Healthcare Costs

If Democratic candidates nationalize health care it will cost Americans tax dollars. Just how much, despite many educated guesses by respected economists, is still somewhat of a financial mystery. However, there is plenty of information on how expensive care is now.

Recent numbers by the Bureau of Labor Statistics reveal that health care costs account for 5.2 percent of annual expenditures in the Boston metropolitan area, significantly less than the average 5.7 percent paid across the nation. It is one of the most costly expenditures paid by consumers following housing, transportation, food, and personal insurance expenditures. The 5.2 percent paid accounts for the cost of health insurance as well as out-of-pocket expenses such as, co-pays, drugs (prescription and nonprescription),and medical supplies like cough medicine and band-aids.

In dollar figures 5.2 percent of annual expenditures translates into $2,791.93 paid annually in the Boston area. Average annual expenditures are higher here than they are in less affluent areas so despite being a smaller portion of expenditures, the dollar value turns out to be fairly large. As data becomes available, the Boston metro area may become even more of an anomaly as 2007 insurance legislation is implemented. The actual cost of health care is currently understated. Average consumer unit expenditures are described in per capita terms meaning that if one citizen pays $3,000 annually for health care and another pays nothing, average expenditures are $1,500 per consumer unit. When costs are accounted for every Massachusetts citizen paying toward insurance, measurements of average health care costs will bump up. The expenditure share for health care will be much higher per consumer unit and actually more accurate.

But health care is expensive, that is not news. What is news is that it would be cheaper if health care costs were supervised and regulated by the government.

Nancy Turnbull of Harvard School of Public Health attributes exorbitant costs for health care to rapidly increasing administrative costs. In other words, bureaucracy. The administrations of hospitals, doctor’s offices, and insurance companies in the health care industry are inefficient, while the federal government has been able to manage these drivers. Turnbull asserts that if administrative costs could be contained consumers would see savings of $200 to $300 annually, as a conservative estimate. Meanwhile, the federal government is already handling administrative costs more efficiently than their corporate counterparts. Of every dollar spent on health care just 2 percent received goes toward administrative costs while the private health care sector needs five times that. If administrative costs were controlled the average American consumer would take advantage of the savings already employed under Medicare and Medicaid. Which is more money back in the pocket, and more money stimulating our economy.

Meanwhile, tax increases proposed by Democrats might be contained to reasonable amounts and health care benefit provisions could be shifted to the government. In such a scenario consumers would see even larger increase in expendable income and a decrease in average annual health care expenditures. In the Boston metro area the average consumer earns $76,273 and as we figured pays on average $2,791.93 a year for health care. That is roughly 3.7 percent of their taxable income. To pay for universal health care at the federal level, Democrats could raise taxes by just less than 3.7 percent and consumers would see savings. In addition, constituents would enjoy simple administrative cost deflation in the following year just because the government can keep track of paperwork cheaper.

The current proposals for health care reform do not address these issues of administrative inflation. Republicans have not found the middle ground on this issue and instead, in entirety, have ignored health care. Democrats have proposed policies that will increase the health care coverage levels by providing coverage to qualifying citizens, but unfortunately it is a middle of the road policy and does not serve the people who already have health insurance but find it expensive. The Dems proposal should reduce costs over time, although in a manner somewhat akin to building new homes in the flood plane of a rapid river. Soon newly covered insurance beneficiaries will be paying into an inefficient system too.

Costs are increasing for health care at exorbitant rates that far outpace inflation. In 2007 costs for medical care services increased 5.3 percent compared to a 2.6 percent increase in average consumer prices. The industry is also extremely profitable. In the United States the average consumer unit that enjoys a before tax income of $59,628, paid $2,703 a year for health care. With annual average employment in the U.S. at 133,833,834 more than $361billion a year is paid to health care just by private citizens, if every employee paid average costs. Plus, employers pay huge premiums to provide health care to employees which probably triples income. Efficiencies that are not employed in our current system should in fact be easy to sniff out in the profit ridden industry of health care, but not if we ignore them.

In the big picture, health care is currently too expensive but is necessary for everyone. Of course disabled and elderly citizens get care for free. This is America, and it is a responsibility. But tax paying citizens deserve affordable health care too and at a price private industry is not able to provide. Too many things depend upon a reliable system of health care to have it left up to market inefficiencies and shifts of corporate competition. America deserves better and right now government regulation provides a solution.

It is not such a drastic idea. Health care costs already have an effect upon consumers similar to taxes. Health care costs reduce expendable income, narrowing the ability of consumers to choose between available goods and services. They force consumers to pay into a system over which they have little control. (Even in an open market system consumers have the choice between a company provided health insurance and, well, that’s all.) Meanwhile, other sectors of the economy suffer as the health care system drains expendable income.

So, how much will health care cost this year? The public can decide or once again it can leave the decision to a corporate health care executive. While vacationing in Figi, he will definitely make a decision with your best interests at heart.

For more info: The New England Journal of Medicine, Sherry A. Glied, Ph.D. (http://content.nejm.org/cgi/content/full/358/15/1540)