3 Reality Checks the U.S. Needs to Face Before We Reform Health Care

I am not a Democrat, I am not a Republican, and I am not a fan of the political games that the leadership of each party play with our government. I am a independent thinker, and I prefer a rational, quantitative approach to looking at issues and devising solutions to them that are practical, empathy-based, ethical, and constitutional. Politicians at the federal level have shown time and time again that their allegiance is not to the Constitution, to common sense, or to the general welfare of the American people. They serve the minority interests who get them elected and usually re-elected: the establishment leadership of their respective political parties and the campaign donors and special interests who back them. The American Health Care Act (AHCA) is a perfect example of this process in action.

The AHCA aims to fulfill vague promises that President Donald Trump and other Republicans made during the election, to “repeal Obamacare” and “reduce taxes” for the block of upper class and upper middle class Americans who get Republicans elected. Because of the lack of attention to detail in the development of this bill, the bill’s authors have overlooked significant factors that almost guarantee the plan’s failure. In the end, the ACHA will cost America millions of lives and billions of dollars. To their credit, a small group of Republicans has acknowledged some of these problems and criticized the bill. However, I am concerned that small compromises will be made, and the bill will proceed without addressing its fundamental flaws.

Healthcare is the most important issue facing our country right now. A bad healthcare system can kill far more people than any terrorist group or foreign military. Tens of millions of lives hang in the balance, but the focus is on tax cuts and sticking it to the other party. Our country faces an entitlement crisis. We need economists, healthcare professionals, and any great minds we can find to weigh in on this issue and come up with real solutions. No one bill, one committee, or one Congress can tackle this problem alone. It will take many bills formed by the work of many studies. Real political solutions cannot be simplified into campaign slogans and talking points; they are complex, but they can be managed responsibly with patience, diligence, and–most importantly–empathy.

Here are 3 research-supported points that we need to address before we can begin reforming the American healthcare system.

1. Higher Healthcare Costs Lead to Patients Avoiding Necessary Treatment

According to a recent Bankrate Money Pulse survey, one quarter of Americans say that “either they or someone in their family has skipped necessary medical care because of the cost.” If necessary medical care is not accessible to so many people, it is only a matter of time before treatable illnesses exacerbate and become more costly. In economics, this behavior is visualized as the “demand curve.” As price increases, demand decreases.

Economic laws apply to all goods and services that have scarcity. Like it or not, that includes healthcare products and services. Aspects of the Affordable Care Act (ACA) and other legislation throughout last few decades did not consider this reality, which is part of why we are in this mess.

In the case of the healthcare demand curve, the consequence of increased price and the resulting decreased demand can be neglect of necessary care. The average American is not a healthcare expert and may or may not know whether a symptom could be indicative of a major condition that could one day kill or disable him or her. Affordable access to healthcare treatment saves lives, and we will see in points number 2 and 3 how it also saves money for the economy as a whole as well.

2. Better Care Puts More People to Work

The Agency for Healthcare Research and Quality’s (AHRQ) state-by-state comparison uses more than 250 statistical measures to offer state-by-state summaries of health care quality. It analyzes quality in type of care (such as preventive or chronic), setting of care (such as nursing homes or hospitals), and clinical areas (such as care for patients with cancer or diabetes). Their 2015 survey ranked the 50 states and D.C. as follows:

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Below, I compare the AHRQ’s rankings with Cornell University’s 2015 Disability Status Report. The results clearly show a correlation between quality of care, rate of disability, and the ability of people with disabilities to work.

In the AHRQ’s top 10 states, an average of 11.04% of people have disabilities. That number increases to 11.42% in the middle 31 states, and it increases again to 12.17% in the bottom 10. People in the bottom 10 states in quality of care are 10% more likely to have a disability.

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In the top 10 states, the average employment rate for people with disabilities is 39.52%. That number decreases to 37.64% in the middle 31 and to 33.59% in the bottom 10. The employment rate in the bottom 10 is 15.01% lower than in the top 10.

It is worth noting that the employment rate for people without disabilities is 8.29% lower in the bottom 10 than the top 10. While the bottom 10 have a lower overall employment rate than the top 10, the difference among those with disabilities is nearly twice the rate for those without, confirming the correlation between health care quality and employment rates.

If people do not have access to high quality healthcare, the percentage of the population unable to work because of disability will increase. This will put added stress on the Social Security Disability system. It will also decrease the ability for senior citizens who do not have sufficient retirement savings to supplement their social security income by working, which brings us to reality number 3.

3. America Has an Aging Population That Can’t Afford Increased Health Expenses

About 25% of Americans 65 and older rely on Social Security as their only source of retirement income. Social Security benefits only increased 0.3% last year, well below the annual inflation rate. The Social Security Trustees’ Report projects an annual increase of 2.6% going forward. Unfortunately, projections by software provider HealthView Services anticipate healthcare costs in retirement to increase by 5.47% annually, more than twice the rate of social security.

Including Medicare premiums, supplemental insurance premiums, deductibles, and copays, the total out-of-pocket spending for the average 65-year-old couple retiring today could exceed $400,000. Only 31% of seniors 65 and over even have $200,000 or more in a retirement account. How are they going to afford $400,000 in medical expenses? There is no indication that the ACHA will reduce annual increases in health costs for retirees. If anything, it may exacerbate the problem.

Conclusion

Americans are avoiding treatment because of the rising cost of healthcare, which will lead to worsened conditions and more disability cases in the coming years. The lack of quality care is already increasing the number of Americans who are unemployed because of disability. And the largest generation in history is reaching retirement age in the face of limited retirement savings, underperforming pensions, and a social security program that barely keeps up with currency inflation, let alone the radical rise of healthcare costs.

These issues have to be addressed before health care is reformed. The American Health Care Act was formed in secret meetings of a small group of men, and is now being hastily pushed to a vote by the Senate majority leadership. This is not a process that has any hope of tackling the crisis that our country is facing.

The Congressional Budget Office tells us that the ACHA will cut taxes, particularly for high income-earners, while reducing healthcare insurance coverage by 23 million Americans by 2026 and reducing Medicaid spending. Reducing coverage and increasing healthcare costs for tens of millions of people is only going to worsen the entitlement crisis that our country is facing. Eventually, someone is going to have to pay for the care of all these people, and the amount of care needed is going to get more and more overwhelming as fewer and fewer Americans are getting adequate regular care.

The AHCA puts a band-aid on the household budgets of the wealthiest Americans, covering up a wound that will one day result in an amputation. No matter how you slice it–pardon the pun–those costs will eventually have to come back to the taxpayers unless care were to be outright refused–illegally and unethically–to millions of patients. The numbers of patients impacted would be too large to be managed without masses of unpaid hospital bills, medical loans, other loans, and the entitlement programs themselves requiring a taxpayer bailout.

The developing healthcare and entitlement crisis has the potential to be as big or bigger than the 2008 financial crisis. In the end, the AHCA doesn’t add up to better health care or a better budget for almost anyone in the country. More work needs to be done to properly reform America’s distressed health care and entitlement systems. The Senate needs to scrap this bill immediately, go back to the drawing board, and start working on a plan that will improve access to quality care for all Americans at a reasonable price relative to income.

Please note that I do not intend for this to be a political blog.  It is first and foremost a financial education blog. Political topics will come up occasionally when they do so organically. When they are discussed, they will be done so from an economic and financial perspective, not a partisan one. The American Health Care Act (a.k.a. “Trumpcare”) is the subject of this post, which is why the Affordable Care Act (a.k.a. “Obamacare”), worthy of its own share of criticism, was only briefly mentioned.

Sources for all facts and figures are available in the links within the post. You may also view a more printer-friendly format of this post with footnotes containing full citations here.

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