The mounting cost of health care may end up being the biggest single financial challenge faced this century, not only by America, but by most of the industrialized world. In spite of the many and varied approaches tried, it’s clear that no country has the issue fully resolved. Every mix of government and private administration, every attempt to balance the needs of the people with the needs of the medical industry, including doctors, hospitals, insurers, and biotechnology providers, comes up short.
Another thing is clear. By virtually any measure, the United States spends more on healthcare than any other country, over $2 trillion each year, roughly $10,000 per person. Moreover, there is no consensus on the reason for this, or what can be done about it. In the ongoing search for an answer, analysts and politicians have pointed the finger at a range of possible causes, including:
• The duplication of administrative costs brought on by too many insurance companies
• The lack of lower cost preventative care
• The higher cost of doctors and other medical personal in the U.S.
• The over-prescription of unnecessary procedures, and under-prescription of necessary procedures (generally considered to be one of the biggest factors)
All of the above, and more, continue to be blamed for America’s healthcare crisis, and various solutions for each of them have been advocated. But even if the above factors help explain the reason America spends so much more on health care than other countries, they don’t address a far more fundamental issue. The cost of healthcare is going up everywhere, not just in the United States, suggesting a more fundamental problem for which no adequate solution has been proposed.
At the heart of this underlying problem is something unrelated to administrative costs, industrial greed, or systemic inefficiencies. Ironically, the fuel behind the overall rising cost of healthcare is technology, the very thing that we tend to think of as bringing costs down. Indeed, increased technology does tend to reduce costs, but only when the function to which it is being applied is at least somewhat bounded. The cost of television sets decreased as improved technologies were applied, because the basic functionality, picture and sound on a screen, remained essentially the same. Only when significant functional jumps were made, such as the addition of color, digital electronics, and larger screens, did the price increase.
In the case of healthcare, however, limitations have been largely removed. As our technological capabilities have increased, we expect, and get, far more than we did 100, 50, or even 25 years ago. The medical field is qualitatively different than it was in the past. There was a time when aspirin and the x-ray were state-of-the-art, and the best healthcare consisted of little more than the mending of an occasional broken bone. If you had heart trouble, you were allowed to die. If you got cancer, you were allowed to die. If you had a stroke, you were allowed to die. How long it took you to die was determined by little more than your own body. The cost of the best healthcare was minimal, because there was so little to give.
Now medical science allows us to do amazingly complex and beneficial things, analyzing and manipulating the human body in ways that are no longer possible for the average person to fully comprehend. Our demands have grown with our technology. But these capabilities are applied at an unprecedented financial outlay. The cost of the best equipment is now marked in the multi-millions, not including the cost of the labor required to use it. As a result, the cost of the very best healthcare exceeds what most people can afford, no matter how efficient its application and management, and the systems used to distribute healthcare have all, to one degree or another, begun to crack.
In this country, the insurance industry has little choice but to pass these fundamental rising costs along, though even a single pay system, however efficient, would face the same pressures. Even the concept of risk-based insurance itself could be impossible to support if technology gets to the point that it can predict far in advance, and with enough accuracy, who will develop what diseases. To insurance industry leaders like United Health Group (NYSE:UNH), Aetna (NYSE:AET), and WellPoint (NYSE:WLP), all this means continued pressure on margins in the near term, and potentially industry-transforming adjustments in the long term. But regardless of the roles ultimately given to government and the private sector, this foundational issue will not go away. It comes down to this: We cannot afford to do what we have the technology to do.
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