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US Health System Plagued by High Costs, Waste

by VR Sreeraman on September 10, 2009 at 12:33 PM
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 US Health System Plagued by High Costs, Waste

The United States boasts some of the world most advanced medical care but experts say the system that delivers it is choked by waste and costs projected to escalate as the population ages.

Venturing where others have failed, President Barack Obama now finds himself in the thick of the first major fight of his presidency over how to expand health care to the nearly 47 million Americans who have no health insurance.

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The cost of reforms is one issue. Obama has proposed spending 634 billion dollars over the next 10 years as a "down payment" on the reforms, but congressional budget experts have estimated the cost at one trillion dollars.

But reformers also face the daunting challenge of changing a system that one economist calls "an administrative monstrosity."

Economist Henry Aaron, in a 2003 paper, described it as "a truly bizarre melange of thousands of payers with payment systems that differ for no socially beneficial reason, as well as staggeringly complex public systems with mind-boggling administered prices and other rules expressing distinctions that can only be regarded as weird."
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Following are some aspects of the system revealed in a review of the scientific literature by the Rand Corp., a non-partisan think tank, and posted on the website www.randcompare.org.

First, Americans are living longer but two of every three are overweight or obese, one in 10 have diabetes, and about a quarter of the population between the ages of 45 and 54 suffer from hypertension.

More than half are covered by insurance provided by their employers, but it is not required and the quality of coverage varies widely. Nearly 16 percent of Americans have no insurance at all.

Meanwhile, US spending on health care is growing faster than the economy as a whole.

It hit 2.1 trillion dollars in 2006 and was projected to reach 2.25 trillion dollars by 2007, an annual increase of 6.7 percent, according to the Centers for Medicare and Medicaid Services. It could reach 4.3 trillion dollars a year in a decade.

"By 2017, about 20 cents of every dollar spent in the US economy will be spent on health care," Rand said.

The federal government in 2006 covered about a third of US health care spending, mainly through its health insurance programs for the poor and elderly -- Medicaid and Medicare.

Payments by private insurances companies accounted for another 34 percent, while out-of-pocket payments by individuals amounted to 14 percent of the total. The remainder came from state and local funds and other private funds.

On average, Americans spend about six percent of their after-tax income on health care, although in the case of the poor or elderly the share is larger.

Lengthening life spans, the spread of obesity, and technological innovations that push back mortality but at a higher cost, all contribute to increased costs.

Technological advances alone account for over half the increase in overall US health spending, the Congressional Budget Office has estimated.

"Certain technological changes, for example some vaccines, may reduce spending. However, in general new technologies tend to increase the number of health services that an individual receives, thereby increasing costs," Rand said.

At the same time, the US system is seen as wasteful compared to those of other countries.

The United States spends significantly more on administrative costs than countries with single payer systems -- seven percent compared to 1.9 percent for France, for example, according to the Organization for Economic Cooperation and Development.

And private insurance companies have higher administrative costs (14 percent) than public insurance programs like Medicare or Medicaid, which come in at three to five percent of the total, the literature shows.

"Practitioners and hospitals, in their interactions with multiple payers, are encumbered by numerous billing requirements, a multitude of formularies and clinical care guidelines, and patients with different covered benefits," Rand said.

Studies also have shown that one-third or more procedures performed in the United States were of questionable benefit, according to the think tank.

A 2008 study that compared health care systems in developed countries found that US patients reported waiting less time to get an appointment to see a specialist, but also more problems with the cost of the care and the efficacy of procedures.

Within the United States, however, patients covered by Medicare consistently gave higher marks for the care they received than did those insured by private companies, according to surveys funded by the Agency for Healthcare Research and Quality.

Source: AFP
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