Commentary: Can US healthcare be fixed?

After Amazon, Berkshire Hathaway Inc and JP Morgan Chase & Co announced on 30 January that they will take steps to reduce the rising cost of US health insurance, shares of health insurance companies and pharmacies declined.

     However, the challengers did not disclose how they were going to achieve their objective, apart from saying that they will form a non-profit company that will take charge of the healthcare plans of their US employees and provide them and their families with “simplified, high quality and transparent healthcare at reasonable cost.” The assumption is that this model will be suitable for all Americans.

     A major problem is that nearly all the providers of healthcare in the US have the primary responsibility of increasing profits for shareholders. So the bias is to raise drug prices whenever possible to add to the bottom line.     As a result, healthcare in the US is the most expensive in the world but certainly not the best. US national statistics show that healthcare costs are running at about $3.2 trillion, or roughly one-third more per person than those for the next most expensive country.

According to a 2017 survey made the Kaiser Family Foundation, average US family health insurance premiums rose by 3% to $18,764 from the previous survey. These premiums are paid for by both the employer and employee and the increases have been tapering off over the past 10 years, partly as a result of the 2007-8 recession.

     Normally employers pay the bulk of health insurance, but even if they pay only half, health insurance would add 21.25% to the median US wage of $44,148. So it is in the national interest to fix the excessive cost of healthcare.

     Could a private initiative succeed where even the Federal government has difficulty with national insurance? One possible way would be ensure that information about drug pricing and discounts becomes public. Under the present system, pharmaceutical companies can set wholesale prices very high, enabling various types of distributors to benefit from secret discounts. Pharmaceutical companies, of course, have a legal monopoly on the pricing of new drugs but many of them have also been able raise the prices of older drugs with great success.

However together Amazon, Berkshire Hathaway and JP Morgan Chase are big enough so that they may be able to make the discounts they obtain public. This would put pressure on other participants in the drug distribution chain to make their discounts public, leading to a narrowing of the discounts and relatively lower drug prices.

     Any organisation that brings together the many disparate regional healthcare providers under one umbrella could help bring down the cost of healthcare  Amazon has had great success in undercutting the prices of retailers of books and many other things. It may be able to do the same thing for expensive drugs, aided by the clout of JP Morgan Chase and Berkshire Hathaway. The possibilities are there.

- By William Ellington, 4 February 2018  

Location

United States