Monday, October 12, 2015

A private and protected health care monopoly has costs that rise faster than inflation

Not too long ago, I was at an open enrollment meeting for my employer. I sat there aghast as I learned that health costs rose at about 8% a year for the last year, while my employer has been working hard to hold costs down to around 6% for their employees. Projections for the next year are no better.

What's wrong with this picture? The Federal Reserve has a target rate of inflation of less than 2%. According to the US Inflation Rate Calculator, the latest calculation for inflation is around 0.2% annually. I've checked a few sites and there is a consensus of about 0.2% inflation in the most recent monthly tabulation.

So if inflation is so low, how is it that the health care industry can continue their torrid pace of price escalation? They're a private and protected monopoly. There is no other way to explain it.

To put this in perspective, at a time where trade barriers are low all around us, costs have been declining or holding steady in most industries. But not health care. Health care costs continue to rise despite the low cost of imports, and the low inflation. That's because health care is protected from international competition. This is well documented by one of my favorite economists, Dean Baker.

The high cost of health care acts as an effective brake on rising wages. Combine that with a trade deficit that sucks $600 billion a year from our economy and you have a nearly complete ceiling on wages. But, if you're a C-class executive, you can make all the money you want and stash it off shore. Just ask Apple. In a nutshell, most of us are competing with third world countries for work while professional finance types remain free to find ways to extract more money from the economy and take it out of circulation. I guess that's why inflation is so low around here.

There are two problems to solve for this dilemma. First there is the protection, then there is enforcement. The first problem is the trade protection health care receives from our government. Remove the trade protection and suddenly, the health care industry gets serious about competition and keeping prices low to attract business. How do we do that?

We place our health care industry in direct competition with their peers in other countries with more efficient health care systems in other countries. See, Americans pay twice the GDP in health care as other mature and developed countries like Canada and the UK. Even countries like Norway, Sweden and Germany outperform the US in terms of costs and outcomes.

By establishing health care trade agreements that allow for health care tourism, foreign exchange and taxation to support them, we can put our doctors in direct competition with doctors from the G20 and poorer countries like Thailand, Vietnam and South Korea. Again, my favorite economist Dean Baker has outlined a plan for breaching the wall between our health care system and the world. It's called globalizing health care.

The other part of the plan is to enforce it. We have governments because we recognize that granting a private entity exclusive power to use force hasn't worked out so well in the past. So we grant that power to a democratically elected government. I know, it's not perfect, but trust me, the alternative is pretty grim.

The government is our best hope for creating a level playing field for our health care system. This means data, big data. When there is a single payer plan, all of the medical information goes into one database. Then it becomes easy to compare costs between providers. Checking outcomes for treatment plans is simple, just run an SQL query and boom!, you got your results.

There is a growing consensus for a single payer plan here in the US. It's basically medicare for all of us. The Physicians for a National Health Care Plan have outlined how it could be done. And they aren't the only group around to propose the idea. Bernie Sanders has the same idea in his platform for his campaign for president. Hilary Clinton proposed it two decades ago.

There is one final part that needs to be in place. A tax incentive. See, we know our costs are nearly double those of other well developed countries. So now we provide a tax incentive based on performance. When health care costs are high relative to other countries, the tax on health care profits should be high. Drop the costs of health care and the tax goes down, too.

Once a single payer plan is established, everyone pays in and no exceptions are provided. So when health care provider CEOs look at the rates they charge for service, they're going to look at their tax returns, too. This is their incentive: if they hurt us, they hurt themselves, too. We're all in it together.

Most developed countries pay about 7-9% of their GDP in health care. We're closer to 18%. This is clear evidence of preferential treatment of our health care industry. The fact that health care costs are rising faster than inflation is the other clear sign. We're suckers for abuse, aren't we?

We don't have to flail ourselves with a sadistic health care industry anymore. All it takes is an organized and mobilized majority to agree to stop the abuse and create a better plan. We can make health care a right for everyone. This is the great equalizer we need, a level playing field between consumer and provider. Once health care becomes a right, then health care becomes a utility rather than a profit center.
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