Synopsis of Grand Bargains—Fixing Health Care and the Economy (Updated 2017)

“Grand Bargains” health system reform: patient centered, universal coverage, saves $10 trillion, and employs 10 million more workers

 

 While the Republican health care repeal-replace plan dies again and again, the status quo Obamacare system is rapidly imploding. More Democrats now advocate government-run, single-payer health system reform while President Trump calls for a new (and presumably more awesome) plan after Obamacare implodes. It’s time for comprehensive reform with universal coverage through a completely market-based health care proposal.

Consider “Grand Bargains” health care reform featuring private, competing, member-owned, self-regulating health care cooperatives funded by member premiums (one-third) and the government (two-thirds—the current government level of funding).

The Grand Bargains health care reform strategy will

  1. reduce health industry waste—excessive administration, overtreatment, fraud, and overcharging,
  2. save taxpayers/health care consumers $10 trillion in health expenditures over a decade,
  3. provide universal coverage without onerous co-payments and deductibles for services,
  4. give patients choices of plans and providers,
  5. employ an additional 10 million health industry workers by 2029 beyond those projected,
  6. shift from centralized health care regulation by the federal and state governments to private, member owned, self-regulating, competing health care cooperatives (accountable care cooperatives), and thereby
  7. propel a race to the top in health care quality, innovation, and health outcomes.

 

US health industry costs 2009 – 2029

 A December 2016 Kaiser Family Foundation survey[1] showed that about two-thirds of Democrats, Republicans, and independents all say lowering the amount individuals pay for health care should be the top priority for President Donald Trump and Congress. Based on data from the US Centers for Medicare and Medicaid Services (CMS),[2] Americans will pay $4.2 trillion for the health system in 2020, rising to $6.9 trillion in 2029 (21.1% of GDP), totaling $55.7 trillion for 2020 – 2029. We desperately need to reduce the OVERALL cost of our health care system.

Table 1 shows the overall US health industry spending in 2009 and 2016 and the projected costs with Obamacare in place unaltered until 2029. Table 1 assumes the CMS projection that the overall economy will average 2.2% per year “real” gross domestic product (GDP) growth (equating to 4.4% per year “nominal” GDP growth) from 2017 to 2025.[2]  The 2029 cost estimate was extrapolated using the same growth rate. Whether the overall US GDP grows at all and by how much, CMS statisticians project that our health industry cost will grow by 5.8% per year on average until 2025.[2]

 

Table 1. Historical and CMS projected costs for the US health industry 2009 – 2029[2]

Year USA GDP ($ billions) National health expenditures ($ billions) % of GDP for the health industry
2009 14,419 2495 17.3
2016 18,860 3358 17.8
2017 19,358 3539 18.3
2020 22,334 4197 18.8
2029 32,906 6935 21.1

 

Employment in the US health industry

 According to the Bureau of Labor Statistics (BLS), the 2016 private health care services sector of 15.5 million civilian employees included, “ambulatory health care services, hospitals, and nursing and residential care facilities.”[3] These “health care employees” earned, on average, $80,583 (salary and benefits).[4] The BLS separately listed health related occupations such as government hospital employees, health insurance carriers, pharmaceutical workers, and over 30 other health-related occupations.

After consultation with statisticians at BLS and Bureau of Economic Analysis (BEA), I derived an estimate of 22.3 million full-time equivalent health industry workers in 2016 based on:

  1. the BEA estimating $10,101 billion as total compensation for all US employees.[5]
  2. health industry employees’ compensation averaging $80,583,[4] and
  3. the health industry comprising 17.8% of the economy.[2]

The computation goes as follows: $10,101 billion (total compensation for all US workers) * 0.178 (17.8% of the GDP) / $80,583 (per average compensation of a health industry worker) = 22.3 million health industry workers.

Due in large part to the flooding of 10,000 baby-boomers into Medicare per day over the next 16 years, the BLS expects health care worker employment to continue increasing at over three times the rate of overall employment growth until at least 2024 (2.10% per year versus 0.65% per year), [6] and health industry workers’ compensation growth to continue averaging 2.63%/year.[7]

Table 2 shows the projected increase in employment in health related jobs and in compensation of employees from 2004 to 2024, [6] with the same rate of growth extrapolated to 2029.

 

Table 2. Employment in the US—historical data and future projections[5-7]

Year Health industry worker average total compensation ($/year) Health industry workers estimated(millions) US health industry workers’ total earnings ($ billions)
2009 70,636 19.3 1298
2016 80,583 22.3 1797
2017 82,702 22.8 1885
2020 89,401 24.2 2164
2029 112,930 29.2 3298

 

Since worker wages and benefits comprised 54% of health industry cost in 2016 (Tables 1 and 2), the only effective way to control health costs is to reduce the number of expensive health industry workers. This can and should be done by reducing health industry waste.

 

The Grand Bargains strategy for targeting US health industry waste

 Four major factors account for out of control national health spending in the US:

 

  1. Excessive administration
    1. About 31% of US health expenditures are for administration,[8]
    2. According to the Institute of Medicine,[9] over half of US medical administration is unnecessary.
  2. Overtreatment—funding unnecessary or harmful medical interventions
    1. According to data from the Dartmouth Institute for Health Policy and Clinical Practice,[10], ineffective medical interventions comprise as much as one-third of Medicare costs,
    2. According to the Institute of Medicine, “Many current clinical practice guidelines suffer from limitations in the scientific evidence base and shortcomings in the guideline development process. … Consequently, clinical practice guideline recommendations often rely on low quality evidence or expert opinion.”[11]
    3. My book, Money Driven Medicine—Tests and Treatments That Don’t Work,[12] detailed over 70 medical tests and treatments for which my evidence-based analyses showed no net benefit for patients. In 2007, these non evidence-based tests and treatments killed at least 70,000 Americans and cost at least $900 billion. To date, no medical expert or anyone else has responded with a critique challenging my methodologies, data, or conclusions about any of these questionable medical interventions.
  3. Fraud
    1. Donald Berwick, former head of the CMS, estimated that about 10% of Medicare and Medicaid funds and perhaps 10% of the overall health industry costs go to fraud.[13]
  4. Overcharging
    1. Medical price gouging results from lack of price competition between doctors, hospitals, and pharmaceutical companies together with medically insured patients that don’t have to consider price in shopping for their health services.
    2. The US government does not negotiate with drug companies regarding pricing as is done in Canada and Europe.
    3. “Reference pricing” of medical procedures (insurance paying a flat fee and the patient paying the rest) reduced the overall cost of many medical procedures by 10-20%.[14]

 

The foremost challenges to curbing excessive administration are (1) multiple government insurance programs (Medicare, Medicaid, etc.), (2) government health insurance mandates, (3) government regulation of health care through a multiplicity of federal and state government agencies, and (4) private insurance company responses to government mandates and regulation, requiring legions of micromanaging bureaucrats.

US health industry administration costs could be markedly cut by eliminating all current public and private insurance programs. Instead, as mentioned above, consider private, competing, self-regulating health care cooperatives. Private insurance companies would not be needed. However, about 10% of the health care workforce could consist of insurance professionals and other administrators for 2000 – 4000 such accountable care cooperatives.

Competing health care cooperatives will be positioned and incentivized to cut funding for unnecessary medical interventions, fraud, and overcharging. To cut waste in these areas, we need a five prong approach:

  1. decentralize the regulation of clinical practice, allowing each health care cooperative to offer its own medical benefits package and to establish its own practice guidelines,
  2. give patients and health care providers their choices of health care cooperatives,
  3. require transparency of the health care cooperatives regarding services provided, premiums charged, member satisfaction, and health outcomes,
  4. foster competition between health care cooperatives on price as well as quality of care and health outcomes, and
  5. freeze the government health care funding at the 2020 level until 2029.

 

With medical insurance funding from the government frozen at the 2020 level until 2029, national health expenditures could still rise if either (1) people choose health cooperatives that on average increased premiums above the 2020 rate or (2) an act of Congress increased government funding for health care above the 2020 level. Individuals would regain control of their own health care choices, and policymakers would regain control of overall system costs.

 

If these waste reduction strategies maintain health industry costs at the 2020 level until 2029, it would reduce national health expenditures to 12.8% of the GDP in 2029 (i.e., $4197 billion (2020 projected expenditures, Table 1) / $32,906 billion (2029 projected GDP) = 0.128). However, given the projected compensation increases of health industry workers over the decade, averaging 26.3%,[7] this savings would be at the expense of reducing the health industry workforce by 10 million workers, from a projected 29.2 million workers in 2029 to 19.2 million workers (24.2 million workers projected in 2020 / 1.263 (average salary increase of 26.3%) = 19.2 million workers). To be politically and economically viable, this health industry cost saving would need to be offset by using some health industry funds saved to increase employment elsewhere.

Two large groups of workers essential to good health outcomes not tallied by the BLS are

  1. family and friends of frail elderly and disabled people, serving as home health aides that provide free assistance with activities of daily living, and
  2. unpaid childcare providers, especially including parents of newborn and preschool children.

According to survey data compiled in 2014 by the AARP’s National Alliance for Care-giving, approximately 39.8 million Americans provided care to an adult relative or friend. Caregivers surveyed spent 24.4 hours per week on average, equating to 28.2 million full-time equivalent unpaid personal health care aides.[15]

Care of children is also seriously undervalued in the U.S. The average wage for paid child care workers is $8.78 per hour.[16] I have previously suggested paying childcare providers, including parents, to help low-income families meet living expenses and to recognize the health benefits and social worth of good child rearing.[17] It is also a way to stimulate the economy while counteracting wealth inequality.

Paying $15 per hour for 20 million of these currently unpaid caregivers and childcare providers in 2020 would cost about $620 billion ($15/hour * 2080 hours/year ≈ $31,000 per full-time care provider; $31,000 per caregiver * 20 million caregivers ≈ $620 billion). With income growth over time, this would rise to $783 billion in 2029 ($620 billion * 1.263 (26.3% wage increase) = $783 billion).

By adding 20 million full-time equivalent home health aides and childcare providers to the remaining health care professionals, the transformation of the health industry by 2029 would include:

  1. a reduction of 39% in the projected traditional national health expenditures by 2029 (Table 1 $4197 billion versus $6938 billion),
  2. an additional $783 billion to employ 20 million full-time equivalent home health aides by 2029, totaling $4980 billion in national health expenditures ($4197 billion + $783 billion = $4980 billion),
  3. an overall increase of 10 million health industry projected employment by 2029 (29.2 million (status quo projected 2029 health system employment) – 10.0 million (projected redundant workers) + 20 million (paid home health aides and childcare providers) = 39.2 million workers), and
  4. a reduction of health expenditures over the decade of $10 trillion (status quo projected expenditures = (($4197 billion in 2020 + $6935 billion in 2029) / 2) * 10 = $55.66 trillion versus (new plan projected expenditures = (($4197 billion in 2020 + $4980 billion in 2029) / 2) * 10 = $45.88 trillion in 2029).

With this scenario, the health industry will net an additional 10 million jobs (≈80,000 new jobs per month) while expenditures will drop to about 15% of GDP by 2029 ($4980 billion (projected health industry costs) / $32,906 billion (projected GDP) = 0.151).  By reducing the proportion of administrators in the health industry from 31% status quo[18] to 10%, about 7 million of these 10 million projected health industry job losses would be redundant administrators. By 2029, there would be about 600,000 more health care providers than now but about 3 million less than the unsustainable status quo projection. Never the less, with this welcome major decrease in administrative drag on the system, health care providers would be much more effective in delivering compassionate care than in the current broken system. The benefits for health care providers will include dramatically less unnecessary paperwork, more autonomy, less burn out, and more satisfaction with providing excellent health care.

 

Grand Bargains US health industry reform funding strategy

 A Pew Research Center poll in December 2016 found that 60% of Americans want the government to be responsible for ensuring health care coverage for all Americans.[19] However, they don’t necessarily want the government to control how doctors practice medicine as would happen with government-run “Medicare for all.”

Conservatives/libertarians control the federal government and most state governments. Consequently, a bipartisan, market-based plan—involving no new taxes and no forced health care cooperative membership—would be a good starting point for comprehensive health system reform. To win support of liberals/progressives, guarantee universal insurance coverage and eliminate deductibles and copayments for covered services.

As mentioned above, the Grand Bargains plan assures cost control by decentralizing health care regulation and having private, self-regulating health care cooperatives compete for members by offering affordable premiums and excellent services. The government would continue its current health care financing (66% of overall health system funding[18]). People initially opting not to join a health care cooperative could join a cooperative when they get sick. In this case, they would subsequently pay the back premiums, and the government would also pay back compensation to the health care cooperative that treated and enrolled a previously uninsured person. To pay for health care of the unemployed and disabled, health care cooperatives would provide medical and social services using both government health care and social services funds. Consequently, with this Grand Bargains health system reform, universal coverage would be achieved.

 

Self-regulation by health care cooperatives, price competition between cooperatives, transparency in disclosing medical benefits and health outcomes, and patient choice of cooperatives will maintain high quality care, universal coverage, economy-stimulating job growth, and premiums at the levels desired by health care cooperative members.

 

 Contributor

 David K. Cundiff is an independent, evidence-based medicine researcher and health industry analyst. He formerly served as medical oncologist at the Harbor-UCLA Medical Center and at the LA County + USC Medical Center as hematologist, internist, and palliative care consultant. His recent book, Grand Bargains—Fixing Health Care and the Economy,[20] analysed the waste and dysfunction of the US health system and overall economy and proposed reforming the health system and the economy with a hybrid system of free-market capitalism comprising two-thirds of the economy and communitarian health and human services through member-owned cooperatives administering one-third of the economy.

 

Acknowledgement

 Jan Lundberg assisted with editing this article.

 

References

  1. Kirzinger A, Wu B, Brodie M. Kaiser Health Tracking Poll: Health Care Priorities for 2017. Kaiser Family Foundation Jan 06, 2017 http://kff.org/health-costs/poll-finding/kaiser-health-tracking-poll-health-care-priorities-for-2017/
  2. National Health Expenditure Fact Sheet (Tables 1 and 2). U.S. Department of Health and Human Services Centers for Medicare & Medicaid Services, 2017 Washington, DC. https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html Accessed March 29, 2017
  3. Current Employment Statistics – CES (National). US Department of Labor Bureau of Labor Statistics, 2017 Washington, DC. https://www.bls.gov/web/empsit/ceseeb1a.htm#ce_ee_table1a.f.1 Accessed April 7. 2017
  4. NEWS RELEASE: EMPLOYER COSTS FOR EMPLOYEE COMPENSATION – DECEMBER 2016. US Department of Labor, Bureau of Labor Statistics, 2017 Washington, DC. https://www.bls.gov/news.release/pdf/ecec.pdf Accessed March 29, 2017
  5. Personal Income and Outlays: February 2017. US Department of Commerce, Bureau of Economic Analysis, Washington, DC. https://www.bea.gov/newsreleases/national/pi/2017/pdf/pi0217.pdf  Accessed April 8, 2016
  6. Employment by major industry sector. US Department of Labor, Burear of Labor Statistics, December 15, 2015 Washington, DC. https://www.bls.gov/emp/ep_table_201.htm Accessed April 7, 2017
  7. Employment Cost Index Historical Listing – Volume III National Compensation Survey. US Department of Labor, Bureau of Labor Statistics, January 2017 Washington, DC. https://www.bls.gov/web/eci/echistrynaics.pdf Accessed April 6, 2017
  8. Woolhandler S, Campbell T, Himmelstein DU. Costs of Health Care Administration in the United States and Canada. N Engl J Med. 2003;349(8):768-75. http://www.nejm.org/doi/full/10.1056/NEJMsa022033
  9. The healthcare imperative: lowering costs and improving outcomes — workshop series summary In: Yong PL, Saunders RS, Olsen L, ed. Washington, DC: National Academies Press, 2010.
  10. Fisher ES, Bynum JP, Skinner JS. Slowing the Growth of Health Care Costs — Lessons from Regional Variation. N Engl J Med 2009;360(9):849-52. http://www.nejm.org/doi/full/10.1056/NEJMp0809794
  11. Institute of Medicine (US) Committee on Standards for Developing Trustworthy Clinical Practice Guidelines. Clinical Practice Guidelines We Can Trust. In: Graham R, Mancher M, Miller Wolman D, Greenfield S, and Steinberg E., ed. Trustworthy Clinical Practice Guidelines: Challenges and Potential. Washington, DC: National Academies Press (US), 2011.
  12. Cundiff DK. Money Driven Medicine–Tests and Treatments That Don’t Work. Long Beach, CA, 2006.http://grandbargainsbook.com/MDM/ExecSumMDM.pdf
  13. Health-care fraud: The $272 billion swindle. The Economist. May 31, 2014 http://www.economist.com/news/united-states/21603078-why-thieves-love-americas-health-care-system-272-billion-swindle
  14. Robinson JC, Brown TT, Whaley C. Reference Pricing Changes The ‘Choice Architecture’ Of Health Care For Consumers. Health Affairs 2017;36(3):524-30. http://content.healthaffairs.org/content/36/3/524.abstract
  15. Caregiving in the U.S. 2015 – Executive Summary. AARP Real Possibilities Public Policy Institute and National Alliance for Caregiving 2015 2015 http://www.caregiving.org/wp-content/uploads/2015/05/2015_CaregivingintheUS_Executive-Summary-June-4_WEB.pdf
  16. Collins G. None Dare Call It Child Care. NY Times. October 18, 2007 http://www.nytimes.com/2007/10/18/opinion/18collins.html?ref=opinion
  17. Cundiff DK. Pay Health Care Aides to Jump-Start the Economy. Health Beat February 6, 2009. http://www.healthbeatblog.com/2009/02/pay-health-care-aides-to-jumpstart-the-economy.html. (accessed June 26, 2014).
  18. Himmelstein DU, Woolhandler S. The Current and Projected Taxpayer Shares of US Health Costs. American Journal of Public Health 2016;106(3):449-52. http://dx.doi.org/10.2105/AJPH.2015.302997
  19. BIALIK K. More Americans say government should ensure health care coverage. Pew Research Center JANUARY 13, 2017 http://www.pewresearch.org/fact-tank/2017/01/13/more-americans-say-government-should-ensure-health-care-coverage/
  20. Cundiff DK. Grand Bargains–Fixing Health Care and the Economy: Lightening Source Ingraham, 2015.http://www.grandbargainsbook.com/

 

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