USC Price School of Public Policy

McFadden Examines Dysfunction of U.S. Health Care

By Cristy Lytal

Daniel McFadden gives presentation at SPPD Daniel McFadden addresses health care policy during a recent presentation at SPPD.
Photo by Tom Queally

When it comes to regulating health care, the common perception is that Democrats trust the government while Republicans rely on the market. But as Daniel McFadden – winner of the 2000 Nobel Prize in Economics and Presidential Professor of Health Economics at USC – recently explained to USC students, faculty and staff, government interference and private market shortcomings are both “serious contributors to the dysfunction of our health care system.”

In his first presentation since joining USC’s faculty in January, McFadden presented an economist’s view of the 2010 Patient Protection and Affordable Care Act during the recent seminar, “Sick Insurance: The Trials of Health Policy in America,” held at the USC School of Policy, Planning, and Development.

The event was part of the Leonard D. Schaeffer Center for Health Policy and Economics Seminar Series. It was sponsored by the Schaeffer Center, SPPD, the Titus Family Department of Clinical Pharmacy and Pharmaceutical Economics and Policy, and the USC School of Pharmacy.

McFadden put the Affordable Care Act in perspective, giving background on national health care in Germany and Great Britain, as well as earlier U.S. attempts at health insurance reform dating back to Theodore Roosevelt.

He also discussed the experience with the market for prescription drug insurance, established in 2006 under Medicare Part D, which he considers a successful experiment that could hold valuable lessons for the implementation of the act.

McFadden outlined some of the provisions of the act – creating health insurance exchanges for the uninsured, mandating insurance and having a penalty for non-enrollment, and requiring large employers to provide insurance or pay a penalty.

Acknowledging the controversy and partisanship surrounding the bill, McFadden explained where health care in America stands relative to the rest of the world.

Over the past half century, the cost of U.S. health care has been rising 2 percent faster than the gross domestic product.

“The U.S. is a high-cost country,” said McFadden, who holds joint appointments at SPPD and the Department of Economics at USC College. “It’s higher cost than anybody else. But one question is: Are we simply buying the best health care you can buy?”

McFadden’s data suggests that the answer to this question is no.

Over the past 50 years, the average life expectancy for men and women in the United States has climbed from 69 to 77 — largely due to lower infant mortality rates. In the same period, the U.S. has dropped from 15th to 32nd place among nations in terms of life expectancy. Much of this is due to the high mortality rate for people between the ages of 15 and 60.

“These are the people who are workers,” McFadden said. “We spend money as a society to send them through USC, they take high-paying jobs, and then they get sick and they die. If we could raise our survival rate for this group to that of Switzerland, which is admittedly a high standard, we would save 190,000 deaths a year. This is a striking number.”

McFadden attributed high U.S. health care costs to three main factors: diabetes treatment, coronary bypass operations and magnetic resonance imaging. Far more than other countries, the United States relies on these expensive treatments – with often less than encouraging health care outcomes.

“So who’s at fault for all of this?” he asked. “Is it greedy and irresponsible manufacturers, insurers and providers? Is it consumers who eat Big Macs and don’t look after themselves? Is it government interference in private markets and bungled regulation? Or are there systemic failures in private health markets? And the answer is yes. All of these play a role and particularly the last two.”

Whether the Affordable Care Act can address some of these problems remains to be seen. However, according to McFadden, it won’t solve all of them.

“The Affordable Care Act,” he noted, “is clearly not enough to handle the long-term issues of the health care system in the U.S.”