Healthcare Costs – Doing Nothing Is Not an Viable Option

Recently Republicans have doubled down on their attacks on the Affordable Care Act, now better known as “Obama Care”, and why not?  They have always hated the bill that was passed into law when they controlled neither Congress nor the White House.  The botched roll out of the plan’s national website played right into their hands.  Republicans will continue to rant and rave against the provisions of the law which they believe will provide them with the political leverage they need to eventually overturn it. They will also continue to conveniently ignore those provisions of the law which are nearly universally popular.  More importantly, they will never publicly recognize the fact you can’t have the latter without the former.

Regardless of how the Republicans concentrate on the law’s individual provisions, the real reason they have been willing to employ extreme measures to repeal it is because it offends their basic conservative philosophy.  They oppose government’s intrusion in any business (and healthcare is a huge business) and they firmly believe that the free market and competition will ultimately solve all business problems, including those of the healthcare business.  Normally as a student of economics and an advocate of the free market system I would agree with them, but to do so would be to ignore the obvious.  There are a few segments of the economy where the free market system does not work, and one of these segments is the healthcare system.

When market forces are working properly, competition forces down prices and buyers gravitate to those who provide products with the best value.  If the free market is working in the healthcare industry, why does the United State have the highest healthcare costs in the world?  Whether measured by cost per capita or as a percentage of gross national product, our healthcare costs are at least 50% higher than those of the country in second place.  Some would have you believe that is because we have the best healthcare in the world.  Unfortunately, that isn’t the case.  According the objective rankings of the World Health Organization we rank 37th, right below Dominica, and Costa Rica and right above Slovenia and Cuba and not far above some third world counties.  In addition, our healthcare costs are expected to rise another 9% this year as part of a long continuing trend.

Now it can be argued that if you are rich enough to buy your own insurance, or you are fortunate enough to have good insurance as part of your job benefits, you can get excellent healthcare in this country and that is true.  But at what cost?  As health insurance costs continue to rise at rates which far out strip inflation, fewer people who must secure their own insurance can afford a policy.  For those of us who have health insurance as part of our job benefits, many companies are now passing on more and more of their insurance costs to their employees.

So it is apparent that free market forces have failed miserably to control healthcare costs and that those costs are continuing to skyrocket.  As a direct result, most people are paying an ever increasing portion of their incomes for health insurance.  It also should be no surprise that the number of people without healthcare insurance is also increasing.

According to the Census Bureau approximately fifty million people in this country do not have health insurance and the percentage without coverage has been growing over the last ten years.  However, these people still get sick and have accidents. They still have to make use of doctors and hospitals, but when they do the cost of their treatment is much higher than the same treatment provided a person who has insurance.  That is because with their many policy holders, the insurance companies have the leverage to negotiate much lower rates for their insured with hospitals and other healthcare providers.  The hospitals and doctors still bill the total amount for the services provided, but accept much smaller payment from insurance companies and write off the rest.

Here is a real world example:  Recently I made a trip to the emergency room of a local hospital.  I was there for approximately one hour.  For their services the hospital charged $6,920.  My insurance company paid only $1,235.  With my $150 co pay, the total payment to the hospital was $1,385 so the hospital wrote off $5,441.  There was also a separate physician’s charge for the visit.  That bill was for $488, but they accepted the insurance company’s payment of $115 plus my $30 co pay and wrote off $343.  Now it is obvious that hospitals and their doctors would rather that all of their patients have insurance and they would be willing to take much less than they bill for their services, so why do they bill so much?  Because they can – all of the other hospitals in the area are billing similar charges.  And why do they accept so much less for insured patients – because the payments they collect from insurance companies are more then enough to cover all of their expenses and still make a nice profit.

If everyone had insurance it wouldn’t matter how much hospitals billed because no one would ever pay that amount, but that isn’t reality.  If one of the 50 million uninsured in this country made the same emergency room visit, they would have little leverage negotiate and pay less than the normally billed amount. They would therefore be expected to pay $6,920 to the hospital (almost 5 times what it would cost me and my insurance company for the same services) and $488 for the doctor’s services (3.4 times the insured rate) for a total of $7,408.  That would put a hole in most budgets and for those folks who couldn’t afford insurance in the first place, that bill would probably be beyond their ability to pay.  This is why it is essential for everyone to have health insurance.  An emergency room visit which personally paid a total of $180 in co pays would cost an uninsured person 41 times that amount.  However, that was only for one hour visit.  What if an uninsured person is brought to an emergency room following an accident and then has to be hospitalized for over a month?  His or her bill could easily be hundreds of thousands of dollars, enough to drive most people into bankruptcy.  That explains why medical expenses are the number one cause of bankruptcies in this country.

Now there are those in this country who apparently subscribe to the philosophy of “I worked for my money and I can afford the very best health services, so why should I care what happens to everyone else?”  The obvious answer is that we live in an interconnected economic environment which is consumer spending driven.  Families and individual who are forced to pay ever increasing percentages of their income for healthcare insurance, or instead pay the devastating price of not having insurance, will have less and less money to spend on everything else.  As demand for other products and services drop, the entire country’s economy is restrained and we all feel the negative effects.

We are all also affected when people cannot or will not purchase health insurance, whether it is because they have preexisting conditions, or because they are young and think that they are immortal, or because they legitimately cannot afford to buy a policy.  When these people have serious illnesses or accidents and can’t pay for the health services they require, someone must bear those costs. The hospitals and other providers are not going to absorb the losses so the additional costs are passed on to the rest of us in the form higher service charges and ultimately higher insurance premiums.  In addition, when the poor need to see a doctor and can’t afford an office visit, they often go to a hospital emergency room because by law they cannot be turned away.  Not only do they clog up our emergency rooms with non emergency cases,  the high costs of their visits are also passed on to the rest of us when they can’t pay.  Also among the poor, small problems which could have been dealt with fairly inexpensively with preventive medicine are allowed to grow into serious illnesses which are much more expensive to treat and then the related costs are again passed on to the rest of us.

The bottom line is that until now in this country we have relied on free market forces and competition to control healthcare costs and this just has not worked.  We pay far more for healthcare than any other country and get far less bang for our buck.  If we allow the status quo to continue an ever increasing portion of our gross national product will have to be used to pay for healthcare costs, strangling the rest of our economy.   Our current path therefore is unsustainable and something must be done.

Is the Affordable Care Act the right solution?  That remains to be seen.  Maybe it will have to be tweaked or perhaps it will even require a complete overhaul, but one thing is clear.  We cannot continue to allow healthcare costs to continue to rise by leaps and bounds and we cannot continue to allow a large segment of our population to remain uninsured.  Following the Republican course of doing nothing is no longer an option.

Cajun 12/8/13

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