America’s Looming Medical Cliff
Either Wait in Line or Pay More for Your Visit to the Doctor
Headlines are focused on the reduction in the staff of the federal Department of Health & Human Services by 10,000 employees. But that barely touches on the big picture—the relentless rise in the cost of health services in the United States. Unless patients themselves agree to paying for a bigger share of their medical expenses, it will be months (perhaps even a year) before they see their doctor. Those conclusions emerge sharp and clear from a comprehensive analysis of the rising cost of health care by Jay Bhattacharya, the newly appointed director of the National Institutes of Health, and his colleague, Thomas MaCurdy.
Dr. Jay Bhattacharya, President Donald Trump's choice to be Director of the National Institutes of Health, appears before the Senate Health, Education, Labor, and Pensions Committee for his confirmation hearing, at Capitol Hill in Washington, Wednesday, March 5, 2025. (AP Photo/Ben Curtis)
Before taking his current job, Bhattacharya dissected the explosion in government expenditures on medical services in a co-authored essay published by the Hoover Institution in a volume entitled American Federalism Today (Hoover Press), edited by Michael Boskin. Here are six takeaways from its extensive analysis of the country’s upcoming fiscal crisis:
1. Healthcare costs take a larger cut out of your paycheck every passing year. The share of the economy spent for these services climbed from 13.3 percent of the Gross Domestic Product (GDP) in 2020 to 18.3 percent in 2021. The percentage covered by employer-based insurance or paid for directly by private individuals has barely increased, but the portion paid by federal, state, and local governments has jumped by 5 percentage points. That leap forward will continue unless federal law changes, says the Congressional Budget Office. Federal payments for healthcare are expected to expand from 27 percent of the federal budget in 2023 to 38 percent in 2053. The size of that expenditure dwarfs amounts spent on defense, social security, welfare, or any other program.
2. The share of health costs paid by private sources has steadily declined since 2000. In that year, employer-based insurance and out-of-pocket expenses covered 60 percent of total healthcare costs, but by 2021 that share had fallen to 51 percent. Employer-paid insurance pays for two-thirds of the total, with the other third coming from deductions, co-payments, and other contributions by individuals.
3. Publicly financed insurance programs, a rapidly growing sector, can be divided into programs that (1) cover most but not all health costs (partial insurance) and (2) cover all costs (total insurance). Medicare is by far the country’s largest partial insurance program. Designed like many private insurance policies, the program covers a major share of the health costs of those who have reached the age of 65 and have participated in the social security system. The primary example of total insurance is Medicaid, which covers virtually all the healthcare costs of low-income households. The Children’s Health Insurance Program (CHIP) and veterans’ benefits also cover virtually all medical costs. Partial and total insurance programs operated by governments are roughly equal in size, each absorbing about 15 percent of public expenditure. The steep rise in the cost of these programs in the 21st century is due to an “increasing share of the population enrolled in Medicare, Medicaid, Children’s Health Insurance Programs, and veterans’ health benefits” as well as the introduction of the federally funded prescription drug insurance program.
4. The major factor driving up medical costs is increased “intensity” in service utilization, not a rise in the price of services. “When beneficiaries have substantial insurance coverage of deductibles and copayments, many experts believe they seek excessive nonemergency and discretionary medical services,” the authors say. “Necessary reforms will involve substantial alterations in healthcare delivery and a decrease in the per capita consumption of health care” from projected trend lines. Containing healthcare costs will require substantial increase in consumers’ “out-of-pocket” payments. Only in that way can consumers be given the incentive to search for less expensive or more productive alternatives in lieu of expensive hospital and emergency room services.
5. Federal policies should give states broad discretion over total insurance programs, such as Medicaid and CHIP. Federalism allows for wide experimentation at the less visible lower tiers of government. States can learn from their counterparts’ viable ways of limiting expenditures without endangering public health.
6. The fundamental problem is political, not the intrinsic cost of medical care. MaCurdy and Bhattacharya do not say this explicitly, but by clarifying the importance of asking individuals to bear a larger share of the cost, they point directly to the political risks involved. Asking people to pay more for health services is the third rail of politics. Like a high-voltage middle rail on an electric track, the issue means political death for all those who propose sensible ways of keeping costs down. Despite large talk about cutting taxes, the Trump Administration has put the issue on ignore, proposing instead to cut the number of employees at HHS. The non-solutions proposed by the Biden Administration were to blame health providers for excessive billing and ask millionaires to pay higher taxes. Neither action would begin to address the heart of the problem. Even the current Congressional resolution, passed over strenuous Democratic opposition, offers no more than a symbolic nod in the right direction.
In the end, the healthcare crisis is mainly political, not substantive. The United States can afford a high-quality healthcare system if consumers are willing to pay a reasonable portion of the cost of medical services. The alternative is the long waiting line. The difficulty in finding a primary care physician and the length of time one must wait for an appointment is escalating. It could become the next third rail of American politics.
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Paul E. Peterson is a senior fellow at the Hoover Institution, Stanford University and a professor of government at Harvard University.
This all gets back to the Obamadoesntcare health ruin atrocity. Millions upon millions who had been on private/company plans ended up on Medicaid, exploding federally funded "healthcare" costs. Budget deficits were rising by $100 billion each of Obama's final three years, just as the full force of Obamadoesntcare hit. Expenditures on "private" systems may have remained constant, but the number of people covered fell by the same millions added to Medicaid.
Proposal for a New Healthcare Plan that removes health insurance companies from the equation for a much better way to manage, pay for, and encourage better health care and overall health?
My plan combines strands of Medicare, Health Savings Accounts (HSAs), and the open market, so everyone is covered, and no one will go bankrupt because of the cost of receiving health care.
Under our current health insurance system, health insurance corporations receive 100% of premiums from employers and individuals (typically, the amount is $20,000-plus per employee annually).
Basically, workers and/or their employers pay 100% of monthly premiums to health insurance companies, and then the health insurance companies decide which treatment they will allow or pay for with the very funds the patients have provided to the health insurance companies for their care.
Instead of 100% of premiums going to the health insurance companies’ employers would pay 50% of employees’ health care premiums into individual employee HSAs and employers would pay the other 50% of the premium into a new version of Medicare (new in the sense that Medicare will provide expanded coverage for everyone and not just elders for whom Medicare is currently setup to cover).
Self-employed individuals would also contribute to HSAs and Medicare. Individuals and families not covered by an employer would also contribute to an HSA and Medicare unless they were below a certain income level then they would not be required to pay into an HSA or Medicare and would instead simply receive full Medicare coverage.
Tax credits could be included for the self-employed and individuals for their health care premiums.
With this 50/50 health care insurance, costs would be reduced and risks better managed (that is, people are still covered by Medicare even if their HSA becomes depleted). Therefore, universal coverage will be achieved with this plan including the newly-styled Medicare that will cover all people--even people who do not have an HSA and/or who have depleted their HSA funds.
This setup eliminates denials and disagreements (paperwork) with health insurance companies over treatments and encourages everyone to take good care of themselves. The result, patients and doctors decide together the services and treatments necessary, and the patient pays for services and treatments either through an HSA, or, as mentioned, if an HSA is out of funds, then payment will go through Medicare.
Additionally, this plan proposes that all preventative care be paid through Medicare to encourage everyone to maintain their health without impacting their HSA.
Americans will be encouraged not just by the prospect of better health care and all that goes with it but also incentivized to save money in personal HSAs by taking care of one's health through eating better and exercise, and preventatively through Medicare.
When going for treatments (medical, dental, etc.) payments can be as easy as swiping an HSA personal card or using an HSA phone app for services and treatments rendered at hospitals, doctors’ and dentists’ offices, and so on.
Payment and receipts will be instant with a resultant printout/text/email of the services, costs, and remaining balance of each HSA.
Furthermore, the 50/50 health care plan would repair today’s convoluted system where a person who loses a job might encounter unwieldy sums under the ironically named Affordable Care Act. Under this new 50/50 system a person who loses his/her job might have a reserve of money in their individual HSA to draw upon in addition to expanded Medicare coverage if their HSA is depleted. They will not have to worry about going bankrupt or foregoing health care if they are unemployed.
How much money could be in HSAs? Well, if health insurance premiums simply remained at current rates of around $20,000 annually per employee, and if an employee works on average 30 years, then that employee, under this plan, potentially has $300,000 available in an HSA when they retire. (Here is the quick math to arrive at $300,000: 50% of $20,000 times 30 years = $10,000*30 years = $300,000).
Currently, health insurance companies are receiving the full $600,000 from employees/individuals and then when you turn 65 health insurance companies keep the $600,000 (minus any care we have used/they have paid for) and then the government/taxpayer pays for the care of everyone 65 and older. How is this even remotely fair? Why are health insurance companies able to keep all of the money paid for health insurance over the employee's work life and then when people retire and are old and sick and their health care needs and costs are high, then the health insurance companies get to keep all of the money collected and leave the taxpayers, via Medicare, the health care bills for everyone 65 and older?
HSAs would be ‘portable’ from job to job and from employer to employer. Preventative care would be covered by the expanded Medicare, which would be funded through 50% of premiums in addition to the current payroll taxes that go into Medicare.
Funding health insurance through this 50/50 plan eliminates the unnecessary middlemen (health insurance companies). Eliminating health insurance companies would free up trillions of dollars that are currently taken from health care and used for paperwork, administration, and to pay million-dollar executive salaries, and enrich shareholders while denying care. (The original purpose of health insurance companies was to take our money and then pay for our care when we need it, but too often the health insurance companies deny our care/claims and enrich themselves with billions of dollars annually via our money/premiums.)
If Americans were healthier the burden and costs on the healthcare system would be much lower too.
Using a 50/50 health care plan can also benefit retired people. From 65 years of age, people should be able to use their individual HSAs to supplement their retirement funds, etc. Such a setup would encourage everyone to take good care of their own health and well-being. If they did then a magnificent reward would be waiting (potentially $300,000 in the example supplied above) when they reached age 65.
This plan eliminates excessive costs (trillions) eaten up by health insurance corporations and the trillions in reclaimed costs would go directly back to the patients and caretakers/doctors. This 50/50 health care plan allows doctors and patients to engage directly with each other for better health and at lower costs, and everyone is covered.