With health care, change doesn't have to be a 4-letter word
The month-long sprint that started with the Iowa Democratic caucuses may bring clarity to an issue often at the top of voter concerns, as was the case among Iowa caucus-goers: health care. From a massive reshaping that Bernie Sanders’ Medicare for All plan would bring to policy tweaks from more moderate Dems to President Trump’s push for cheaper prescription drugs and tax-advantaged Health Savings Accounts, change is coming.
The only question is, will it be minimal or dramatic. The election outcome should determine that. But while many worry about possible negative market impacts, there are potential benefits for companies and consumers. Consider that, in the last 10 years, average annual health-care premiums for family coverage jumped 53% to $20,576, according to the Kaiser Family Foundation (KFF), with the employer’s share accounting for $14,561 of the total.
For workers, the average share of the family premium soared 71% over the same period to $6,015. And this does include escalating large out-of-pocket expenses such as co-pays and deductibles. Per capita health-care spending in the U.S. now averages $10,224 a year, the Organisation for Economic Cooperation and Development says, nearly double that of 11 comparable OECD countries. This is a big expense for U.S. households earning the median income of $63,000.
Might reforms go ‘big government’ or private innovation…
It will be interesting to see which way health reforms break. Will a “big government’’ approach win out, with federal agencies taking over a much larger share of the costs and the responsibility for ensuring health care for all U.S. residents? This arguably would help improve overall U.S. health outcomes, which currently rank in the lower tier of OECD countries because of the lack of affordable access for so many. Of course, this approach also would come at the expense of private health insurers and providers, and almost certainly would result in higher tax bills for most everyone.
Or might reforms follow a private-sector model built around more innovation and pricing transparency? Even as it lags in overall care, the U.S. leads in the best care because of the massive investments the private marketplace makes in R&D and cutting-edge care. These private expenditures are why the U.S. spends far more than any other country on health care—17% of GDP, with Switzerland the next closest at 12%, according to the OECD. If private-sector spending is stripped out, U.S. expenditures on health care are in line with other developed countries, a KFF analysis of OECD data shows.
The benefits of private investment is hard to ignore. This past month alone, the American Cancer Society reported mortality rates in the U.S. have plunged, particularly relative to countries where government rationing and price controls discourage the sorts of investments in drugs and treatments that occur here. Citing a study in the journal Lancet, the Wall Street Journal said individuals diagnosed with pancreatic cancer between 2010 and 2014 had nearly twice the likelihood of surviving five years in the U.S. than in the U.K. The 5-year survival rate for brain cancer was 36.5% compared to 27.2% in France and 26.3% in the U.K., and for stomach cancer, it was 33.1% in the U.S. versus 26.7% in France and 20.7% in the U.K.
…or maybe a combination of both?
A more private sector-oriented approach at reform also could help consumers find deals, pay less in deductibles and co-pays, and pour savings into tax-free investment accounts to build rainy day funds in case of big medical bills. It also could encourage more use of a cost-effective outpatient clinics and alternative delivery options such as “live” doctors and nurses via the phone or computer. Beyond their convenience, such delivery efficiencies can help wring pricing pressures out of the health-care system.
Perhaps in the end, we’ll see a mixture of reforms, with the U.S. government taking on more of the burden and the private-sector given more tools to accelerate change. This could create a significant margin tailwind for companies, particularly smaller businesses and industries such as retailing where labor intensity is strongest. Goldman Sachs estimates labor costs currently represent 12% of S&P 500 revenues, with health care accounting for about 7.5% of that share. Any break on their bills should provide a lift for individuals and the economy, too. According to Bureau of Economic Analysis data, health care represents the No. 1 household expense, ahead of housing, food and transportation.
The bottom line is, reforms aren’t a 1-way street. With potential new burdens come potential new savings, leaving the final verdict unknown until all the wins and losses are tallied. Perhaps this is the most significant message: change doesn’t necessarily mean disaster. The devil, as always, will be in the details. Starting with Iowa, it’s time to pay attention.