The US healthcare debacle suggests a government that can't function effectively.

PHILADELPHIA - US President Barack Obama's healthcare reform is dead in the water, and it bodes very, very ill for long-term American economic health. What's worse, it suggests some serious problems in the functioning of the US government.

Healthcare is the biggest issue facing the United States today, even more important than the wars in Iraq and Afghanistan. Without reform, healthcare poses a real threat to the financial viability of the United States. Already, the country spends the equivalent of 17% of GDP on healthcare every year - the highest level of spending in the world - and that figure is only going one way. With the imminent retirements of the huge baby boomer generation, healthcare costs in the US are set to soar.

There are three main strands to the problem of healthcare funding in the USA: rapidly rising healthcare costs; rapidly increasing healthcare spending; and increases in the number of uninsured people.

The cost of medical services in the USA is high and rising fast. The price of a prescription drug in America can be twice as high as that of the identical drug in Canada, and the same treatment in the States can cost much more than its British counterpart, thanks to a combination of legal issues, higher wage costs, and other factors.

In the US, medical inflation is higher than overall consumer price inflation (CPI). Last month, the Bureau of Labor Statistics reported that overall CPI for 2009 was 2.7%. However, medical care commodities prices' rose by 3.3% and medical care services prices' rose by 3.4%; that's an almost 25% higher rate of inflation than overall CPI.

In addition to rising prices, the US also has unusually high levels of healthcare spending. As noted above, America's healthcare spending equalled 17% of GDP last year, almost twice as high as the Organization for Economic Co-operation and Development's average of just under 9%. Despite this high level of spending, the US has relatively poor health outcomes.

America places 49^th in the CIA's life expectancy table, below most of western Europe, Canada, and Japan, all of which spend less. On the CIA's infant mortality table, the US is at 180 (lower is better in this one), with 6.2 children under one dying per 1 000 births, compared to an average of 5.72 for the European Union (which includes the troubled states of eastern Europe). All this suggests that Americans are not getting their money's worth.

Finally, the US healthcare system is mostly underpinned by employer-sponsored insurance (ESI). Generally, people get health insurance through the company they work for, and the company pays a portion of the premium - around 150m Americans have ESI. For the poor, there is Medicaid, which covers low income children and select adults, while Americans over 65 can access Medicare, which provides a host of benefits - another 50m or so people are covered by these two programmes.

Unfortunately, these three nets do not catch everyone. According to the US Census Bureau, the number of uninsured people hit 46m in 2008, which was before the major impact of the recession was felt in the job market, and in America, losing your job usually means losing your insurance. This is a problem, because in the US emergency rooms are required by law to help everyone who comes in regardless of ability to pay (within certain parameters), so the uninsured habitually wait until they're sick enough for the ER before seeking treatment. ER treatment is much more expensive than primary care, so the net effect is to further raise costs, while at the same time contributing to bad health outcomes.

All three of these problems are set to worsen without reform. Last year, the Urban Institute, a think tank, did some work on estimating the effects of a failure to reform the healthcare system (see report). The results are summarised in the table below.

The predicted huge increases in spending and in the uninsured population are both time bombs for the American people. If costs to employers increase by the predicted 64% (in the best-case scenario), this will seriously hobble American competitiveness. And more uninsured people means more human misery, lost productivity, and early deaths.

At the level of the government there is yet more trouble brewing, because its liabilities for future Medicare and Medicaid expenditure are growing exponentially. The Congressional Budget Office, which oversees the federal budget and provides data on the cost of proposed and existing government programmes, recently released its budget projections for the next ten years. It's anticipating massive fiscal deficits for the foreseeable future, and a lot of the blame falls on the government's healthcare entitlement liabilities.

According to the CBO, in the absence of reform, federal spending on Medicare and Medicaid will double to $1.5trn by 2020; it will rise to 28% of all federal outlays, up from 21% in 2009. With the US already racking up nauseating amounts of debt, the prospect of hocking the family silver to pay for granny's healthcare for the next 20 years is terrifying.

Yet more terrifying is the fact that despite the obvious and alarming case for massive reform, and despite the ticking time fiscal time bombs the current system is creating, Congress was unable to come up with a bill for reform, even after 18 months of intense negotiation. A country that cannot solve such an obvious and serious issue is a country in need of more than healthcare reform.

Write to Felicity Duncan: felicity@moneyweb.co.za or follow her on Twitter at http://twitter.com/FelicityDuncan

COMMENTS

View disclaimer

 

responses to this article

Should you not be talking about the out of control rape murder and violent crime in South Africa All tourists should be warned of this. It is the decent thing to do. Do it in the press and at the airports but do it as it is unfair to encourage people to visit SA when most of the population lives in absolute fear of being raped ort murdered. . .more There is a rape every 23 seconds in the country. We also have people who encourage aids by not using condoms and people who have illegitimate children, they do not seem to be remotely stressed by either event and it is just a sex mad place from an AIDS and procreation point of view. Visitors should be warned in my opinion so that they can at least be prepared for the rapes murders and other violent crimes that are a daily occurrence in the country. . .less by Terrifying murders in South Africa on February 10 2010, 06:40 Find this comment inappropriate? Report it

Its not that the US is unable to pass a bill The problem is that healthcare in the USA, just like in SAfrica, is an unsolvable problem in governments hands. Firstly, there is an INSATIABLE demand for healthcare services, and by subsidising it, you only increase demand even more, and . .more turn all forms of health care supply into an automatic money loser. (I mean at what point do you consider a treatment to be to expensive if it impacts your health?) Secondly, you have millions of people who don't do anything productive, and they expect the government to provide UNLIMITED FREE healthcare to them. Where is the government supposed to get this money from??? No amount of passing bills can create money and hence pay for the problem. The only places where governments get money from is taxes, foreign loans (which have to be repaid - so it doesn't make sense to loan money for things like heathcare that doesn't grow a country's economy), and foreign aid (which is glorified begging). If governments keep raising taxes on the few rich and productive people, in order to pay for healthcare for those who cannot or will not earn enough to take care of themselves, the rich people will simply move their wealth offshore, relocate business holdings to foreign tax havens, or if all else fail - collapse under the excessive tax burden. People must take care of themselves or die. . .less by Capitalist on February 10 2010, 06:56 Find this comment inappropriate? Report it

Come on Felicity Duncan Must be a "republican" Why was there no comment when this issue was not raised before. Why? Because just like "miltiary shares", pharm... shares are big bucks. Its inertia. People dont want to change for social reasons. by brad on February 10 2010, 07:10 Find this comment inappropriate? Report it

Who are the USA's 46 million uninsured? These include upwards of 35 million ILLEGAL ALIENS - something like the problem we have! It also includes a few million folks who are sufficiently well off to be self-insured, and who don't want to be dictated to by some socialist scheme. by Margaret on February 10 2010, 07:26 Find this comment inappropriate? Report it

Look to France France has been rated as having the best healthcare systems n the world. USA and SA should look to them for solutions. by BobHopes on February 10 2010, 07:27 Find this comment inappropriate? Report it

should you not be more concerned about healthcare in SA? South African doctors go to the USA for their training, and often do not return. So rather worry about healthcare in South Africa for the masses instead of what Medicare and Medicade provide. by NY Boetjie on February 10 2010, 07:39 Find this comment inappropriate? Report it

A fine balanced article Missy Duncan Whilst the neocons like to shout its the illegal immigrants to blame, or its all the Governments fault, its not. Governments in Canada, Australia, UK, Germany, France also run their health care systems and they are run a lot better than the US. . .more Government per se is not to blame. As an entity the US Government may be running its health care in a dysfunctional manner due to the lobbying by the vested interests of private health care that is influencing policy. A useful addition to your article or follow up article would be the deductibles, premiums and benefits for various size families and ages in the US and then a comparison to US. You will find premiums and deductibles about the same, yet the US health care system has to content with the US costs and legal system which the SA system does not. SA private Health care must be one of the most profitable operations on Planet Earth. [Bet that article would not make it into Discovery Invest] . .less by Patriot on February 10 2010, 08:57 Find this comment inappropriate? Report it

I mean comparison of US to SA. In comment above. by Patriot on February 10 2010, 08:58 Find this comment inappropriate? Report it

Sicko Felicity, watch Sicko and see how France's health care spend is managed on a univeral basis - and how Cuba which is much poorer than the US can provide decent universal health care. Problem with the US is the vested interests in pharmaceuticals and . .more administration of HMOs. Get your head out of your rear end - ask an American doctor to help you with this - so that you can smell what you are shovelling. . .less by Michael Moore on February 10 2010, 11:26 Find this comment inappropriate? Report it

But who wants to be a Frog ?? They should be speaking German, if it was not for the Americans. I will take healthcare and the US way of life over the Frog healthcare and the socialist system anyday. BTW, France had 8 different public destructive protests, where buildings and cars have . .more been lit on fire. . .less by @ BobHopes on February 10 2010, 14:05 Find this comment inappropriate? Report it

HEALTH INSURANCE You can get full medical coverage at the lowest price from http://bit.ly/atGzeD by jackorton11 on February 10 2010, 21:54 Find this comment inappropriate? Report it

Wonder how SA compares If Discovery could not make head way in that market we are most probably in a worst position by ea on February 11 2010, 05:37 Find this comment inappropriate? Report it

@BobHopes Re: France... Ok, but they tax their people so much nobody with any money actually wants to live there. by M on February 11 2010, 07:11 Find this comment inappropriate? Report it

Name
Subject
Comment

View disclaimer