Proposed Healthcare Surgery Won’t Heal America

By Ron Robins, Founder & Analyst, Investing for the Soul

Blog Enlightened Economics; twitter

First published May 18, 2011, in his weekly economics and finance column at
alrroya.com

Yes, surgery is required for the US government’s Medicare (healthcare) program. But
before the scalpel is used to control unsustainable costs, an understanding of what
promoted the financial disease is required. Unfortunately, that understanding is
almost totally missing in the American debate. The Medicare changes proposed so far
will not heal America.

In "Short Term Gain, Long Term Pain", I wrote “unacknowledged as key causes of
most developed countries’ growing and unsustainable debt is their citizens’ lack of
happiness and well being. This induces people to seek immediate comfort in material
goods, drugs, and activities and lifestyles that eventually cause them, and their
societies, great harm, ill health, and massive debt!” Additionally, consider the
immense psychological distress and impact on individual lifestyle and chronic
diseases when about half of all American marriages end in divorce and 29 per cent of
all children live in single parent ‘families.’

Hence, for many tens of millions of Americans, this lack of happiness and well being
inflicts significant psychosomatic (mind/body) based illnesses, accounting for 70 per
cent or more of costly chronic lifestyle-based diseases.

Supporting the view concerning the negative effects of lifestyle-based diseases is

Mark Bittman, writing in the New York Times on April 12. He said that, “for the first
time in history, lifestyle diseases like diabetes, heart disease, some cancers and
others kill more people than communicable ones. Treating these diseases—and futile
attempts to ‘cure’ them—costs a fortune, more than one-seventh of our GDP… But
they’re preventable, and you prevent them the same way you cause them: lifestyle.
A sane diet, along with exercise, meditation and intangibles like love prevent and
even reverse disease… ”

Mr. Bittman also quotes Dr. David Ludwig, a Harvard-affiliated paediatrician and the
author of Ending the Food Fight, who says, “the magnitude of the [US government]
deficit is small when you consider costs of nutrition-related disease; the $4 trillion
that the Republicans want cut over a decade is about the same as the projected
costs of diabetes over that same period.”

Hence, it is clear that what should be done is to put resources into proven cost-
effective programs that promote improved psychological health and lifestyles.
Unfortunately, the US Congress is probably too psychologically unstable to seriously
consider incorporating such programs! Instead it will probably resort to changes in
Medicare that mostly attempt to limit healthcare costs. However, changes to
Medicare are unlikely to happen until after the 2012 Presidential elections unless
Congressional action comes sooner due to a collapsing US dollar and/or bond
market, or a miraculous bi-partisan bill that both Democrats and Republicans agree
on.
The starting point in this debate is that the US is dealing with potentially mammoth
unfunded Medicare liabilities of up to $125tn. over the infinite horizon, according to
Boston University’s professor of economics, Laurence J. Kotlikoff. Funding that would
require all 309 million Americans to each write a cheque to the US treasury for
$405,000! Clearly, that is not about to happen.

President Obama revisited the Medicare cost debate on April 13, by saying the
following: “Already, the reforms [to Medicare]… will reduce our deficit by $1tn… We
will cut spending on prescription drugs by using Medicare’s purchasing power… We
will change the way we pay for healthcare… with new incentives for doctors and
hospitals to prevent injuries and improve results... we will slow… Medicare costs by
strengthening an independent commission of doctors, nurses, medical experts and
consumers who will look at all evidence and recommend the best ways to reduce
unnecessary spending…"

“… the reforms we’ve proposed… [are] saving us $500 billion by 2023, and an
additional $1tn in the decade after that… [and] I will not allow Medicare to become a
voucher program that leaves seniors at the mercy of the insurance industry…” A
‘voucher’ program is at the heart of proposed Medicare reform by US House Budget
Committee’s Chairman Paul Ryan. It is also favoured by Professor Kotlikoff.

Commenting on April 14, a CNN post on President Obama’s Medicare reform

proposals and those of Mr. Ryan, Professor Kotlikoff made the following remarks:
“This is simply a continuation of kick-the-can down the road, which leaves ever
larger government bills for our kids to pay… Obama's speech made no effort to find
common ground with House Budget Chairman Paul Ryan's plan to address Medicare…
”

Professor Kotlikoff also writes about his own plan, The Purple Health Plan (PHP),
which shares many similarities with Mr. Ryan’s proposal. “The [PHP]… provides all
Americans with vouchers each year to purchase a basic healthcare policy. Those with
bad genes or bad luck receive larger vouchers. The vouchers are paid for by our
taxes. We pay for a basic health plan of our choosing solely with the voucher.
Insurance providers of the basic plan can't turn us down… [spending is fixed at] 10
per cent of GDP… [the plan] also offer[s] participants financial incentives to lower
their weight, stop smoking, take their meds, and otherwise improve their health.”

Professor Kotlikoff’s PHP is partly based on the healthcare systems of Germany, The
Netherlands, Switzerland and Israel, who the OECD ranks as having some of the
most cost-efficient and effective healthcare systems. American per capita healthcare
spending is around 50 per cent greater than in those countries, yet with frequently
poorer outcomes. The PHP has great credentials, being supported by five Nobel
Economics’ Laureates: George Akerlof, Edmund Phelps, Thomas Schelling, William
Sharpe and Vernon L. Smith.

Surgery to America’s healthcare system, Medicare, is coming around again. The

changes that eventually gather the most support may well centre around Professor
Kotlikoff’s PHP, utilising a voucher system and limiting government spending. His
plan also incorporates some financial incentives to promote improved health. But the
PHP, as with any of the other plans being proposed, need to include a major
emphasis on psychological health too. Without such an emphasis, the proposed
changes to Medicare will not solve the massive problem of psychosomatically induced
diseases—which are the bulk of chronic health problems and with which are
associated most of the huge mounting costs.

Thus, none of the proposed changes to Medicare offered as yet by President Obama,
US House Budget Chairman Paul Ryan, or by Professor Kotlikoff, will really heal
America.

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