The Cost Curve and the Cure Curve: Part One of Two

American policymakers and chatterers are preoccupied with “bending the curve” on healthcare. That is, they wish to stop, or at least lower, the upward slope of healthcare cost increases. Bending the cost curve is a laudable objective, to be sure; it’s always a good idea to economize whenever possible.

Yet something strange keeps happening–or not happening. The cost curve that preoccupies the policy elite never seems to bend downward. Indeed, after decades of discussion and debate over healthcare, the elite haven’t had much success at all; the curve is going in the other direction, upward. A half-century ago, in 1963, the national health expenditure was a mere $34.7 billion, or five percent of the gross domestic product; this year, it will total over $2.7 trillion, more than 17 percent of GDP.

So today, three years after the enactment of the optimistically named Affordable Care Act, the issue of that stubborn cost curve is still a predominant topic inside the Washington beltway. Indeed, any possible “grand compromise” on the overall budget seems inevitably to involve reductions in healthcare entitlement spending.

However, there’s another metric of healthcare that’s more important to ordinary people. That metric is health itself; as the Kaiser Family Foundation reports, the American people, by a more than 4:1 margin, want more healthcare, not less. We can safely infer that since few enjoy being poked and prodded, when the public says it wants more healthcare, it really means it wants more health.

The political elite would undoubtedly be disturbed by this polling reality, because it flies in the face of any effort to ratchet down healthcare spending. Yet politicians don’t seem to have noticed this Kaiser data, or thought about its implications; that’s why both parties continue to push their efforts to bend down the cost curve. And if they don’t succeed? Well, they just try, try, again. As W. H. Auden once wrote, “We would rather be ruined than changed.”

Some will observe that plenty of polls show that Americans are upset by high healthcare costs; they’d like something done about them. And that’s true. However, what the average American would say–if he or she had a personal publication portal, or the ability to fine-tune polling questions–is that folks want not only lower healthcare costs, but also better health. Note the two points in tandem: lower costs, better health. The public, perhaps unconsciously, wants both–and, in effect, is holding out for both.

Yet the political elite seem interested only in “lower healthcare costs,” and not “better health”; at least, that’s the way the public sees it. Yes, there’s plenty of elite talk about behavioral health issues, including the battle against obesity, but those discussions and subsequent policies seem wrapped up in social snobbery and condescension, enough to make the average American recoil.

So for our purposes here, we will confine ourselves only to health considerations that occur within the healthcare framework, e.g., curing an ailment or disease. And in that vein, the vein of medical research, we might ask: When’s the last time a prominent politician took to the national stage and called for an end to Alzheimer’s? When’s the last time a leader proposed an energetic and coordinated national campaign to achieve such an outcome? Answer: a long time. Like, never.

Right now, it seems as if the elite budget-cutters are more interested in reducing Medicare than in reducing, say, bank bailouts, welfare and foreign aid. In other words, these elite efforts at cost-reduction, even if they are bolstered by Beltway coalitions of billionaires and bureaucrats, have proven to be toxic politics, as the polls all show, for the majority of Americans. Moreover, the public is perfectly willing to entertain tax increases, if need be, to protect popular middle-class programs.

Indeed, on fundamental issues–from jobs at home, to immigration, to military interventions abroad–the elite seem to be in a distinctly different place than the public. And the same is true for healthcare; the elite class is just not thinking about healthcare in the same way as the general public.

Yet until a cure-message–for Alzheimer’s, for diabetes, or perhaps for the injuries of wounded warriors coming back from Afghanistan–punches through, the average American will be forgiven for thinking that the elite discussion of healthcare reform consists only of squeezing current healthcare recipients.

So leaders should pay heed, for a change, to these public concerns. Indeed, if only for the sake of furthering their own cost-cutting agenda, leaders should give more thought to the public’s cure-gaining agenda. If they did, something remarkable might happen: Healthcare costs might go down. Yes, costs might go down for the simple reason that healthy people are less costly–to themselves, to the rest of us. Good health is cheaper than sickness. And healthy people invent things, generate wealth, and pay taxes.

Polio went away in the US, thanks to the 1955 vaccine, and now we don’t spend much on that once-dread disease; the scientific-medical intervention of Drs. Salk and Sabin saved far more money than the recent political-managerial interventions of Democrats or Republicans.

Uncle Sam is now responsible, ultimately, for everyone’s health insurance, and so the goal should be to make that insurance as inexpensive as possible–in a way that’s both politically feasible and sustainable. After all, the draconian cuts eyed by some on the right have a way of not actually happening–or of being undone in the wake of the next election.

Meanwhile, let’s look at a recent news item that shines a light on some current problems in healthcare–namely, the buzzy and muckraking Time magazine cover story, dated March 4, “Bitter Pill: Why Medical Bills Are Killing US.” The 26,000-word piece, written by veteran journalist Steven Brill, brims with shocking anecdotes and startling statistics about healthcare costs.

Brill chronicles, for example, the case of a California man, one Steven D., who died of lung cancer, but not before his family had racked up a more than $348,000 bill from a single healthcare provider. Brill details some of the charges: “$18 each for 88 diabetes-test strips that Amazon sells in boxes of 50 for $27.85; $24 each for 19 niacin pills that are sold in drugstores for about a nickel apiece. There were also four boxes of sterile gauze pads for $77 each.”

Those are stunning markups, for sure–and yet, as the article notes, the bill was ultimately discounted by 82 percent, and a further 17 percent was paid for by the Steven D’s insurance company. Ultimately, Steven D.’s family paid just $3,000, less than one percent of the original invoice. But what a strange and complicated finagling of figures!

All the details of the article help to explain how the US has come to be spending $2.7 trillion a year on healthcare. Brill concludes by quoting a healthcare economist as saying that the “obvious and only issue” is that “all the prices are too damn high.”

For his part, Brill has plenty of solutions, mostly of a left-Naderite nature. One such: “We should tax hospital profits at 75% and have a tax surcharge on all non-doctor hospital salaries that exceed, say, $750,000.” Ideas such as that will make Brill the toast of progressive healthcare thinking; indeed, he is making the rounds of left-of-center think-tanks in DC.

But here’s a prediction: Brill’s article will go the way of all the other left-leaning critiques and debunking efforts on US healthcare over the last half-century or more. That is, it will get a lot of media attention, someone in Congress will hold a hearing or two, and then not much will happen.

Why? In part because, in addition to its cost, the current system is opaque and byzantine–and it is so by design. Today, nine-tenths of American healthcare spending is paid for by third parties–that is, public or private insurers. So it’s easy to see how the system is rife with moral hazards. The healthcare consumer, relying on his or her insurance, consumes healthcare without really knowing or caring about its cost. Meanwhile, purveyors are always happy, of course, to purvey. It’s a system full of red tape and regulation, but no truly adequate checks and balances.

Other factors are at work as well. For example, hospital emergency rooms are generally a huge cost-center for hospitals, for the simple reason that relatively few ER patients can pay–especially if they are not US citizens. It’s a bit un-p.c. to mention the cost of caring for non-citizens, but their costs are altogether real. Thus hospitals have to “cost-shift” their losses elsewhere. The national cost of such cost-shifting for the poor–an issue unmentioned by Brill–runs into the tens of billions.

Finally, as we saw in the case of Steven D., the bills seem to be entirely notional, that is, subject to massive renegotiation. And all this adds up to a formula for massive costs–and massively random and unequal costs, as each bill is boosted up, and then wheedled down, according to the skill of the boosters and the wheedlers.

Many on the right seize on this issue, calling for a free market in medicine, so that empowered sovereign consumers can make their own choices, forcing suppliers to behave better.

We needn’t get into all the concerns about free-market medicine, and yet we might note that those concerns include: Can consumers really make good choices about complex issues, especially when they are incapacitated or in a life-threatening situation? Do we really want to reduce the whole of the healthcare system to a cash nexus? And oh yes, will the American people actually support such a change, especially if free-market reforms are linked–as they almost always are–to a stated desire to reduce costs? If folks get the feeling that their leaders see healthcare merely as a huge source for cost-savings, they will shut down on any proposed change.

For our purposes here, we can simply note one obvious and politically road-blocking fact about free-market medicine: The left strongly opposes it. The left likes the idea of national health insurance–as insurance. As in somebody else pays; as in we are, in fact, our brother’s keeper.

So for reasons of compassion–some might say paternalism–the left strongly supports collective social insurance, not individual consumer sovereignty. Indeed, the pro-health insurance forces, standing on just that platform, won a rather big national election last year.

Moreover, the public seems supportive of even further health insurance expansion. A survey taken for the Robert Wood Johnson Foundation, the Harvard School of Public Health, and the Kaiser Family Foundation found that a modest majority of Americans wish to see Medicaid expanded, as the 2010 Affordable Care Act–aka Obamacare–seeks to do. Indeed, by a much larger margin, Americans want to see Medicare stay exactly the way it is now.

In other words, the political left has a dilemma all its own. For a century, it has sought to expand health insurance, bringing with it all the moral hazards of third-party-payment. And now, realizing that it has built a cost-machine–although a very popular cost-machine–the left, particularly of the Brill-ish debunking wing, is now seeking to publicize, and then regulate, its costs downward.

Some on the progressive side, of course, seek to go all the way to a UK-style “single payer” system, on the theory that only a bureaucratic monolith can hold prices down. And perhaps, solely in terms of flattening the cost curve, they have a point–although Medicare, to be sure, is a kind of single payer, and it costs plenty.

However, single payer is not in the cards, because most Democratic elected officials can readily see that the prospect of the full socialization of national healthcare would ignite a majority-killing Tea Party 2.0–and then some.

So absent some sudden lurch to the far left, today’s left is stuck with the policy equivalent of Dr. Dolittle’s pushmi-pullyu, the two-headed beast looking, and moving, in both directions. On the push side, the progressive project of providing ever more health insurance keeps pushing, while on the pull side, the resulting spiral of third-party facilitated healthcare costs keeps pulling.

We might also note an additional political consideration that’s more important to the left than to the right: In creating that vast and byzantine network of healthcare providers that rely on the government for much or all of their funding, the left has created a constituency within itself that openly, and effectively, argues for still greater spending. After all, someone’s spending is someone else’s job or income.

Those jobs from healthcare, we might note, are often numerous and working-class, as in the 2.1 million members of the Service Employees International Union, many of whom work in hospitals. Indeed, total employment in the US healthcare sector is some 13 million; that’s a big bloc of votes, and thus a big obstacle to any kind of reformist cost-change in the system.

In addition, many of the incomes derived from healthcare are distinctly upper-bracket. In this upper-bracket category we might think of, for example, Dr. Salomon Melgen of Florida, the Medicare/Medicaid tycoon who became good friends with Sen. Robert Menendez, Democrat of New Jersey. Many of the media allegations against Melgen and Menendez remain unproven, but it is inarguably true that Melgen made enough money from his string of Florida eye clinics to fly Menendez on his private jet to and from his plush condo in the Dominican Republic. In addition, Melgen has contributed $1.1 million to political candidates–mostly Democrats–over the last decade, and still has had another $68 million to lose on various failed investments. There’s a lot of money to be made in healthcare, and both parties are often receptive to the entreaties of those with a lot of money.

In other words, if leaders in the Democratic and Republican parties have to choose, between muckrakers such as Brill and muck-makers such as Melgen, they often prefer Melgen. Brill may be good for the soul, especially the liberal soul, but Melgen is better for the re-election campaign–and maybe a free trip to the DR in between.

Moreover, if the history of political and economic reform in a pluralistic system is any indicator, the Melgen class will likely have most of its employees and patients on their side in any big fight. Why? Because for employees and patients, the plump bird in the hand is worth more than the mysterious reform-birds in the bush.

So let’s agree, for the sake of non-argument, that every item in the Brill piece is true. And that his Time cover story, and all its outrageous and over-the-top anecdotes, will become a permanent part of the healthcare discussion–even if that renewed discussion is unlikely to yield up any sort of breakthrough.

Still, there’s something missing from Brill’s argument: Yes, the cost curve is important, but the life curve is important, too. The price of healthcare is significant, and yet the value of health itself is even more significant.

Let’s return, for example, to the story of Steven D., the lung cancer victim. One bottom line of that case, as Brill emphasizes, is that his family got stuck with a huge hospital bill, although, in the end, the family paid only $3000.

Yet there’s another bottom line to the Steven D. story: The man died.

The death of Steven D. ought to be of interest to the elite, too, alongside the cost of his care. And the moment that the elite class shows as much concern about the life of the average of American as it does about the cost of his or her healthcare, then the path will open up for a genuine reform that saves lives, as well as money.

Next: The Supply-Side Strategy: Saving Money by Saving Lives.

James P. Pinkerton is a contributor to the Fox News Channel and a TAC contributing editor. Follow him on Twitter.