As I See It

by

Published: November 17,2003

The time has come for us to face up to the health care crisis our nation faces.

A column by Michael K. Evans, chief economist for the American Economics Group in Washington, D.C., that appeared recently in Industry Week sheds a little light on the subject of ever-rising health care costs.

Based on some fairly simple and realistic assumptions, Evans points out that in 10 years we could be spending half of our income on health care. Assuming that federal and state taxes get another 40% of our earnings that would leave only 10% of our income to pay for everything else — a disturbing situation.

What are the options? Assuming, invalidly in my opinion, that the situation is helpless and health care costs cannot be controlled, there are only three choices for who pays the bill: the consumer, the employer and the government.

I do not think consumers will pay half their income for health care services. Next in line is the employer. Let’s do some more math.

If total health care expenses are $1.45 trillion and the government pays around $450 billion, the private sector must pay the balance, around $1 trillion. If that number grows at 15% per year, the private sector would be paying $4 trillion by 2013, an increase of $3 trillion.

If corporate profits keep pace with the economy overall, Mr. Evans predicts that total pre-tax profits will be about $1.4 trillion in 2013. How can $1.4 trillion absorb a $3-trillion increase? The answer is simple: it can’t and it won’t even try.

Ah, how about the government picking up the tab? This option is frequently discussed.

National health insurance or the outright socialization of health care are both being widely discussed. Resorting to government control of health care seems like a reasonable solution but actually doesn’t address the problem at all. The problem is escalating costs and handing the problem to the government doesn’t do anything to control, or reduce, the cost of health care.

How did we get in this fix? The causes are numerous. People living longer, availability of miracle drugs and treatments, lawsuits and ever increasing liability insurance costs are some of the causes of the problem. None of these appear likely to diminish in the near future.

What’s the solution? Nationalize medicine? I don’t think so. Americans will not permit the type of health care being delivered in countries that have socialized medicine.

No, the solution is far from socializing the medical community. I think the only plausible solution is to create a consumer. As it now stands, no one is responsible for curtailing health care costs. The patient doesn’t care how much health care costs as long as the insurance company is paying the bill. Likewise, the insurance company doesn’t have any incentive to control costs because they’re merely going to mark up the cost and pass it through to the employer. The health care community is forced to practice defensive medicine to keep the lawyers at bay and, besides, they like to have all the latest bells and whistles whether economically justified or not.

Nobody is kicking the tires and looking for the best deals and making judgements about whether they even need the treatment in the first place. That could change overnight if consumers were given a fixed medical care allowance from which they would pay their health care expenses. Whatever they didn’t spend would carryover to succeeding years. Whatever balance remained at their death would be distributed to their families.

In his column, Mr. Evans suggests another novel ingredient. A two-tier pricing system that would allow substantially lower cost health care services for those who sign away their right to sue.

Can you imagine how things would change if patients were allowed to keep what they didn’t spend? In a short period of time, unnecessary pills and treatments would evaporate as consumers negotiated with health care providers. Physicians, hospitals and drug companies would be quickly forced to trim the fat and get competitive or a medical Wal-Mart would eat their lunch. The small minority of tort abusers would find themselves paying for their own lawsuits while the vast majority of medical consumers would enjoy lower prices.

Just a dream? Perhaps. But something drastic is going to happen in the near future. Consumers are gettin’ mad and they ain’t gonna take it anymore.

Thought for the Day — If something comes to life in others because of you, then you have made an approach toward immortality.

— Writer and editor Norman Cousins (1915-1990)

Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at cpajones@msbusiness.com.


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