The Mythology of Boomers Bankrupting Our Healthcare System

Berlin, March 13, 2008 -- By bringing 600 government and industry leaders together from more than 50 countries, the "World Health Care Congress Europe" (WHCCE) last month offered a splendid window on the wide variety of solutions that countries around the world are using as they struggle toward healthcare reform. One constant theme of the conference: "No One Thing Works."

When the three-day conference ended, 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 work force 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 healthcare 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 policymakers.

Begin with the notion that an aging population is a major factor driving healthcare inflation. In the United States this is accepted as a justification for why the nation's healthcare bill now equals more than $2 trillion -- 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 PowerPoint 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 healthcare spending on patients over 75 averages about five times what we spend on 40-year-olds.




Yet the next graph that Reinhardt offers is a little puzzling.




Here, we see that the United States 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 United States will rise in 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 healthcare 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 healthcare 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 healthcare 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 12 years, rising spending on new medical technologies designed to address heart disease has not meant that more patients have 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, it is usually suppliers, not "patient demand," that drives healthcare 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 less sensational.




This doesn't mean that healthcare 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, healthcare 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 physicians' 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 overmedicate 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 policymakers should be thinking about.

But, he emphasizes, it doesn't have to happen. "If we begin to purge our healthcare 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 healthcare 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 United States 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 healthcare 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 healthcare costs haven't been rising. Over the last 15 years or so, the share of our citizens who are older has been growing, yet healthcare 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 fewer errors and much greater efficiency. (As of three years ago, only 15 percent to 20 percent of U.S doctors' offices and 20 percent 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 healthcare IT).

Moreover, in Sweden, preventive care is free. So no one is tempted to skip a needed Pap smear. Diabetics go for their eye checkups. In the United States, 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 healthcare package, which is financed almost entirely through income taxes. Heurgren estimates that the share of a family's taxes that is used to fund healthcare equals roughly 10 percent of the average household's income. This is roughly what a median-income family in the United States 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 healthcare 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 United States that family also would face co-pays and deductibles, making healthcare 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 easier, 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 culture.