an executive order at the national level promoting transparency. States have also experimented with various payment models as well as encouraging provider competition to drive down prices. Alternative payment models seek to reduce incentives for the legacy fee-for-service payment system that encourages high-use and commonly wasteful and unnecessary care. Some Medicaid programs implement accountable care organizations with shared saving payment arrangements which coordinate care among providers. Other states implement global budgets that cap hospital spending and health plan designs that encourage high-value, low-cost care (Murray et al, 2019).

Although well-intended, these solutions are ineffective, largely because they fail to address the root causes of the issue but focus on patching some of the consequences. The American health system is based on market capitalism in all its elements, which encourages profit-making, both in terms of value offered as well as the number of services or products sold. To continue making a profit the rise in prices will continue, with other and newer methods that providers and insurers can profit from despite these minor regulations.

Alternative Solutions

One of the alternative solutions called upon by experts is to restructure the system in a manner that would transition to value-based health care. Healthcare would remain a market-based system, but instead of quantity and wasteful service provision, it would reward high quality of service. Essentially, the fee-for-service payment practice would be eliminated and replaced with an incentive-based system with providers compensated based on effectiveness and quality markers. Another alternative solution builds upon the concept of transparency, but not just providing lists of fees for services, but transparency around decisions and touchpoints in the healthcare system. It is meant to improve the process of care patients become aware of where to go to receive appropriate and affordable care for them what kinds of costs and outcomes to expect. This solution is combined with transparency around drug pricing information that is necessary for providers to better guide patients and offer alternatives (Lawrence, 2019).

These solutions are unlikely to work as they are transitional. Experts cite the difficulty of implementing value-based care as the current status quo strongly hinges upon the fee-for-service system, and it remains an objective method to track expenditures alongside quality and treatment given. Value-based systems that have been implemented on smaller scales demonstrate that the alternative payment models are not much different from the fee-for-service approach. In value-based care alongside transparency movements, patients may have more predictable costs, clinical support, and choice, but it is unlikely to have any effect on prices going up. These solutions do not actively resolve or target any of the underlying issues causing rising costs but serve as an attempt to superficially mitigate the impacts for the everyday patients in the current status quo.

Proposed Solution

The proposed solution is to introduce a single-payer healthcare system, otherwise known as “Medicare-for-all” in the United States, where each resident would qualify for government-run insurance and universal coverage. The system would consist of single-payer universal healthcare that is run and funded by the government through taxes, offering coverage for fundamental medical services for the population and treatment of commonplace illnesses (even serious conditions such as cancer), chronic disease, and basic health management (vaccinations, screenings). Meanwhile, private practice and insurance will continue to exist as largely a separate market for those wishing to attain additional, highly specialized, or urgent treatments for payment, but will still adhere to standard government quality regulations. A similar model is practiced in Australia, and to some extent, the UK and Canada, all being able to provide some of the highest quality of healthcare in the world. The majority of healthcare would occur under the government-run system, but private practices would coordinate within primary health networks and provide extra services such as after-hours treatment, mental health, health promotion, and support for primary care GPs.

As expenses will be driven down rapidly by the unification and streamlining of many processes, improving efficiency and value of healthcare rather than profitability and numbers, costs will begin to decrease across the board. The process however must focus on coalition building, involvement of all stakeholders, and reform that includes all socioeconomic classes to avoid the single-payer system becoming a program for the poor but a widely supported and utilized healthcare service by the population (Greer et al., 2019).

The single-payer system addresses various elements of the current status quo of healthcare. Universal care will mitigate the stress on patients and clinicians, generating significant savings for billing-related costs and drug prices, making coverage affordable. It will unify the system, eliminating largely fragmented private practices in place right where hospitals and patients must navigate multiple elements of contracting, credentialing and deal with various rates, restrictions, and preauthorization requirements. The administrative system will be reformed and streamlined under single-payer, not only eliminating the complex payment system that forces attribution of costs to individual patients and insurers, but rather provides hospitals with global budgets that ensure accountability, but no longer incentivize manipulating quality metrics and bolstering profitable services. Value of provided care will increase as physicians will not be tied to the coding system as well as have to navigate the complex pricing but focus on providing care and offering the best treatments. Prices will decrease for drugs and equipment as federal and state health agencies will be allowed to directly negotiate with companies and distributors, make bulk orders, and engage in licensing deals, something currently not allowed (Woolhandler & Himmelstein, 2019).

Objections

Unfortunately, the topic of healthcare in the United States is heavily politicized and remains controversial. There would be significant pushback in the current political climate against the proposed solution that is rather radical, or even against some of the alternative solutions. Most of the objections will likely stem from numerous pharmaceutical companies, equipment makers, and service providers that are profiting heavily from the current market-based system in the U.S. and would see their profit margins decrease significantly. The most common argument from this group is that such changes would stifle innovation in the industry. Firms would no longer be incentivized to compete nor have the budgets to invest in research and development for technologies and drugs. Meanwhile, health facilities would no longer strive to improve the quality of care, and many fear that patient flexibility and choice would be eliminated. Along the political spectrum, the Republican right is commonly arguing against universal healthcare, comparing it to socialism. These individuals hold the belief that the government should intervene less in such personal and social matters of the population, furthermore, opposing increased taxation that would have to be implemented to cover costs of a single-payer system (Diamond, 2009).

These are undoubtedly valid concerns and should be considered if the solution is to be implemented. However, as evidence and experience of other countries prove, these concerns can be mitigated to an extent. Perhaps, innovation will be stifled to an extent, but the private healthcare market will continue to exist alongside the single-payer system where companies can continue to make a profit. Furthermore, as with European nations, the government in this type of system becomes more involved in the research, partnering with private companies to work on new treatments, and then buying out or licensing the drug to be used on a national scale at an affordable price to the population. Patient choice and flexibility remain as patients will be allowed to use the facilities of their choosing and see potential specialists, just with more organization and regulation. Quality of care may decrease in terms of slightly longer wait times and reduced luxuries for universal provision but will improve in terms of the value of services since the government will essentially have complete regulation and control over the process, adhering to best practices and guidelines. Taxation will increase to cover the cost of universal healthcare, but it will be offset by the tremendous savings in insurance premiums and deductibles that Americans would no longer have to pay.

Conclusion

The direction that the current U.S. health care system is heading is unsustainable. With such rapidly growing costs, it is becoming out of reach for many middle-class families, whilst the very poor have barely any access at all. Without an affordable and accessible health system in place, public health is faced with significant crises that will have long-term consequences for the country. Current solutions in transparency and shared costs are helpful but remain superficial. Alternative solutions of a value-based billing system and cost regulation can have an impact but are unlikely to occur without major reform that is impossible within the current political climate and do not adequately address the root causes. It is necessary to introduce a single-payer system to the U.S. to ensure widespread and equitable access to healthcare, as it remains the most direct and simplest approach rather than attempting to further complicate and manipulate an inherently broken system. Healthcare is a human right that is officially declared in every international convention, but the United States as the world leader, remains with a structure that appallingly excludes based on costs, the very citizens it must protect.

References

Alltucker, K. (2019). Struggling to stay alive: Rising insulin prices cause diabetics to go to extremes. USA Today. Web.

Blumberg, Y. (2018). Here’s the real reason health care costs so much more in the US. CNBC. Web.

Diamond, M. A. (2009). Con: Single-Payer Health Care. American Journal of Respiratory and Critical Care Medicine, 180(10), 921–922. Web.

Greer, S. L., Jarman, H., & Donnelly, P. D. (2019). Lessons for the United States from single-payer systems. American Journal of Public Health, 109(11), 1493–1496. Web.

Hankin, A. (2020). How U.S. healthcare costs compare to other countries. Web.

Lawrence, H. (2019). 2 ways to lower America’s high health care costs. Forbes. Web.

McCarthy-Alfano, M., Glickman, A., Wikelius, K., & Weiner, J. (2019). Measuring the burden of health care costs for working families. Health Affairs. Web.

Murray, R., King, J. S., Delbanco, S. F., & Lehan, M. (2019). The state of state legislation addressing health care costs and quality. Health Affairs. Web.

Sullivan, K., & Soumerai, S. (2019). No, Obamacare did not lower U.S. health costs. Medpage Today. Web.

Woolhandler, S., & Himmelstein, D. U. (2019). Single-Payer Reform “Medicare for All.” JAMA, 321(24), 2399. Web.