Gulf healthcare at a crossroad

09 November 2009

Spending on health is starting to rocket in the Gulf. New strategies are needed, but insurance is not the answer

Late on Saturday 7 November, the US House of Representatives voted for President Obama’s plan to restructure the US healthcare system, but it is not the end of the argument. It needs senate approval and is unlikely to become law until well into 2010.

The law is designed to end the scandal of 36 million Americans, most of them low-income, not having health insurance. But the story gets worse. US healthcare spending is soaring as the US population ages and more costly treatments are adopted. About 15 per cent of its GDP is allocated to health. That is more than $2 trillion a year, not much less than UK GDP. According to a projection by McKinsey & Company presented at MEED’s Healthcare 2009 conference, health - based on present trends - could account for 25 per cent of US GDP in 2030, more than 33 per cent in 2050 and 97 per cent in 2100.

The Obama plan fails decisively to address this issue for a simple reason. As US healthcare managers concede, it is impossible to price medical procedures coherently. Someone facing death will not quibble about fees. And those that can promise to save a life or alleviate pain can ask for as much as they like. In health, the market cannot work.

Health in the US, nevertheless, is a great place to make money. US doctors are among the world’s wealthiest professionals. Their average pay is more than $300,000 and rising. Some specialisms command more than $500,000 a year.

Doctors argue it takes years of study and work to qualify. The cost of completing medical school is enormous. A typical US medical school student will graduate owing at least $120,000. High pay is the only way to make a career in medicine attractive, although idealists will quibble with this claim.

An easier target is the cost of administration, including insurance. With medical costs rising, and patient expectations growing with them, insurance companies are spending increasing time and money monitoring claims. For every doctor, there are about four other people working in US healthcare. At least 25 per cent of US health spending is actually not going on health.

As the service component of US healthcare expands, the challenge facing insurance companies will grow. If you cannot cost a procedure, how can you insure against it? Insurance companies and healthcare administrators trying to control costs are spending a fortune trying to define the indefinable.

And yet, an insurance-based healthcare model is still regarded as the only acceptable alternative to the tax-financed, free-at-the-point-of-use system associated most frequently with Britain’s National Health Service (NHS), which free-market thinkers revile. And it is coming to the GCC.

The region has been highly successful at increasing life expectancy and reducing infant mortality. This was done using a comparatively small proportion of GDP - probably no more than 4 per cent in the GCC - and a free-at-the-point-of-use system.

This approach is being questioned. McKinsey forecasts GCC spending could grow by 400 per cent to almost $60bn in 2025. Governments cannot afford to pay the entire bill. The private sector should contribute more and that means more health insurance.

The most radical response has come in Abu Dhabi. It has made health insurance compulsory. But the emirate is sweetening the pill by paying the premiums for nationals and offering a sliding scale for foreigners. At best, this will slow the cost rises. It will not halt them.

Saudi Arabia, however, is pursuing a different track. Its Health Minister Abdullah Al-Rabeeah is focusing on investing more in primary healthcare and raising standards. Comprehensive insurance now, is seen to be too complex and politically-sensitive.

There are intrinsic reasons why health costs will rise. But there are lessons to be learnt from other industries. Technology should be used to cut health bills. But this will not happen if people who control health have a vested interest in seeing them rise.

Doctors should be well rewarded for what they do. But it is wrong that the sickness of others should make them rich. Insurance can help, but not with core health services. These are as important to a society’s future as defence and should be treated as such.

The GCC is at a healthcare turning point. It has more than one option. But the region would be making an error of historic proportions if took a course that the US itself, is beginning to reject.

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