Reinventing the Wheel?...

Fall is the time when individuals covered by employer sponsored health plans re-evaluate coverage and make policy selections for the upcoming year. Our provider, non-profit BlueCross BlueShield of Vermont, recently informed us that premiums for 2018 would increase 9.2%.

This hefty increase sent me digging for an explanation. While a lot of things factor into the premium setting equation, the primary drivers of this year’s increase largely break down into three broad categories. First, increasing prices for drugs and medical care are behind almost a third of the jump. Escalating costs for “specialty” drugs to treat conditions like cancer, rheumatoid arthritis and hepatitis C, are having the biggest impact here. Second, higher than expected claims experience (more people using health care) is driving another third. Third, are government related charges. This last category includes fees levied on insurers by the Federal government to cover health care subsidies and state fees to support administrative costs associated with health care regulation.

outpaced inflation pg4.jpg

Sadly, this almost double digit rate increase is not unique to Vermont or new. As the chart above shows, health insurance premiums, have widely outstripped increases in both earnings and inflation, rising over 200% since 1999.

Proposals to both expand coverage and contain health care costs go as far back as the 1940s. During weak economic periods such as the late 1970s, efforts to rein in costs gained momentum while in rosier economic times, such as the 1990s, the focus shifted more to expanding coverage. Unfortunately, major reforms on both fronts have proved elusive.

The concept of moving to some form of “universal” health care has been a central focus of recent proposals. While this may seem like a radical shift, many versions of this approach are already in use today. In the U.K., Italy, Spain and Sweden, the government provides insurance and delivers health care. In these countries, the government employs doctors and nurses and runs hospitals. France and Canada operate differently; the government manages insurance but the private sector handles medical care. Finally, in the Netherlands and Switzerland, the private sector handles both insurance and medical care but the government, through a combination of regulation and subsidies, mandates that everyone is insured. This last approach comes closest to what was envisioned under Obamacare.

Interestingly, despite the great variety of approaches, most of these competing systems deliver higher quality care at a lower cost than we do. According to The Economist, America’s health care spending totals approximately 17% of GDP while spending in Europe is, in all cases, less than 12%. Administrative costs appear particularly out of line. In the U.S. these costs total 8% of total health care spending vs. 2.5% in Britain.

The latest health care reform effort comes from our very own Senator, Bernie Sanders. His approach focuses on gradually expanding Medicare to the entire population over a four year period. This “Medicare for All” proposal would shift the bulk of health care funding now assumed by states, localities, employers and employees to the Federal government. A 2016 study by the Tax Policy Center estimates that the proposal would result in a net cost, after offsetting revenues, of $16.6 trillion over the first decade. 

Achieving bipartisan support will require a focus on both expanded coverage and cost control. And untangling the complex network of care that has built up over the years will not be easy. Countries across the globe have much to tell us about how to achieve better results. We would do well to closely examine what does and does not work in systems already in place today.