Health Care Economics 101: What progressives need to know

Dr. Michael Fine

We spend about $3.2 trillion dollars a year on healthcare in the US; and about $12 billion in Rhode Island. (The last good estimate was $8.7 billion, in 2009. About $12 billion is the number you get after adjusting for health care cost inflation, which has been running 6-10 percent per year for the last thirty or so years.)

Of that, 64 percent of US total health care expenditure, or about $2 trillion dollars, are public funds raised from taxation, and about $3 billion of the Rhode Island expenditures are public funds, raised from state taxes.

Between 30 and 50 percent of all health care expenditures are unnecessary, fraudulently obtained, dangerous or harmful. (The 30 percent number comes from analyzing existing healthcare expenditures in the US. The 50 percent number comes from comparing the US to other industrialized nations, which spend half of what we spend on health care and get much better public health outcomes.)

That means the nation is wasting $1-1.5 trillion a year, and the state is wasting $4-6 billion a year in total. Of that, $600 billion to $1 trillion of the wasted funds are federal tax revenues; and $900 million to $1.5 billion are wasted Rhode Island tax funds. (For context, the Federal Government spends about $4 trillion dollars a year; and the state budget is about $9 billion a year, which means a quarter to a half of all public spending is being wasted or is unnecessary. But it is worse than that when you sit and think about it: Unnecessary spending is really income or profit for people who see goods and services. Which means a whole lot of profiteers are stealing a whole lot of money from the public pocketbook and from the rest of us all at the same time.)

Who are those profiteers? Insurance company executives. Hospital executives, many of whom work for non-profits but still manage to make hundreds of thousands—or millions of dollars a year. Pharmaceutical company executives. Specialists — ophthalmologists, orthopedists, radiologists and the like, most of whom make $400,000 a year or more – and some of whom make millions of dollars a year, in a profession that claims to be about doing good for humanity. Corporate shareholders. Venture capitalists. A host of consultants and lobbyists, who make sure that the deck is stacked against ordinary Americans and for corporations that make money from medical care.

We spend about $10,000 per person per year, which is about twice what the average of other industrialized countries spend but our life expectancy and infant mortality rates rank us between 37th and 58th in the world. Of that money, 10-20 percent, or $1000 to $2000 per person per year, stays with the insurance company, for administrative cost, marketing, investment and profit. For context, we spend about 5 percent, or about $500 per person per year on primary care, on the medical practices and doctors and other clinicians who see when you are sick, fill out all your forms, do your physical examinations, and take your phone calls at 3 AM. But 50 percent of all the contact with Americans on any given day is contact one of us makes to a primary care clinician or practice. And the number of primary care clinicians in a state or region care turns out to be the only medical service that our science has ever shown makes a difference in terms of public health, in terms of how healthy the population is, and how affordable health care is.

(How market forces managed to displace and underfund the only medical service that is affordable and effective with lots of medical services that are expensive and ineffective or dangerous is another and different discussion. Not our proudest moment, as a nation.)

But wait, the story is more complicated when you look at other countries. If you look at the countries with great public health, with little infant mortality and long life expectancies, it runs out that many of them have much lower costs — $2500 to $4000 per person per year, compared to our $10,000. They do that by spending fifty percent of what they spend on primary care (which turns out to be $1000 to $1500 a year, or two to three times what we spend on primary care), so that everyone has a primary care doctor or other clinician to work with, in their own communities, often in their own neighborhoods. We have allowed a generation or two of health care profiteers to give us health insurance instead of the medical care that actually works, and we now confront a political morass involving lots of people who are draining the public pocketbook and stealing from the pay envelopes of every employed American, creating profit for themselves, all under the banner of health care, all while they claim to be working for the good of humanity.

But there is another important wrinkle. We are wasting all this money, but it also turns out that most of the medical care, which is what we are spending the money on, isn’t an effective way to improve the public’s health. Only about 10 percent of public health outcomes that matter – life expectancy and infant mortality – are improved by the medical care a population receives. It turns out that if we want to make our communities’ healthier, we need to spend money on education, housing, public transportation, community centers, public safety and the environment. Spending on some kinds of medical care – vaccinations, prenatal care, smoking cessation, the identification and treatment of high blood pressure and diabetes, for example — may improve the population’s health a little, but most population health improvement comes from spending on social services, spending we have not been able to do much of in the last 30 years because we spend so much on medical care. There is a real sense in which the cost of medical care is making health impossible, because medical care sucks up all public spending, and takes the money we didn’t waste and diverts that money from effective investments in health to useless spending on medicines and doctors that don’t accomplish much.

And health care cost inflation is an important part of the story of waste and of the way medical care is at war with health. As I mentioned earlier, health care costs increase 6 to 10 percent a year and have been increasing at that pace for the past 30 years. 6 to 10 percent is more than twice the rate of general inflation, which means more and more of the money working people earn goes to pay for health insurance and co-pays and deductibles, whether we like it or not. In 2003, health insurance and health costs represented 17 percent of the family income. Now health insurance and health costs represent 30 percent of family income. The best estimates suggest that in 2025, 50 percent of family income will go to health insurance and health care costs. And by 2031, the estimate is that we will be spending 100 percent of average income and costs, a clearly untenable situation – so it is very likely that the current system of health care distribution and financing will break apart by 2031.

Understood another way, health insurance has become a form of wage theft, and we have a wealth extraction system, not a healthcare system. Our culture has frightened and bullied people into buying health insurance, though the money they spend for insurance doesn’t have much impact on how long people live or on how healthy we are. Most of the money people spend on health care ( though their insurance) is unnecessary or wasted, but is profit for the health care profiteers – insurance companies, pharmaceutical manufacturers, hospitalists and specialists. None of us actually voted for that money to be removed from our paycheck, although more and more money comes out of our paychecks each year, because of medical care cost inflation. And what we don’t see and so never look at is how much money we would have made as raises and bonuses if our employers weren’t spending so much of the money we earned on medical care and health insurance we didn’t ask for, don’t want, isn’t helping us and is both unnecessary and wasted.

Regardless, all these numbers mean we need to rethink what we know about health insurance and health care reform and change our focus away from health insurance for all Americans. We need to provide primary care to all Rhode Islanders in their own communities, and use the money we save to rebuild those communities, so that we all do better together.

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Health Care Economics 101: What progressives need to know, 10.0 out of 10 based on 4 ratings

Michael Fine, MD is Health Policy Advisor to Mayor James Diossa of Central Falls, Rhode Island and Senior Population Health and Clinical Services Officer at Blackstone Valley Health Care, Inc. He is facilitating a partnership between the City and Blackstone to create the Central Falls Neighborhood Health Station, the US first attempt to build a population based primary care and public health collaboration that serves the entire population of a place. Dr. Fine served in the Cabinet of Governor Lincoln Chafee as Director of the Rhode Island Department of Health (HEALTH) from February of 2011 until March of 2015, overseeing a broad range of public health programs and services, overseeing 450 public health professionals and managing a budget of $110 million a year.
Dr. Fine’s career as both a family physician and manager in the field of healthcare has been devoted to healthcare reform and the care of underserved populations. Before his confirmation as Director of Health, Dr. Fine was the Medical Program Director at the Rhode Island Department of Corrections, overseeing a healthcare unit servicing nearly 20,000 people a year, with a staff of over 85 physicians, psychiatrists, mental health workers, nurses, and other health professionals. He was a founder and Managing Director of HealthAccessRI, the nation’s first statewide organization making prepaid, reduced fee-for-service primary care available to people without employer-provided health insurance.

Dr. Fine practiced for 16 years in urban Pawtucket, Rhode Island and rural Scituate, Rhode Island. He is the former Physician Operating Officer of Hillside Avenue Family and Community Medicine, the largest family practice in Rhode Island, and the former Physician-in-Chief of the Rhode Island and Miriam Hospitals’ Departments of Family and Community Medicine. He was co-chair of the Allied Advocacy Group for Integrated Primary Care. He convened and facilitated the Primary Care Leadership Council, a statewide organization that represented 75 percent of Rhode Island’s primary care physicians and practices. He currently serves on the Boards of Crossroads Rhode Island, the state’s largest service organization for the homeless, the Lown Institute, the George Wiley Center, and RICARES.
Dr. Fine founded the Scituate Health Alliance, a community-based, population-focused non-profit organization, which made Scituate the first community in the United States to provide primary medical and dental care to all town residents. Dr. Fine is a past President of the Rhode Island Academy of Family Physicians and was an Open Society Institute/George Soros Fellow in Medicine as a Profession from 2000 to 2002. He has served on a number of legislative committees for the Rhode Island General Assembly, has chaired the Primary Care Advisory Committee for the Rhode Island Department of Health, and sat on both the Urban Family Medicine Task Force of the American Academy of Family Physicians and the National Advisory Council to the National Health Services Corps.

7 responses to “Health Care Economics 101: What progressives need to know”

  1. Jonathan_Howard

    Every time I engage the health care “system,” I get more discouraged. All my experience of it aligns with Dr. Fine’s analysis, although I can’t step back far enough to see it as clearly as he does. But waiting for a financial collapse of the system in 2031 would be a 15-year disaster with a catastrophe at the end.

    What can we do in RI in the next year?

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  2. Johnnie

    “How market forces managed to displace and underfund the only medical service that is affordable and effective [primary care] with lots of medical services that are expensive and ineffective or dangerous is another and different discussion.”

    No, it’s not. It has to be part of any discussion or alternative to the current model, because what is most profitable is what has shaped the health care landscape and outcomes. Landmark in Woonsocket was privatized, and Memorial Hospital will not exist next year as it’s presently constituted. Why? They were losing money. It is also no coincidence that primary care physicians, most of whom truly want to practice medicine, are the lowest paid.

    Health care delivery and outcomes did not develop in a vacuum, but from economic and political structures. And you don’t need to practice medicine to understand just how dysfunctional the system is, and why. In Britain, doctors are rewarded for keeping people well — such as working with patients to lower their blood pressure. In the US, physicians are rewarded for people being sick — and lifelong passive health care “consumers” — who physicians pass around and teach that being well is something that is done to you and for which you have little to no responsibility. Patients receive little support and virtually no preventative education. Most of what physicians treat are easily preventable illnesses.

    “we need to rethink what we know about health insurance and health care reform and change our focus away from health insurance for all Americans. We need to provide primary care to all Rhode Islanders in their own communities”

    You say we should change our focus from health insurance for all Americans. Why, because you have said it? You never say what this community-based system would look like and who would pay for it. And what about specialists, labs, durable medical equipment, hospitalizations and other astronomical costs? You never speak to that. Health insurance is like home insurance, you spread the risk in case you need it. We still need an all-inclusive national single-payer health insurance system to not only provide guaranteed access to everyone, but to contain administrative costs and negotiate payments to health care providers.

    The current health care delivery system is not much different from the increasing parasitism and decay found throughout American society. To think that you can somehow separate it from what is happening to other institutions and economic structures is folly. It’s expand or die; eat or be eaten.

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  3. Nancy Green

    Electronic medical records and new communication, like texting, that could help doctors and nurses serve their patients better is being used to expand patient load, leaving us all as rushed and impersonal as before.

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    1. Johnnie

      @Nancy: Time is money! The real tragedy however is many of us embrace this technology as if it is something advanced. When we first received email service at work, co-workers would ask me to email them. I would say: You sit in back of me, all I have to do is stand up! What is wrong with you?

      Preventative health care is so out of whack that there are actual proposals to introduce statins into the public water supply. I assume the logic behind these proposals is that we will then be able to eat any toxic shit they put in front of us without consequences. God, help us!

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  4. Nancy Green

    I could use tech to improve my case management. If the system was patient-centered and nurse directed it could save on missed phone calls and redundant documentation. But when employers make new systems without nurse and patient input and expect us to see 3x as many patients there won’t be any real benefit. And you’re right, the idea of health care consumers is bizarre. I’m consuming lunch right now, but for health care I need expert and respectful help to stay well and treat illness when I get sick.

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  5. Nancy Green

    The advantage of email in an office is that when you forget what someone told you 5 minutes ago you don’t have to bug them to say it again, and when you have something to tell everyone you don’t have to stand up on your desk and holler.

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  6. Johnnie

    I hope I didn’t sound like some luddite. New technology is wonderful, but we have to ask who it serves. More often than not, it’s not the workers.

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