Health Care Costs Rising...
Health care costs continue to careen out of control. Are politicians and government policies contributing to this mess? You bet they are – big time.
Just to prove that many of them don’t have a clue as to what the source of the problem is, federal elected officials are trying to agree on a new government entitlement, i.e., prescription drug coverage under Medicare. That’s like being in a boat with a hole that’s taking on water, and the captain decides to make another hole to see if the water will drain out. The boat, of course, just sinks faster.
A new survey from the Kaiser Family Foundation and the Health Research and Educational Trust notes that monthly premiums for employer-sponsored health insurance jumped by 13.9 percent between spring of 2002 and spring 2003. That marks the third straight year of double-digit increases, and the biggest jump since 1990.
No doubt, rising health care costs take a toll on the economy. Mark M. Zandi, who is the chief economist at Economy.com, observed in Newsday (September 10, 2003) about rising health care premiums: “I think this is one of the key reasons why businesses are not hiring, despite the improvements in demand and production. It’s not just the recent health care premium increases… It’s the prospect that those premiums will be rising as quickly long into the future.”
Then there is the Medicare issue. Costs for this health care program for seniors have long been climbing at a rapid pace, and there is no end in sight here either. In fact, matters promise to only grow worse if the government adds a prescription drug benefit. That too is worrisome news for taxpayers and the economy.
So, what’s the actual source of higher health care costs? There actually are several factors. For example, lawsuits and the threat of being sued increase the costs of medicine. There are all kinds of regulations and mandates from government that push costs higher.
However, probably the key factor is the vast expansion of third-party payments within the health care system. For example, in terms of personal health care spending in 1965, 80 percent of funding came from private sources. Out-of-pocket payments covered 52 percent of personal health care expenditures and 25 percent came from private health insurance. Government at the time covered 20 percent, 8 percent from the federal government and 12 percent from state and local governments.
Oh, how things have changed. In 2000, private funding sank to 57 percent. Out-of-pocket payments plummeted to 17 percent. Private health insurance rose to 35 percent. Government’s share jumped to 43 percent, with 33 percent from the federal government and more than 10 percent from state and local governments.
Quite simply, when third-party payments increase, both consumers and providers have far fewer reasons to be concerned about costs. Hey, if somebody else is picking up the tab, why be concerned about utilization or prices?
On top of this, government as the major third-party payer also possesses few reasons to be concerned about costs. Politicians and bureaucrats are spending other people’s money – that is, the taxpayers’ money – and have little reason to worry about how that money is spent or how much. And when somebody in government eventually gets around to doing something about costs, action comes in the form of price controls and rationing, which of course means care suffers.
So, it’s rather easy to predict what will happen if prescription drug coverage is added to Medicare. Costs will rise – hitting the taxpayers hard – and price controls eventually will be imposed. However, researching and developing new medicines is a risky, costly endeavor. So, we’ll get far fewer new and improved medicines. That means fewer lives saved.
How do we get out of this mess? The true definition of insurance must be resurrected. Insurance is meant to protect individuals against catastrophic, unforeseen costs. Insurance is not supposed to be about first-dollar coverage for every health care expense.
Medicare and Medicaid must be re-worked to provide health care vouchers to the truly needy. Individuals, perhaps advised by some kind of broker, if necessary, should be able to choose what kind of health care plan best suits their needs.
Meanwhile, choice in the health care marketplace needs to be expanded to include tax-free medical savings accounts (MSAs). MSAs redress the third-party payer issue by combining a tax-free savings account, owned and controlled by the individual for regular, predictable medical expenses, with a catastrophic insurance plan. Under current law, MSAs are badly hampered by being temporary, and laboring under all kinds of misguided rules and restrictions. MSAs need to be made permanent, and silly, anti-consumer restrictions must be removed.
The main culprit behind rising health care costs that are hurting consumers, businesses, job creation and the economy is government. Getting government more involved in health care will only make matters far worse. Instead, market reforms will help put consumers and health care providers back in charge.
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Raymond J. Keating is chief economist for the Small Business Survival Committee.
