What Is the Government’s Role in US Health Care?

Healthcare will grab more and more headlines in the U.S. in the coming months. Any service that is on track to consume 40 percent of the gross national product of the world’s largest economy by the year 2050 will be hard to ignore. Business management already feels the effects of healthcare costs more acutely than most consumers. Several recent studies and proposals shed light on the problem and possible solutions. They leave us with questions, too.

To put things in perspective, U.S. healthcare currently costs about $2 trillion per year. Of this, more than $600 billion (31 percent) is never seen by recipients. It goes for administration. On a per capita basis, it is roughly $280 billion more than is spent for administration in the other twenty-one countries whose life expectancies exceed those in the U.S., all of whom have some form of taxpayer-financed, single-payer system, the kind that used to be referred to by detractors as “socialized medicine.” Worse yet, the current system leaves more than 40 million Americans without health insurance. Because many are not employed or have very low incomes, programs that provide incentives through employers and tax relief don’t help them. With this much room for possible improvement, the incentives should be sufficient to foster changes in behavior.

A recent McKinsey study estimates that more than half of the $98 billion of excess administrative costs it identified goes for insurance company marketing and underwriting. Its estimate does not include the costs of sorting out acceptable applicants or denying payments under existing policies, another substantial amount. And it does not include the costs that doctors and hospitals incur in denying applications for payment, often in the form of payments to consultants who specialize in this kind of responsibility-shifting activity. By contrast, McKinsey estimates that it would cost “only” $77 billion per year (or about $1,900 per person) to provide healthcare to all of America’s uninsured. If made available along with consumer education, others have suggested that all of this amount could be recouped eventually through the elimination of healthcare expenses incurred by those unable to pay now.

Now comes Robert Frank, a Cornell economist, who has proposed ways of overcoming opposition to some kind of government- (and therefore taxpayer-) funded solution to the problem. He has put his finger on the two main obstacles to major change in the current system, insurance company opposition and higher taxes. He suggests that insurance companies, who have acted in good faith to respond to incentives provided by the market, could be subsidized for their losses while their managements shift their health insurance strategies, perhaps to provide only supplemental private coverage. A portion of the $280 billion in annual savings suggested above could be used for this purpose. He proposes that the other obstacle, higher taxes, could be overcome through an effort to educate the public about the long-term economic benefits of such a move. How his proposal would fare in the face of previous failures is a real question.

Given their magnitude, failure to solve these problems in the U.S. could have global economic impact. But are we addressing them with the creativity they deserve? For example, to combat opposition to a tax increase, could tax credits for later use (when savings kick in) be issued to individuals and businesses in the amounts by which their taxes are increased? To provide universal insurance, could the government provide vouchers (along with consumer-oriented education) to all uninsured to be used at their discretion for their own care? In other words, could a consumer-driven solution be combined with a single-payer system? What can the U.S. learn from other countries in the delivery of high-quality healthcare? What is the government’s role in U.S. healthcare? What do you think?

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