Now expensive U.S. Healthcare is also inefficient?

Two days ago a report from Commonwealth Fund came out comparing healthcare in five developed countries: United States, Germany, Britain, Australia and Canada. And the conclusion: “The U.S. health care system ranks last compared with five other nations on measures of quality, access, efficiency, equity, and outcomes.”

It is well-known that we have the most expensive healthcare in the world. And many people are proud of the fact that the U.S. has the most vigilant and productive market for biomedical research and pharmaceutical companies. I even read about envious comments on U.S. healthcare industry from a British economist on The Economist. However, it is undeniable that the paid price might be too high: we have fast growing insurance premiums; about 1/6 of total population is uninsured mostly because of affordability; need to pay the most for prescription drugs compared with everywhere else in the world…

How much more do we pay for health care compared to other countries? “Per-capita health spending in the United States in 2004 was $6,102, twice that of Germany, which spent $3,005. Canada spent $3,165, New Zealand $2,083 and Australia $2,876, while Britain spent $2,546 per person.” $6000 annual expense per-capita is a lot of money. For a family of four, that’s $24,000 per year. Twice that of other rich countries is simply too much, not a good buy!

However, U.S. healthcare providers are usually very proud of themselves for being the best in the world. Medical students have been trained to give patients the best care possible regardless of the cost, and we also know very well that how long (months and years) patients need to wait inline to have a non-emergent medical procedure done in UK and Canada. We actually read some similar stories on HMO or Medicare patients in the U.S.

Now why is U.S. healthcare also inefficient? Let’s take a look at the primary measures: infant mortality and healthy lives at age 60. Given the high prevalence of obesity and diabetes, I can understand why the U.S. did not do well in the later measure. However this is hardly the responsibility of the healthcare system alone, given the powerful commercials from fast food chains targeting our young children. Another convenience measure is also understandably low for the U.S. healthcare system: emergency room waiting time. If you have 1/6 uninsured people who on average need more serious interventions and only get medical care in various emergency departments of hospitals, how fast can you expect patients turned around there?

“The area where the U.S. health care system performs best is preventive care, an area that has been monitored closely for over a decade by managed care plans,” I am rather surprised by this measure. Vaccines in U.S. are usually expensive and not covered by health insurance. In fact, there are many such examples that private insurance companies put their short-term profitability above long-term societal values, which in the end, leads to higher medical cost for everyone.

In the end, I think that we are indeed paying too much for healthcare. Ethically and economically speaking, we should have a national program to cover uninsured 45 million people and free ERs from providing the care though expensive, but usually very late. Educating people to have a healthy life-style is at least as important as medical technology to reverse the increasing prevalence of chronic disease such as obesity, diabetes and heart disease.

How much do we need for healthcare after retirement?

Healthy fully-employed young professionals may not pay much attention to healthcare cost. However, that will be an expensive part of retirement savings. Fidelity Investments have released its annual study for retiree healthcare cost for seven years. It is reported that “a 65-year-old couple retiring this year needing about $215,000 to cover medical costs after they stop working”. I remember some young people were arguing if 1 million dollars are enough in 30 years for retirement. This report certainly shed a light on the answer: you will need $521,861.43 in 30 years assuming healthcare cost increases at a historical annual inflation rate of 3%; $1,270,281.51 in 30 years if healthcare cost increases at an average of 6.1% annual rate as in the last seven years.

And the scary part is the conservative assumptions of Fidelity’s estimate. It’s not all healthcare cost.
1. It doesn’t include over-the-counter medications, most dental services and long-term care;
2. It assumes retirees have no employer-provided health care coverage;
3. It projects life expectancies of 82 for men and 85 for women.

People may wonder if we can get employer-provided health care coverage after retirement in 30 years. Let’s look at this trend identified by the same study: “between 1988 and 2006, the share of large employers offering retiree health benefits declined to 35 percent from 66 percent. Employers also have shifted more of the costs to retirees through higher premium contributions and higher cost-sharing requirements.” It does not look like that most of us can get it!

Fidelity actually has a breakdown of annual medical expenses.

Type of Expense Annual Cost Monthly Cost
Medicare A Premium $0 $0
Medicare A Deductible $231 $19
Medicare A Co-Pay $51 $4
Medicare A Skilled Care $77 $6
Medicare B Premium $1062 $89
Medicare B Deductible $83 $7
Medicare B Co-Pay $902 $75
Other misc. $293 $24
Dental/Vision/Hearing $388 $32
Medicare Supplement (Medigap) F2 $2,244 $187
Prescriptions (Medicare Part D)3 $1,300 $108
Total: $6,631 $551

Are you ready?