By Bradley M. Smith, SOA 2011-12 President
We all know the problem facing Medicare: Healthcare costs in this country are on an unsustainable trajectory. The causes have been well documented. Waste, fraud and overutilization have resulted in healthcare costs in excess of 17 percent of gross domestic product.
Behavioral economics shows that humans react to incentives. The current healthcare delivery system incents healthcare professionals to provide more but not necessarily more effective medicine.
Advances in medicine and the use of technology allow us to do things medically that were unimaginable even a decade ago. Historically, we have adopted new treatments that were demonstrated to be better than existing treatments regardless of the incremental cost.
Following the financial crisis, we now recognize that we have finite resources. Choices have to be made. The issue is not whether the individual is free to pursue whatever protocol of treatment he or she wishes. Two questions are crucial if we are to make these hard choices:
- What level of coverage is provided by the publicly provided plan?
- What additional coverage is the individual responsible for purchasing?
Most people, when asked whether Medicare should pay for a 94-year-old patient with severe Alzheimer’s disease to have a knee replacement, would say no. That is not an efficient use of our finite resources. Once you have made that decision, you have crossed a conceptual threshold. You have acknowledged that there are certain procedures that will not be performed, based upon a cost/benefit analysis. The only remaining question is where to draw the line. This leads us to difficult questions and difficult choices, but these choices are unavoidable if we are to control the trajectory of runaway healthcare costs.
Actuaries have the skills necessary to participate in research that will help society make some of these tough choices.
