Thursday, October 29, 2015

How health care costs can depress the economy

It's open enrollment season for employees with health insurance. As usual, we're all seeing a noticeable bump in costs. Year over year, I'm seeing a 12% increase in health insurance costs personally, probably due to age and to the addition of a new little one. My health care insurance costs alone amount to 26% of total compensation. That is a huge chunk of change.

Of course, the costs are much lower for most younger workers. The BLS reports that health insurance alone costs on average about 8-11% of total compensation. And you might recall that this health insurance cost is rising on average about 8% a year with minimal braking due to the quasi-monopoly status that the health care industry enjoys.

These costs act an enormous brake on hourly rate increases even in the face of inflation. Employers will be unable to justify an hourly rate increase if health care costs increase faster than inflation. Therefore, health care costs damp the economy, even when it should be doing well. If there is any growth at all, we can count on health care to be there to capture much if not all of the growth before a typical employee will see it.

It's well documented that the US pays 17-18% of GDP for health care with outcomes that are no better or even worse than countries that pay half that. Most industrialized countries pay half of what we pay and still have better outcomes.

It's also well documented that in terms of international trade, the healthcare industry is very well protected. They have a Congress willing to maintain and even extend limits on how many doctors can get into school. A Congress that will limit the number of doctors that can come here to practice medicine, even though many doctors would like to live here. The healthcare industry understands supply and demand.

This is why a single payer plan can be effective. First, it removes the economic incentives that the insurance industry enjoys to consolidate and remove competition. With a single payer plan, there is no other competitor and what is left is an organization run by appointed directors, but those appointees are accountable to elected officials. Single payer plans have worked well in other industrialized countries. The UK for example, must have loved their health care system when they hosted the "summer" olympics having devoted a huge part of the opening ceremonies to it.

Better yet, with a single payer plan, there is one benefit that doesn't get much air: databases. The myriad of companies that sell health care insurance all use databases to maintain their information. There is no single standard for such information and they don't share much with the government. This is one reason why there is so much money in health insurance coding. A single payer plan can ensure that all the data is in one database making it easy to compare costs and outcomes. A single payer database can be built on open standards making it easy to run analysis.

And finally, a single payer database can make negotiations far more interesting for doctors bent on maintaining their quasi-monopoly. If there is only one payer, that payer knows what everyone else is getting paid.

Obviously, our health care system is still in need of reform. We need greater international competition to help control costs. We need greater transparency so that we know where the money is going and why it's going that way. We need to control the costs of drug patents by allowing negotiations between public health care providers and insurers and private drug producers.

Unfortunately, none of the reforms we need can happen when doctors and health care insurance executives earning better than $300,000 a year can dole out campaign contributions to the right people at the right time just to prevent reform. This is why we need to get big money out of politics. Doctors and insurance company executives alike have an interest in the status quo. Everyone else does not.

Meaningful campaign finance reform isn't just about limiting the amount that can be given to a campaign or political action committee. It's also about having an anti-corruption act that applies to everyone and has real teeth and claws. Teeth for sending offenders to prison. Claws to claw back the money.

Quid pro quo runs the healthcare industry and depresses the economy. It's up to us to change it.
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