Health care costs are on the rise, and the reason isn’t complicated. People today are living longer, and older people use more health care resources. People aged 65 and older already make up 8.5 percent of the world’s population, and that number is expected to reach nearly 17 percent by 2050.
As a result, more and more health care workers will be needed. The demand will be so great, in fact, that we may not be able to keep up; just last month, the Association of American Medical Colleges projected that the United States could face a shortage of up to 94,700 physicians by 2025. To solve that problem, medical innovation will play a vital role by making people healthier and bringing down health care costs in the long-term.
However, when U.S. policymakers talk about reining in health care costs, all too often, they focus on prescription medications, although the biggest driver of spending has been and continues to be labor.
“When you look at the data, the cost increases have more to do with the hiring of health care workers than excess spending on either equipment or medications,” Michael Mandel, chief economic strategist at the Progressive Policy Institute. “Health care is labor-intensive and becoming increasingly so.”
The cost of labor represents more than 40 percent of the increase in government and private health care spending since 2007, according to the Institute’s estimates. Prescription medicines, on the other hand, represent just 10 percent of the increase. In fact, the Centers for Medicare and Medicaid Services reported that how much people pay for prescription drugs has dropped by 14 percent since 2007.
“It’s easy to propose cuts in prescription medications to control costs, but that’s short-sighted,” said Mandel. “Policymakers need to realize that would be moving in the wrong direction.”
A good example can be found in the new hepatitis C therapies, which are forecasted to reduce the number of costly liver transplants by up to 26 percent. The problem is private insurance companies can’t see that far ahead; they don’t know whether a hep C patient taking a medication today will still be on their plan years from now when that transplant is avoided.
It’s not just private insurers that are missing the big picture; state-run Medicaid programs have also been withholding treatments from patients.
Policy makers should invest now in solutions that end up saving money, not to mention improving lives. The people running the federal Medicare program understand this imperative. While prescription medications account for just 10 percent of the program’s budget, they are responsible for 60 percent of the slowdown in Medicare spending since 2011.
In 2015, the program spent $9 billion to ensure access to hepatitis C treatments. “If you think about it, these are drugs that can really prevent liver disease,” Sean Cavanaugh, deputy director for Medicare with the Centers for Medicare and Medicaid Services, told the Associated Press. “We felt it was most appropriate to allow patients to have them earlier.”
If we don’t find a way to support innovation, we will have an enormous problem in health care
The millions of Americans who are not on Medicare deserve the same. Policy makers should focus on the long-term picture and consider ways to subsidize private and state insurers for therapies that offer better outcomes. That investment would pay off when more people on Medicare require fewer visits to the doctor’s office. Considering we may not have enough doctors to go around soon, the investment seems like a sound decision.
“If we don’t find a way to support innovation, we will have an enormous problem in health care,” said Mandel. “We need to think differently than we are today; we need to start thinking long-term.”