No. 163


STONE the crows! There is good news on healthcare spending – just not here.

The Crows have always wondered how the Yanks manage to spend so much on healthcare without it delivering for the 50 million people who are uninsured, which, considering the old are covered by the state, is a scarily significant swag of the population. Health spending as a share of GDP in the US has grown from 5.1 per cent in 1960 to 17.4 per cent 40 years later [i].

This is the worst of all worlds. At least, in Australia, taxpayers expect to see something for government health spending which has grown by 74 per cent in a decade, (GDP is up 46 per cent, above CPI) – thanks to the way Medicare funds the popularly assumed constitutional right of all citizens to consume as much free medical care as they can.[ii] Medicare paid $387 in benefits per person in 2001-2002 and $664 in 2008-09.[iii]

But there are signs, admittedly slight, that US health spending might eat the economy more slowly than expected. Health cost rises are up 3.9 per cent over the last three years, well down on the 6-9 per cent in the last decade. [iv]

According to Harvard economists David Cutler and Nikhil Sahni, healthcare spending growth has slowed by $US300bn over the last decade. While they attribute 45 per cent of the decline to the 2008-09 recession the majority is due to structural factors, which could cut predicted public-sector spending by $700bn over the next ten years.[v] In a model of scholarly understatement, they suggest this would have “an enormous impact on the US economy and on government and household finances”.

Responses to this prediction range from too good to be true to it’s only the result of employers skimping on insurance. According to Niraj Chokshi, this Pollyanna prediction, “presumes the continuation of the lowest rate of health-spending growth in more than 50 years”.[vi]

Still, every little bit helps and Cutler and Sahni have found little bits by the billion. They suggest savings spring from drugs coming off patent, a slow down in new technology and “greater provider efficiency” hospital acquired conditions and unnecessary readmissions, for example, make up 5 per cent of national health expenditure! [vii]

But, surely, the fewer doctors visits the more money saved – consultations with the quack dropped by a staggering 17 per cent between 2009 and 2011.[viii]

As Richard Myers suggests:

 What the researchers are clearly missing is that because of higher co-pays a lot of people are putting off going to see their doctor until it’s absolutely necessary. … Then there is the work environment. Today employees are working more hours for less money and a lot of big corporations are treating people like they are “lucky to have a job”.[ix]

 Cue doctors warning this is dreadful, that it will lead to people dying of conditions that went undiagnosed for too long. If so, it should be clear in a few years with a spike in disease caused deaths among the young and middle aged (or maybe not, given US studies of mortality among the uninsured are ancient).[x]

Whatever the case, a smaller pool of people going to the doctor surely reduces the potential for referrals GPs insist on to check out this and that. According to consultants PwC, over half US health spending is wasted and the biggest source of unnecessary expenditure is, “defensive medicine, such as redundant, inappropriate or unnecessary tests and procedures”. [xi]

An alternative explanation for the decline in health spending is that consumers are becoming smarter and providers are responding by focusing on customer needs. As the Wall Street Journal argues, co-payments mean patients ask more questions, wanting to know what they are spending their own money on:

 Patients make better decisions when they have the right incentives and information. One way commercial insurers have responded is with plans that steer consumers to higher-value hospitals, doctors and other providers in return for lower out-of-pocket costs. Think of the way drug formularies encourage generic pharmaceuticals over name brands.[xii]

 The market is also moving to meet consumer demand. Corporate CVS and pharmacy chain Walgreens are creating retail clinics, open when people want ,which provide primary care. [xiii]

Good, but probably not good enough to meet the insatiable appetite of elderly Americans for tax payer funded health care – “10,000 baby boomers reach retirement age every day until 2030.”[xiv] On 2009 figures average health spending on people 65 and over was $9744, compared to $2739 for 25-44 year olds. [xv]

So what has any of this to do with us?

Heaps. Our age and expense profile is much the same as the Yanks. But there is nil chance of asking people to pay a compulsory co-payment at bulk billing doctors, meaning the cost of 82 per cent of GP visits are picked up by the tax payer.[xvi] And where the Yanks are looking at private sector providers we get the bureaucratic life support system that is Medicare Locals.[xvii]

It’s enough to make a Crow crook.



[i] US Department of Health and Human Services, Health, US 2011, 387, 423 @ recovered on May 25

[ii] Grattan Institute, “Tough Choices, how to reign in Australia’s rising health bill, @ April 24, recovered on May 25

[iii] Australian Bureau of Statistics, “Health care delivery and financing,” June 4 2010 @–10 recovered on May 25

[iv] “The health spending decline,” Wall Street Journal, May 14

[v] David M Cutler and Nikhil R Sahni, “If slow rate of health care spending growth persists, projections may be off by $770bn,” Health Affairs, 32 5 2013 841-850, 850

[vi] Niraj Chokshi, “Are health costs healing themselves,” National Journal, May 15 2013

[vii] Cutler and Sahni, op cit 847

[viii] Sharon Begley, “Brakes on US health spending go beyond the recession – studies,” Reuters May 6 @ recovered on May 25

[ix] Richard Meyer, World of DTC Marketing, May 7 @ recovered on May 252

[x] Matthew Herper, “New estimates on deaths among uninsured is actually 19 years old,” Forbes, June 20 2012

[xi] PwC, “The priced of excess: Identifying waste in healthcare spending,” @ recovered on May 25

[xii] WSJ, ibid

[xiii] “Medicine at the mall,” The Economist, April 6

[xiv] Chokshi, ibid

[xv] Henry Kaiser Family Foundation,  Health care costs: a primer, May 2012, 9 @ recovered on May 25

[xvi] Tanya Plibersek, “Bulk billing rates for GP services reach record new high,” May 13 2013 @ recovered on May 25

[xvii] Australian Government Department of Health and Ageing, “What will Medicare Locals do,” November 23 2010 @ recovered on May 25