What Healthcare Will Look Like in the Next Five Years

As a good economist, I never pass up an opportunity to predict the future—with no expectation of being correct. In light of that, I would like to share with you a selection from my recently published book, Flatlining: How Healthcare Could Kill the U.S. Economy, giving one possible scenario on how the next five years could play out.

Everyone has heard of the term “the widowmaker.” This is a massive heart attack that instantly kills the subject and makes some poor woman a widow. You probably know or have heard of someone who either had such a heart attack, or got lucky and was told by a doctor that if something had not been caught, the person was likely to have one in the future.

The title of my book suggests that healthcare could be that kind of heart attack for the U.S. economy. This title is not just marketing hype. I truly believe that if we do not do something soon, our economy could be at risk for a widowmaker event such as we have not seen since the Great Depression. To be honest, I think a healthcare implosion could actually be worse than the Great Depression, because unlike the situation in 1929, the U.S. government today may not be able to spend its way out of an economic crisis. In 1929 the national debt was less than 20% of our country’s GDP. By 1939 that number had gone up to about 44% of GDP.

Think of it like this: in 1929 our country was carrying very little credit card debt. We had a problem and lost our job. So we lived on our credit cards until we could find work again. That only works if you have room on your credit card, like we did in 1929. Fast forward to today. Today the federal debt is over 100% of our GDP. That’s right, we have more credit card debt than we do income, so to speak. Think about your own income level and how dangerous it would be to have more credit card debt than you make every year. So if we lose our job again, we may find it hard to get anyone to increase our credit card limit.

When a government is not able to borrow money to finance its deficits, the only option left is to print more currency. The problem with printing more money is that it rapidly devalues the currency, which causes hyperinflation, which can become a vicious cycle. In post-World War I Germany, the world saw what hyperinflation could do. In 1921, it took 90 Deutsche Marks (DM) to buy 1 U.S. dollar. By 1923, just two years later, each U.S. dollar was worth 4.2 trillion DM. That is not a typo. A U.S. dollar was worth 4.2 trillion DM. That’s hyperinflation.

This article shows what could happen if we do not address the issues facing the healthcare market. Let me begin by saying that this is not so much a prediction as it is an illustration of how the market may correct itself if we do not intervene. I also want to acknowledge up front that this is probably a worst-case scenario and should be viewed as such. That being said, reading this you should keep asking yourself, “Could this really happen?” If you keep an open mind, your conclusion will be that it absolutely could happen. That is the scary part of this article. So with that understanding, let’s look forward to the next several years and watch the collapse of the American healthcare system and the impact it would have on the U.S. economy.

2017

A new Republican administration and Republican-controlled Congress begin taking apart the Affordable Care Act (ACA) and replacing those parts with their own ideas:

1. The new administration eliminates the individual and employer mandates in the ACA.

2. Federal funding for Medicaid expansion is rolled back, leaving the states to decide if they want to continue fund the Medicaid expansion on their own.

3. Most of the states with Medicaid expansion realize they cannot afford it without federal funding and return to previous Medicaid qualification levels.

4. The administration passes a series of tax cuts and deductions for individuals and businesses to help finance healthcare expenses, including premium payments.

5. The administration passes legislation designed to increase the usage of health savings accounts.

6. The final piece of legislation passed by the new Congress is a law that allows for the selling of health insurance across state lines.

These changes set the stage for the downfall of the healthcare exchanges and the early stages of a meltdown of the healthcare system in this country. The removal of the individual and employer mandates makes the insurance companies concerned that adverse selection in the exchanges will increase and the risk pool will get worse. Since the payers left in the exchanges are already losing significant money, the changes in 2017 will ultimately bring about the end of the ACA exchanges. Rolling back Medicaid expansion will take close to 10 million people and put them back onto the rolls of the uninsured. That moves the uninsured number up from its low point of about 17 million to around 27 million.

With the Republican win in the 2016 elections, it is clear to me that major parts of the ACA will be dismantled. I would expect the individual and employer mandates to be removed during the first few months of the new Congress. I certainly think we should expect the reinsurance pool not to be funded any further. These changes will have a dramatic impact on the Blue Cross Blue Shield (BCBS) plans and the few remaining regional insurance companies that still offer products on the ACA exchanges. The payers will conclude the exchanges are never going to be profitable places to do business. They will also know that with a Republican controlled administration and Congress, leaving the exchanges will produce no governmental backlash. This will not only allow further exodus from the exchanges, but might actually push the payers in that direction.

2018

Healthcare costs continue to rise, the uninsured population increases, and payers make a mass exit from the ACA exchanges. This all sets the stage for further healthcare inflation, financial problems for providers, and increased budgetary concerns for state and federal governments:

1. Many of the BCBS plans across the country pull out of the exchanges, either totally or in major parts of each state, due to a deteriorating risk pool and continued financial losses. Combined with the previous exits of the national payers, this shows the current structure of the ACA and its healthcare exchanges is not sustainable without major overhaul.

2. With the exit of the plans from the exchanges, the uninsured population goes back up to pre-ACA levels, around 40 million people. This puts financial pressure back on hospitals and physicians, who are faced with providing care to patients with no ability to pay. Hospitals and physicians in a position to demand higher rates from insurance companies do just that, which helps drive up the cost of insurance further. Those that do not have a dominant position begin to have financial difficulties.

3. Employers facing escalating healthcare costs and no employer mandate start scaling back coverage levels, and in many cases drop coverage all together. This puts further pressure on individual disposable income, which negatively impacts the U.S. economy.

4. Medical CPI continues to track at rates close to twice general inflation, which continues to increase the portion of GDP consumed by healthcare. This begins to crowd out other economic activities such as manufacturing.

2019

The country is back to an uninsured population of over 40 million and rising. Healthcare costs continue to inflate too rapidly, and the impact to the U.S. economy begins to become problematic. The system is in the beginnings of a death spiral that may not be recoverable:

1. Medical expense increases along with the burden of the uninsured begin to have an impact on unemployment. Unemployment in 2019 rises to 6.5%. Economists grow concerned that this uptick in unemployment is the first time the country has seen such a trend since the housing crash of 2008.

2. The increase in unemployment, along with the slowing of economic growth, increases the federal deficit to $950 billion in 2019. The national debt is now above $20 trillion and is approaching the highest ratio of debt-to-GDP in U.S. history. The previous high was 119%, in 1946, right after World War II. Economists predict that we could top 120% of GDP as early as 2022.

3. Interest rates begin to go up as China and other nations begin demanding higher returns on the purchase of U.S. debt due to concerns over the U.S. economy.

2020

The country is now in a full recession, with many signaling the possibility of a depression. Healthcare has caused a domino effect on several parts of the economy resulting in a large-scale correction:

1. With economic growth all but stopped, unemployment levels go up to 10%. This is a level not seen since the housing crisis of 2008.

2. Interest rates start to spike, putting pressure on the U.S. economy and causing issues with the federal budget.

3. Healthcare providers start to feel the pinch. Many hospitals begin laying off staff. Drug companies begin layoffs to try to maintain profit levels. Physician groups begin limiting their Medicare and Medicaid patients, and many drop from one or both programs to provide care to patients with better reimbursement. Patients begin to complain about care and service in the hospital, and many Medicare and Medicaid patients have difficulty finding doctors. This causes an influx of patients seeking non-emergency care in hospital emergency departments, which drives up costs and hinders the ability of those hospitals to provide emergency care in that setting.

4. The combination of increasing unemployment and increasing interest rates is a compounding problem for the federal budget. The deficit exceeds $1.4 trillion, which is almost 50% of the total tax revenue received. For the first time, the U.S. government is now spending 50% more than it collects in tax revenue.

5. Many economists begin warning that all indications point to a further decline in the economy, and that the country may be headed into territory that it hasn’t seen since the Great Depression.

Conclusion

I’m going to stop here because to be honest, this is starting to make it hard for me to sleep at night. The end to this story should be apparent. Hospitals and physician groups start to fail, and people can’t get the care they need. Unemployment goes up as hospitals, physicians, and other related healthcare businesses lay people off in an attempt to stay afloat. Healthcare costs destroy the federal budget, which drives up deficits. Interest rates go up, which drives up deficits even further. Basically, we enter the modern-day equivalent of the Great Depression.

As I stated at the beginning of this article, I am not predicting that all of this is going to happen. Rather, I’m trying to show an example of what could happen, an illustration of how bad things could get. The questions for the reader are these: Are any of the predicted scenarios not possible? If most or all of them are at least possible, then what is the probability that some or all of them could happen if we don’t do something to prevent them?

There is a great statement in the book and movie The Big Short: “People hate to think about bad things happening so they always underestimate their likelihood.”

With that said, I am going to take a moment, pour myself a stiff drink, and proceed to the next chapter of this book—trying to prescribe a cure that will help us avoid all of this. Wish me luck. Now where did I put that bottle of scotch . . .

Editor’s Note: This article is excerpted from Flatlining: How Healthcare Could Kill the U.S. Economy, by Ron Howrigon, available at www.physicianleaders.org, 1-800-933-3711, or from Amazon.com .