The American healthcare system is unsustainable

PONTIFICATION: The headline read “Health Care Costs Are Eating Us Alive, A New Survey Shows”. In the past 10 years, the average premium for job-based health insurance that covers a family has risen 54%, to $20,756. Moreover, the amount of that premium workers pays for family coverage has increased 71%, to $6,015. Simply put: this is unsustainable.

U.S. health care spending grew 3.9 percent in 2017, reaching $3.5 trillion or $10,739 per person.  As a share of the nation’s Gross Domestic Product, health spending accounted for 17.9 percent and there are no signs that it’s going to slow down.

While the debate revolves around prescription drug prices Rx drugs still only account for $.10 of every healthcare dollar spent. There are other reasons for sing healthcare costs:

1ne: Price and the variety and complexity of services is the largest driver of health care spending increases. more than half of the total spending increase was due to price and intensity increases, which contributed $583.5 billion to the $933.5 billion total increase.

2wo: More spent on specific conditions. Diabetes was the condition with the greatest increase in spending, rising by $64.4 billion between 1996 and 2013. Most of this money went to pharmaceuticals prescribed to treat it. The single most important risk factor for type 2 diabetes is obesity, noted Dr. Patrick H. Conway of Blue Cross Blue Shield of North Carolina in an editorial published alongside the new analysis.

3hree: Outpatient treatment Spending on ambulatory care, which includes ER and outpatient hospital services, also played a role in increased overall costs. Annual spending on ambulatory care swelled from $381.5 billion in 1996 to $706.4 billion in 2013. This increase, about $324 billion, was higher than any of the other five types of care analyzed.

Perception does not align with reality though. Polls show that more than half of American adults (54%) believe that health care costs are a very serious problem in the U.S. and they blame drug companies. The public mostly blames the nation’s high health care costs on institutions, health care professionals, and government, less so on the overuse of care by patients instead of themselves.

Americans in large numbers are borrowing money, skipping treatments and cutting back on household expenses because of high costs, and a large percentage fear a major health event could bankrupt them. More than three-quarters of Americans are also concerned that high healthcare costs could cause significant and lasting damage to the U.S. economy.

According to Gallup:

1) 77% of Americans fear rising healthcare costs will damage the U.S. economy, and 45% fear a major health eventwill lead to bankruptcy.

2) 47% of Americans never know what a visit to the emergency room will cost, and 41% report forgoing care in an emergency department due to cost in the past 12 months.

3)  Close to half (48%) of Americans believe the quality of care found in the U.S. is either the “best in the world” or“among the best” even though the U.S. ranks below most other developed nations in the world for life expectancy and infant mortality.

4)  Republicans have a much more favorable outlook than Democrats on the quality and cost of care in the U.S. But Americans of both parties are about as likely to defer care due to costs (21% for Republicans, 27% for Democrats), and69% are not at all confident that elected Republicans and Democrats will be able to achieve bipartisan legislation to reduce costs.

5) Americans borrowed an estimated $88 billion to pay for healthcare, and 65 million adults report having a health issue but not seeking treatment due to cost in the past 12 months.

But what about the drug industry?

The 15 biggest global drugs firms, returns on capital have halved since the glory days of the late 1990s, and are now barely above the cost of capital. As the drug industry has come back down to earth, the returns of the 46 middlemen on the list have soared. Fifteen years ago they accounted for a fifth of industry profits; now their share is 41%. Health-insurance companies generate abnormally high returns, but so do the wholesalers, the benefit managers, and the pharmacies. In total middlemen capture $126 of excess profits a year per American or about two-thirds of the whole industry’s excess profits. Express Scripts earns billions while having less than $1bn of physical plants and no disclosed investment in R&D. This year the combined profits of three wholesalers that few outsiders have heard of are expected to exceed those of Starbucks.

Then there are insurers..

Cigna and Express Scripts, Aetna, another insurer, and CVS, a pharmacy and benefits manager, are merging. All these firms insist competition will be boosted. But they are also projecting the deals will boost their combined profits by $1.4bn. At this comes at a time when employees are paying more for company-sponsored healthcare.

Add all this up and the inclusion is that our healthcare system, at present, is unsustainable.

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