In our Non-Partisan Why It’s Good the Senate Healthcare Bill is Dead we identified the problem with healthcare in the US:
“The primary problem is that healthcare is too expensive on both a per patient basis and for the entire economy. To define this more clearly, it is costing the US economy enormously and it is too expensive for many if not most Americans. These are not partisan political statements, they are facts.”
Top Costs Review
Following is the list of the top contributors to the problem:
- Aging Population
- End of Life Care
- Administrative expenses
- Unhealthy behaviors
- Chronic conditions
- Malpractice Insurance, Defensive Medicine, and a 3rd Party System
- Increased utilization
(See prior Apache Health article if want quantification of these costs)
We will now in a series of articles go down the list and identify what we believe are the best solutions available to solve each of the problems listed that are the top contributors to the cost of healthcare in the United States.
This is what the population histogram looked like for the United States circa 1960. There are dramatically more people that are younger than older. This means that relatively few older people were supported financially by a large and broad population of younger workers contributing to healthcare costs (and per capita costs on a inflation adjusted basis were dramatically less).
This is the pyramid that Johnson in the 1960s knew when he signed Medicare into law.
This is what the population histogram looks like currently and it is not expected to improve significantly by 2050.
Older people require more healthcare
As people age they require more healthcare on a per capita basis and the percent of society that is older is increasing as baby boomers retire and people have less children. The shape of the pyramid of age in our society looks less like a wide pyramid and increasingly like a tower. There is a significant societal cost implication to this.
The per capita cost of healthcare is about $20,000 per person per year for those over age 65, which is three times (3x) the cost of working individuals aged 18 to 64 (about $6,500) according to CMS in 20121. The oldest Americans that are 80+ and 90+ are on average even more expensive and their populations on a percentage basis are growing at the fastest rate.
Medicare will be insolvent meaning the trust will be out of money by 2028, which is only 11 years away according to a 2016 Medicare Trustees report; while the 2016 CBO estimate of insolvency puts it at 2026. It makes little difference whether it is 2026 or even 2030, there is widespread consensus from all areas of the political spectrum that it is going insolvent and the problem will exacerbate significantly after that point.
In order to improve the ratio of lower cost workers to higher cost retiree or working elderly, the US can either increase the birth rate, have a net inflow of immigrants, or reduce the costs of the healthcare received by the elderly. Living longer is great individually and increases population, however it exacerbates the problem of Medicare insolvency. Reducing costs is also complex, but we will tackle in subsequent articles some potential solutions. The birth rate in the US has consistently declined over time and this is consistent with what is generally seen in developed countries as they mature. The CBO projects 1.9 births per woman for the next 30yrs, which is not enough to sustain its current population much less grow. We are not aware of a quick solution to this problem, politically palatable or otherwise. Within the US population immigrants and children of immigrants have higher birth rates, so with a slowdown in immigration would come a double whammy of declining fertility and the population would likely shrink. Japan is facing a crisis due to its increasing older population.
Much of the political debate has revolved around undocumented and illegal immigrants. We take no political position and are not advocating for illegal immigration policy in any way. This article is only to discuss legal immigration.
There is widespread bi-partisan support among economists that immigration is good (1,470 of the top economists including 4 of the last 5 Nobel Laureates and the Dean of my alma mater Columbia Business School – Glenn Hubbard who was the Chairman of the Council of Economic Advisors for George W. Bush) sent a letter supporting immigration and calling immigration “one of America’s significant competitive advantages in the global economy”.2 However, there is little consensus on how much immigration should be, who are the winners and losers, is this “fair”, and so on.
Trump has recently announced a cut in immigration from approximately 1,000,000 to as little as 500,000. This is a mistake. Under CBO projections in 2016, it expects 3.2 to 3.3 immigrants per thousand people per year through 2047. If the White House proposal were enacted this would cut dramatically projections of the CBO and move the insolvency date up for Medicare and exacerbate the deficit dramatically post-insolvency.
Immigration Benefits Medicare
One of the key claims often made about immigrants is that they do not contribute their fair share. With respect to the Medicare program at least that is incorrect. In fact, immigrants are massive net contributors to the Medicare fund. A Harvard study released in 2013 showed that immigrants contributed a net $115 billion from 2002 to 2009 into the Medicare fund, which means they paid dramatically more into the fund than immigrants took out in the form of healthcare.3
This is in small part because immigrants tend to be younger than US residents (13% over 65 compared to about 15% currently and 20%+ over 65 expected by 2030). However, it is predominantly because immigrants consume less healthcare than their comparably aged US peers. According to a 2005 study “immigrants utilize 55% less health care than U.S.-born residents ($1,139 vs. $2,546 per capita).”4 The data referenced is almost 20yrs old, but the ratio is likely to hold and is clear that the foundation is accurate as shown in the 2013 Harvard study.
We are not interested in a discussion of the impacts on society of increased immigration, who would be the winners and losers, and what if anything could be done to deal with the potential issues associated with increased immigration – that strays too much into politics.
If you want more people to pay for the healthcare system, let more immigrants in. There are not a lot of other solutions to the aging population problem.
What do you think?
About Apache Health
Apache Health is a revenue cycle management (RCM) analytics, benchmarking, and auditing company. The founders of Apache formerly ran a large RCM company that was acquired by a private equity group in a rollup. Apache’s predictive analytics will benchmark billing performance and project exactly how much more revenue you should earn from your existing volume of patients. Using many factors and a blend of artificial intelligence and specialty specific benchmarks, the model projects whether changing the billing process would improve collections for your particular mix of procedures and payers. Apache Health can help you evaluate whether to outsource the billing, determine which billing company to select to maximize performance, or track in-house billing performance improvement over time. For more information contact:
4Sarita A. Mohanty, Steffie Woolhandler, David U. Himmelstein, Susmita Pati, Olveen Carrasquillo, and David H. Bor. “Health Care Expenditures of Immigrants in the United States: A Nationally Representative
Analysis.” American Journal of Public Health 2005