Warren Buffett was at his oracular best during the recent Berkshire Hathaway annual meeting where he took on American business leaders’ desire for tax cuts.
Businesses are wrong to blame taxes for strangling American competitiveness, he said. The real culprit is healthcare costs.
Corporate taxes as a percentage of gross domestic product have actually gone down over the past 50 years and now hover at about 2 percent.
Meanwhile, the American healthcare system consumes nearly 18 percent of GDP, up from 13.1 percent in 1995.
Buffett’s main point was that healthcare costs are the bigger threat to business. A Kaiser Family Foundation study, for example, found that corporations now spend $12,591 on average for insurance for a family of four, up 54 percent since 2005.
But the danger goes much further. Healthcare costs are a threat to the entire economy, not just to business. Left to current market forces, those costs will result in higher government deficits, increased borrowing, and eventually higher taxes on everyone, both personal and corporate. By 2040, the government projects healthcare will consume one-quarter of the economy.
The connection between healthcare spending and the national deficit is rarely made in congressional debate. That is not a good thing. Healthcare costs are rapidly overwhelming both state and federal budgets, while raising costs for businesses that provide health insurance to their employees. As former Congressional Budget Office head Alice Rivlin puts it, “long-run fiscal policy is health policy.”
What can we do to control these costs?
First, recognize that we are not getting what we think we are paying for. Spending more on healthcare does not mean better health. The RAND Health Insurance Experiment, for example, found that families provided with free care spent nearly 50 percent more on medical care than those in high-deductible plans but did not experience any measurable differences in average population health. The Dartmouth Atlas tells a similar story in Medicare: regions that spend more on treatment do not have better outcomes.
Evidence shows that the U.S. healthcare system is laden with fat and overpays for care, much of which is unnecessary and not evidence-based. According to Health Affairs, multiple studies have concluded that 30 percent or more of U.S. health spending is wasteful. Despite widely outspending other developed countries, we have poorer outcomes, including higher infant mortality, greater prevalence of chronic conditions and shorter lifespans.
Second, accelerate a shift in focus from treatment to prevention. We know that it is cheaper to reduce high cholesterol than to repair a body after a heart attack. Similarly, we know that public health programs to reduce smoking, and deliver clean water and food, dramatically cut disease rates. Much of the money that flows to expanding hospital facilities would be better spent on social or other community-based services that sustain health rather than restore it.
Third, providers, insurers and drug manufacturers need to rein in costs by redesigning how we deliver and pay for healthcare. By changing how, where and by whom preventive and curative care is delivered, and by ensuring that evidence-based care is provided, we can get better care, better outcomes and lower costs.
If this is not done, political pressure for a single payer plan will increase. Buffett, for one, likes the idea. Even if single payer is ruled out, failure to control costs will likely lead to onerous new regulations throughout the healthcare sector.
When we reach a point where the accumulated debt threatens the economy and, ultimately, our national security, federal and state health policy will become even more Draconian. A fiscal crisis could lead to blunt cuts in healthcare funding. If the system has not been redesigned, however, we will simply be buying less from the same poorly performing health care delivery system.
Buffett put it succinctly: “Medical costs are the tapeworm of American economic competitiveness,” he said. It’s time to extract the tapeworm, and give Americans an affordable and sustainable healthcare system that will not eat them from the inside out.
Leonard D. Schaeffer is the founding chairman and former chief executive officer of WellPoint, now known as Anthem. Dana Goldman is director of the Leonard D. Schaeffer Center for Health Policy and Economics at the University of Southern California.
The views expressed by contributors are their own and are not the views of The Hill.
Healthcare reforms are real prescription for American economic growth