Berlin, March 13, 2008 – By bringing 600 government and industry leaders together from more than 50 countries, the “World Health Care Congress Europe” (WHCCE), which began Monday, offered a splendid window on the wide variety of solutions that countries around the world are using as they struggle toward health care reform. One constant theme of the conference: “No One Thing Works.”
When the three-day conference ended yesterday, it also was apparent that developed countries share many of the same problems. One that stands out is the fact that our populations are aging. Each country faces the same question: how will a shrinking workforce possibly pay for the medicine their nations’ retirees will need?
This brings me to Princeton economist Uwe Reinhardt’s speech on the very first day of the conference. The only American to speak at WHCCE, Reinhardt focused on what he called “the folklore that people bring to the health care policy table.” By nature an iconoclast, Reinhardt spent the next 20 minutes shattering some of the myths that have become part of the received wisdom among policy-makers.
Begin with the notion that an aging population is a major factor driving health care inflation. In the U.S. this is accepted as a justification for why the nation’s health care bill now equals more than $2 trillion dollars—and why we must expect it to climb ever higher.
Bad news is often more gripping than good news, and “if you want to be a popular speaker you need to feed the paranoia of your audience,” Reinhardt observed, pointing to the first slide of his Power Point presentation—a chart illustrating just how quickly we can expect a horde of wrinkly boomers to take over the nation. Some stooped and shriveled, others proudly bloated, these former members of the Pepsi generation will be far more demanding, we’re told, than the World War II veterans who preceded them.
A second slide is even more distressing, revealing that health care
spending on patients over 75 averages about five time what we spend on
Yet the next graph that Reinhardt offers is a little puzzling.
Here, we see that the U.S. spends close to $7,000 per person on
care—even though its population is younger than the citizens of most
developed countries, including Germany, Italy and Japan. (Because of a
slightly higher fertility rate and an annual intake of 900,000 legal
immigrants, the median age in the U.S. will rise
just three years, to 39, over the next quarter-century, before the
aging of America really starts to accelerate). Meanwhile, Japan’s
population has been graying for some time, yet it spends only $1,000
per person. Could eating fish really make that much difference?
Reinhardt’s next graph provides the explanation.
It turns out that when you look at estimates of growth in health care
spending from 1990 to 2030, a senescent citizenry plays only a minor
role in the projected jump from $585 billion (what we laid out for
health care in 1990) to $14,026 billion (what analysts say we’ll ante up
in 2030, assuming we continue in our profligate ways).
What will be the biggest factor pushing the tab so much higher?
Innovation. “The health care industry will continue developing new
stuff for every age group,” Reinhardt explains. Will that “new
stuff”—in the form of new drugs, devices, tests and procedures—be worth it?
Some of it will be. Some won’t. Indeed as this article from Health Affairs
reveals, over the past twelve years, rising spending on new medical
technologies designed to address heart disease has not meant that more
patients survived. In many areas, we seem to have reached a point of
diminishing returns. This also is true in the drug industry, where most
new entries are “me too drugs”—little different from products already
on the market.
As I have often discussed on this blog, it is usually suppliers, not
“patient demand,” that drives health care inflation. The big ticket
items are not the ones patients ask for; they’re the ones companies
advertise—or that doctors and hospitals tell us we need. Few
chronically ill patients ask to be hospitalized; not many cry out for
dialysis, or the chance to spend thousands on cancer drugs; it’s the
rare person who asks if he can die in an ICU.
“In truth, the aging of the population is not a big problem,” Reinhardt
says. We really don’t have to worry about greedy geezers suddenly
clamoring for more care than we can afford. For one, they won’t grow
old all at once. They’ll grow old just as they were born—over a period
of many years.
As Reinhardt mentioned earlier, a speaker who wants to grab his
audience’s attention may well scale a chart so that the demographic
change looks like a wave that could wipe us out—but the truth is much
This doesn’t mean that health care spending won’t continue to levitate.
“But what will drive costs in coming years, will come, not from the
demand side of the equation, but from the supply side,” says Reinhardt,
repeating his theme. We can be certain that, without some significant
reforms, suppliers will continue to invent new products for every age
group, charging us more and selling us more –using whatever methods it
takes, from direct-to–consumer advertising to promises of near
immortality and perpetual youth (just as 120 can be the new 80, 55 can
be the new 35!)—if we just swallow enough pills and replace enough body
parts. (Of course remembering to swallow the pills could become a
problem around 101, but that’s another post).
Moreover, health care is labor intensive—and by 2070, the number of
U.S. workers per Medicare beneficiary will have dropped from 3.4 (in
2000) to 1.9. We are already experiencing a shortage of registered
nurses—which has helped raise wages. “Today a RN in California often
makes more than a pediatrician,” Reinhardt notes. (Though this says
more about how niggardly we are when paying our pediatricians than how
extravagant we are when paying nurses. See this post on physician’s pay).
Looking ahead, we’ll probably need 50 percent more nurses than we employed in 2000. Given the laws of supply and demand, this all
but ensures that nurses’ wages will continue to rise.
So between the endless inventiveness of those who would
over-medicate us to the unavoidable costs of a labor-intensive industry
in an aging society, it is the supply side of medicine that is likely
to push prices higher. This, says Reinhardt, is what policy-makers
should be thinking about.
But, he emphasizes, it doesn’t have to happen. “If we begin to purge
our health care system of Waste, Fraud and Abuse,” we could save
billions Reinhardt notes. And when it comes to caring for the elderly,
he suggests, “if we develop health care information technology, we could
use it to monitor seniors in their homes—instead of in nursing homes.”
This is just one example of how the U.S. could bring costs down on the
supply side. In addition, Medicare could use its clout to negotiate for
lower drug and device prices—just as other nations do. We could become
more discriminating about what we buy from the health care industry’s
suppliers—insisting on independent medical evidence that the new
product or service really is worth the higher price. And patients could
refuse to sign on for an elective procedure like knee replacement or
prostate surgery unless they are given a chance to share in weighing
risks against benefits. (See my post on “informed choice”).
Finally, Sweden offers proof that an aging population doesn’t have to
spell financial disaster. The second day of the conference I
interviewed Mona Heurgren, an economist at Sweden’s National Board of
Health and Welfare, and she pointed out that “while we have the oldest
population in the EU, our health care costs haven’t been rising. Over
the last 15 years or so, the share of our citizens who are older has
been growing, yet health care spending has stayed level at about 9
percent of GDP.”
How has Sweden managed the buck the trend? For one, 95 percent of the
country’s hospitals and doctors use electronic medical records which
guarantee many fewer errors, and much greater efficiency. (As of three
years ago, only 15 to 20 percent of U.S doctors’ offices and 20 to 25
percent of U.S. hospitals had implemented electronic medical records,
and adoption continues to move slowly as we try to decide who should
pay for health care IT).
Moreover, in Sweden, preventive care is free. So no one is tempted to
skip a needed Pap Smear. Diabetics go for their eye check-ups. In the
U.S., by contrast, many 50-something patients put off care that they
can’t afford, waiting until they reach the magic age of 65, and qualify
for Medicare. At that point, the catch-up care they need can be very
expensive and in some cases, their health has been permanently damaged.
Finally, in Sweden, long-term care is included in the national
health care package, which is financed almost entirely through income
taxes. Heurgren estimates that the share of a family’s taxes that is
used to fund health care equals roughly 10 percent of the average
household’s income. This is roughly what a median- income family in the
U.S. lays out for health insurance—if it is lucky enough to have an
employer able and willing to pay slightly more than 50 percent of the
family’s health care premiums. (Comprehensive insurance for a family
now fetches close to $13,000; if the employer pays $7,000 that leaves a
family earning $60,000 with premiums of $6,000. Of course, in the U.S.
that family also would face co-pays and deductibles, making health care
more expensive, as a percentage of gross income, than in Sweden).
But as Heurgren puts it, with a modest shrug, “we’re just a small
country in the North.” She is suggesting that Sweden is too small to
serve as a model for larger nations. It is easer, in many ways, for Sweden
to manage the challenges of 21st century medicine in a country where
most people are middle-class, and social solidarity is part of the
In future posts, I’ll write more about how solidarity may be the critical key to health care reform.