What’s wrong with Sander’s and Warren’s Healthcare Solution

Voters need to understand the way Bernie Sanders and Elizabeth Warren think. Both want raise taxes in order to achieve universal health care. Think about their solution to tax more in light of the fact that we already spend twice as much as other OECD countries.

“On average, other wealthy countries spend about half as much per person on health than the U.S. spends” based on 2017 data.

Source: KFF analysis of OECD and National Health Expenditure (NHE) data Get the data PNG

As someone with a business background, I look at the problem by questioning if our health care system were “competing” with other world health care systems, would the answer be to become even less competitive with the world by spending more money? Instead, it seems the approach should be what are we doing wrong… where is our system broken… and how do you fix it? But then I am not a government bureaucrat who believes the answer to every problem is throw more money at it.

How do we fix the college debt problem? Throw more money at it, even though we already spend more on education than other countries? How do politicians deal with every other problem in America? Throw more money at it? Seems to me the first question should always be, what are we doing wrong?

So let me use this line of reasoning to try to fix our health care system.

Let’s start with the findings from the Harvard T.H. Chan School of Public Health, the Harvard Global Health Institute, and the London School of Economics

“The main drivers of higher health care spending in the U.S. are generally high prices — for salaries of physicians and nurses, pharmaceuticals, medical devices, and administration.

Contrary to commonly held beliefs, high utilization of health care services and low spending on social services do not appear to play a significant role in higher U.S. health care costs.

In addition, despite poor population health outcomes, quality of health care delivered once people are sick is high in the U.S.”

So we have a study that says the real problem in the US is “high prices”. So the Sanders and Warren solution is we should tax more so we can afford high prices. In my mind, if the real problem is “high prices”, we should determine why the “pricing” mechanism in America appears broken. What is allowing “high prices” to drive up our health care costs?

I spent a career in health care, let me help you with the answer. Our economic system in the US relies on competition to control pricing. But in health care those mechanisms do not work for a host of reasons. So we have effective monopolies and duopolies operating with little pricing control.

I do disagree that our health care costs are out of control because of “physician and nurse salaries”. Physician and nursing salaries are a function of the prices they can charge for services. So for example, primary care physicians in this country face more competition and so what they can charge for services is far less and as a result their salaries tend to be reasonable. Specialists often face far less competition and so their prices are higher and that results in their salaries being higher.

So I have advocated for years now, that CMS (the agency that administers Medicare) should be empowered to set price ceilings for all health care products and services in this country. They do so already for most services provided under Medicare and their pricing authority should be extended to include all health care products and services offered to everyone who receives health care in the US. But CMS is terrible at managing utilization and its the private sector approach that has kept utilization rates competitive with world.

So introducing “regional” pricing ceilings for health care products and services where adequate competition does not exist, does not mean we should go for “Medicare for All”. Gaining control of pricing by losing control over utilization seems a silly and unnecessary trade-off.

I would establish a dual mandate for this agency. The goal of pricing would be adequate access to health care products and services on one hand and total costs at or below 15% of GDP on the other. Said another way the solution is not more money, but more for less money.

If other countries can provide universal health for less than 15% of GDP, then we should be able to achieve universal health care for 15% of GDP without using some of the heavy handed health care rationing tools used by European countries. Instead we should rely on the managed care tools developed by the private sector where employers demand they compete on outcomes and patient satisfaction while achieving utilization goals.

Politicians treat “profit” as a dirty word in health care. But that also seems silly. Profit drives innovation. And we need innovation in health care. What we do want to achieve is eliminating some sources of profit today including uncontrolled pricing power, unnecessary health care services and risk selection as examples. We want to shift the profit towards rewarding outcomes, preventative care, early detection and treatment, good customer services, low operating costs, lowering procedural costs, etc.

Bottom line, when you hear politicians talking about how they will fix problems… if all you hear is “more money”… it really means they have no idea how to fix a problem so they are burying it with piles of taxpayer cash until the money runs out.