Interesting chart (the second one) posted by Lane Kenworthy today and some interesting debates and here on when the US healthcare system performance began to look different from the rest of the world. Kenworthy’s chart depicts the relationship between health expenditures per capita and life expectancy.
Here’s my contribution from a while back, while I was running SignalHealth.
When did the US begin to look different?
1980, give or take a few years, is about the time that the proportion of the US population with health insurance stopped growing and started declining. The data prior to that time aren’t great and clearly after stabilizing in the late 1950s and early 1960s, there would have been a large step increase with the advent of Medicare and Medicaid beginning in 1966. But then, with inflation in service costs and thus premiums and tax burden for public programs, the cost of coverage began to out run growth in economic capacity (however you want to measure that on either a micro or macro basis). Then came the inflection point and more people began draining out of the system than entered it.
No doubt, there are a number of factors that contributed. But we do know that coverage makes a difference in access to care.
Here are some posts I wrote back around 2005 about the impending acceleration in the loss of coverage and the crisis that would inevitably lead to political action:
Care and creation of the uninsured. An extremely important, but usually ignored aspect of this issue is that “the worse it gets, the worse it gets.” That’s part of the reason the proportion of uninsured is rising.
As more uncompensated care is provided it is subsidized either informally through price increase based cost-shifting or formally through such mechanisms are state indigent care pools, the costs of which are borne by health insurers and/or employers. Of course, as that happens, premiums rise. As premiums rise – especially in relation to income or other economic resources – coverage falls. That in turn, creates more uncompensated care … take a look at the Self-Reinforcing Coverage Loop – a vicious circle. Insurer/employer based subsidy programs are thus inherently self-defeating.
Why might coverage loss accelerate … and what then?. In my last post, regarding the loss of coverage and uncompensated care, I mentioned: As premiums rise – especially in relation to income or other economic resources – coverage falls.
The past decade at least, I’ve been convinced that this is the primary underlying cause of health insurance loss. Call it what you may, dress it up as much as you like, blame employers or public policy makers, coverage has simply gotten too expensive relative to the economic resources that pays for it. All you have to do is note that health care costs and therefore health coverage costs (both public and private) have been rising consistently faster than economy overall and thus the rest of the economy.
Think in terms of a ratio of coverage costs to other economic resources. Regardless of the specific measures you use, the more that ratio rises, the more people will drop out or be dropped out of the insurance system.
And as that ratio begins to cut at higher and higher income levels, it will affect an increasing proportions of the population. I don’t know where the inflection point on the upslope (the left side of the peak) is in this graphic, but until we reach it, each increase in that ratio will affect an accelerating number of people. Then the rate of increase will fall, but the numbers of newly uninsured will continue to increase until we hit the peak.Population_insurance_distribution
Think of the Cutting Edge “Coverage Blades” in the graphic moving to the right and slicing off increasing numbers of currently insured.
Of course, when we do hit the peak, we will be deep into the middle class – being uninsured. At some point just to the left of the peak, I expect we will arrive at the political crisis and deal with the issue.
But, like earthquakes in California, while we know this crisis is coming, we don’t know exactly when.
It’s only a matter of when. This post is about behavioral change, particularly as it relates to health economics and the healthcare system. The essentials, the mechanics if you will, apply similarly to individuals, organizations, and the place of healthcare in general economy.
The next couple of posts will be based on it and I’ll likely refer to it many times in the future.
Before we get started, answer the following questions:
If you and your family had (or have) to pay for your healthcare coverage directly, at what percentage of your family income would you be forced to seek less expensive coverage, even if it were more restrictive? Answer: __________
If you and your family had (or have) to pay for your healthcare coverage directly, at what percentage of your family income would you be forced to drop your coverage? Answer: __________Put your answers aside for a moment. We’ll return to them shortly.
Some of this may look fairly complex, but it’s not really. Just follow it step-by-step and you’ll see what’s going on both in the post and, more importantly, you will see how trouble is inevitable or perhaps why we’re already in trouble. So don’t bail out on me quite yet.
The economy grows and healthcare costs grow. When healthcare costs grow, premiums, employer burdens, and taxpayer burdens grow in parallel as well.
Take a look at the following Chart 1, The Impending US Healthcare Crisis: Why it is Only a Matter of When: What do we see?
We see economic growth E (with the random ups and downs taken out for simplicity). As is typically the case, it curves upward, representing exponential or compounding growth. We see D “$ at Some Percentage of the Economy” which parallels the economy itself. For example, this curve might represent 10 or 20 percent of the economy. Because it’s a percentage, it grows at exactly the same rate as the economy. We also see H, Healthcare Spending. Note that, consistent with a lengthening history in the US, the rate of growth is faster than the economy (E) and faster than at $ at Some Percentage of the Economy (D). Because it grows faster, eventually it overtakes and crosses D at a point we have labeled “Decision/Behavioral Change Threshold.” Then something changes.
Now what might that “Decision/Behavioral Change Threshold” be? Let’s return to the questions you answered at the beginning. (You did answer them didn’t you?) Let’s assume that you answered that at 15 percent of your family income you would have to drop coverage. Beyond that, regardless of the risk, it would be just too expensive to pay the monthly premiums. Your family circumstances and decision behavioral change are represented in Chart 1. Here’s how. Your income is represented by Economy (E). Your 15 percent personal decision threshold is represented by “$ at Some Percentage of the Economy” (D). Premium growth is represented by Healthcare Spending (H). You drop coverage where the lines cross and at time T1.
You may use the same chart to think of movement to more restrictive coverage. Assume that as the cost of coverage approached your 15 percent threshold (say at 12 or 13 percent), straining to maintain some form of protection, you might seek less expensive coverage. The chart will work in exactly the same way.
Now what happens if economic growth slows, healthcare costs accelerate, or you ability to devote a set percentage of your economic capacity to healthcare diminishes?
Chart 2 shows slower economic growth combined with healthcare cost growth the same as in the base case in Chart 1.
Chart 3 shows the base case economic growth and even faster healthcare cost growth.
Chart 4 shows a lower Decision/Behavior Change Threshold. For example, if you would be forced to drop coverage at five or 10 rather than 15 percent of your family income as would generally be the case for lower income families, then the Threshold would be lower relative to the family Economy. What Charts 2 through 4 have in common is that all produce a change in behavior at an earlier time. Slower economic growth, faster healthcare cost growth, or a lower percentage of your economic resources that can be devoted to healthcare all cause you to drop coverage earlier.
Pick your own markets of economic growth. Pick your own measures of economic capacity. Consider this at the most macro-economic level or at the personal level. The same effects result.
If a system consistently grows faster than a larger system in which it resides, eventually an intersection is reached at which the behaviors of one or the other, or both change less the larger system be overwhelmed. But even being overwhelmed will generally yield a behavioral change (think uncontrolled cancerous cells overwhelming an organ or body and eventually killing it).
What has been happening is that healthcare costs consistently outgrow the rest of the economy – which pays for healthcare. Increasingly individuals, families, employers, and governments capacity to carry the cost are being overwhelmed. So their behavior changes. In some cases, they seek increasingly stronger means of maintaining a financial relationship with the healthcare system. But in other instances, their behavioral change is to simply walk away. Thus, increasing numbers of uninsured.
We don’t all reach the intersection at the same time or at the same rate. The same is true for employers and governments. But, sooner or later, given the underlying structural relationships and dynamics, the vast majority of individuals and the economy overall will arrive at that intersection. Tennessee and other states arrived at it earlier this year with their Medicaid programs. General Motors appears to be at the doorstep right now. In contrast, for the time being, it appears that the Federal government has chosen to spend a higher portion of its economic capacity (tax revenue plus debt) on Medicare. Yet, when we consider projections for the Medicare Trust Fund, clearly the day of reckoning is not that far away.
I’m going to make a brazen assertion here: If you want to understand what is happening in healthcare and if you want to anticipate what will be happening, then the single most important measurements to track are overall healthcare spending, the carrying capacity of the economy that’s paying for it (whether family, regional, employer, governmental, or macro-economic), and their relationships to one another. With healthcare cost growth rates exceeding economic growth rates, the larger the gap between growth rates in healthcare spending and economic capacity, the closer the day of reckoning.
These economic forces were hard at work long before 2005. I strongly suspect (believe) that the inflection point at which time the proportion of people with coverage stopped growing and started declining was 1980, give or take a few years. And the inflection point was the result of pretty simple economics. We we spending an increasing proportion of our economic capacity on health care. And we were individual-by-individual, employer-by-employer reducing our participation in the system because we couldn’t afford it any more.
I’ve modeled this dynamic using a technology that I can now put up on the web. Maybe I’ll take a crack at that when I’ve got some other things off my plate.
What Kenworthy has done is raised a question regarding life expectancy and the increasing distance between the US and other advanced economies. It’s well worth further exploration.
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