Tuesday, April 12, 2005
The Impact Of Health-Care Costs
There are only two major areas of the American economy where costs have risen for decades at three to four times the rate of inflation: health care and education. (Think of college-tuition bills.) In both cases the consumer does not pay the full cost, and government, the ultimate funder, has little power to negotiate costs or to ration benefits. (In education, government funding comes in the form of tax exemptions, grants and low-interest loans.)
If people paid for more of their health care themselves, they would use it more rationally, which disciplines costs. But it wouldn't really solve the problem because despite the mythology, American health care is not a free market. It is dominated by government funding, through Medicaid and Medicare. The big difference between our system and that of other countries is that in America the government cannot (often by law) exercise its clout as a buyer to drive down costs. So the individual doesn't have the incentive to control costs (why should he, someone else is paying?), and the government doesn't have the means to do so. This is a recipe for waste and overuse.
[The following response is lifted from my post on this topic at The FAL Files]
The problem with health care is that the consumers of that commodity continue to demand more and more for less money. Sorry, folks, but procedures and technology - like 3D ultrasounds and MRIs on the ankle you lightly sprained - cost substantial amounts of money. But when those costs are hidden in a "pool", then there's little motivation to control your spending. The US spends more per-capita and as a percentage of GDP than any other nation in the world - that's what's driving insurance costs up.
Frankly, the health care I'd like to have is a tax-free savings account that rolls over year-to-year, coupled with true insurance that only covers major problems over a particular limit (say, $10K) but covers those problems 100%. With the insurance I've currently got at work, I pay the first $1000 out-of-pocket which means that my insurance doesn't cover my average yearly expenses (which are typically low since I'm 29 and in good health). But on the other hand, there's some pretty serious stuff that's only covered 80% by insurance. If I had to go in tomorrow for a liver transplant, I could find myself facing a 6-figure out-of-pocket bill, in which case insurance isn't really keeping me from losing everything I have.
The solution to the problem isn't lawsuit reform or any of that stuff - we need to treat our bodies better and establish realistic expectations for the level of care that we're going to receive.
As far as how this relates to the problems with corporate America, health care is a factor but not the whole story. Jobs are leaving the US because management is too lazy to find ways to improve efficiency, too scared to make the sort of capital investments that reduce the impact of labor on costs, and too unimaginative to develop products that capture the attention of consumers. And laborers are frustratingly unwilling to use their talents and skills, using low wages as an excuse for poor performance.