Americans Waste One-Third Of All The Money Spent On Health Care Incredible but true. Fixing Obamacare will not solve any of the problems due to over spending

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By Paolo von Schirach

March 2, 2014

WASHINGTON – The Obamacare fiasco, or at least semi-fiasco, continues to generate media attention. From a political standpoint, the Republicans intend to make the mess caused by the faulty roll out of this bad legislation a major issue in the upcoming mid-term congressional elections.

Bigger issues

That said, the heated debates about what Obamacare is doing or not doing unfortunately obscures the bigger reality of the structural deficiencies of the entire US health care sector. The Obamacare critics would like you to believe that things were just about OK until President Obama and his leftwing technocrats started messing with it. Just repeal the Affordable Care Act and all will be well. Not so. Not so.

Enormous waste

The US health care system was in deep crisis before this reform effort, and it will continue to be in a crisis, even assuming the (unlikely) repeal of Obamacare.

How bad a crisis? Read this, from a piece by Dr. Martin Makary published in TIME magazine, (The Cost of Chasing Cancer, March 10, 2014):

“A 2012 Institute of Medicine report concludes that Americans spend as much as one-third of their health care dollars on tests, medicine, procedures and administrative burdens that do not improve health outcomes”.

Health care waste up to 5% of US GDP

Got that? Up to one-third of all our national health care spending is wasted. Now, if you consider that health care spending is beyond 17% of GDP, the waste (about 5% of GDP) amounts to more than the entire Pentagon budget. Yes, as bad as that. But nobody wants to discuss this. May be because the problem is too big? Who knows.

Perverse incentives

But why are we in this mess? The health care crisis is largely due to perverse incentives that are not that difficult to understand. For starters, most US doctors are in private practice. And this means that they make money only if you, the patient, come and see them. And you will do so only when you are sick. And here is a key problem.

US doctors have no economic interest in encouraging healthy life style habits –beginning with good nutrition and regular exercise– in the same way as your auto mechanic has no interest in teaching you smart ways to prevent damages to your car engine. Indeed, just as your auto mechanic makes money only when your car breaks down, your doctor makes money only when you are sick. This may sound a bit simplistic, but it is so. If everybody is healthy, doctors make no money.

Insurance will pay

And there is more. Unlike your auto mechanic, your doctor knows that you (or at least most people) have medical insurance. This means that you pay only a small portion of his bill. And this creates a powerful (and truly perverse) incentive to make the bill as large as possible.

And in medicine it is hard to determine in a conclusive way “how much is enough” when it comes to testing, diagnostics, treatments and surgeries. Therefore, as there is no real standard, let’s err on the side of caution. Let’s do “more” rather than “less”. In any event, the patient does not pay, and so he or she is not going to resist more treatment. And this explains how we get to wasting so much money: hundreds of thousands if not millions of unnecessary procedures and therapies that add no value.

Administrative costs

Add to this disaster antiquated record keeping and billing systems and you see how we get to wasting one third of all the money we spend on health care. True enough, Obamacare made this mess possibly worse. But repealing it would be no solution.

As difficult as this is, it is time to modernize the entire US health care system.

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