Assessing the Real Cost of Health Care in America

Assessing the Real Cost of Health Care in America
We can’t measure the real cost of any public program, unless we consider the economic factors, such as opportunity cost, which is the cost of spending excessive resources on health care that could otherwise go to something else. In order to do this, lets look at what other industrialized countries have in per capita income and what they are spending for health care. Based on 2006 income data the United States is no longer the wealthiest country per capita. Norway is the wealthiest country with $53,100 dollars of gross national income per person, compared to the USA’s $44,200 per person. Ireland is third with an income of $41,300 per person. What is interesting is both of these countries have national health care plans and higher taxes than in the United States. When you compare spending on health care, citing the Journal of Health Affairs article published in June of 2004, Norway spent $2,920 per person compared to the United States $4,487 per person, and Ireland spent $1,935. Even Switzerland, with its high cost of living and land locked economy, spent considerably less than the United States, at $3,322 per person in that year.

Cost of USA Healthcare Impedes Economic Growth
Health care costs are frequently measured against Gross Domestic Product, which is the sum of what we produce in the United States. As a former farmer’s daughter, I grew up owning the ethos that we are what we produce. Gross domestic product per person is also greater in Norway than in the U.S.A., with $102,400 per person versus $90,700. (Ireland’s GDP is not on the top 13 list, so I have not listed it.) Even when you look at GDP per hour worked, the United States is not in the top three. Here is that breakdown; Norway $72.70/person/hr., Belgium $56.10/person/hr., Netherlands $52.10/person/hr., France $51.30/person/hr. and then the United States with $50.60/person/hr. There are a variety of ways to measure the value of a gross domestic product, such as per person per hour worked or just per person, but either way, the United States is no longer preeminent in GDP. When you couple that with the loss of the dollar in value throughout the world, (the Euro is worth 50% more than the U.S. dollar now), the cost of America’s existing health care system must be examined as an impediment to real economic growth.

USA Spending on Health Care
The argument against a cohesive national health care plan is often based on the presumption that financing national health care would be excessive, but in fact, all of the countries that have national health care programs spend less than the United States. It is time we as a nation look at what we are getting for our health care investment. Lets review the current financing mechanisms for health care in this country, including; federal programs, employer sponsored health care plans, and individually funded health care. Citing the most recent Kaiser Foundation reports for health care spending here is the breakdown for the United States Health Care Budget excluding Medicare:
Medicaid- (05 data)- $4,202 per individual
SCHIP Medicaid (05 data)-$-1,509 per child
Employer Plans (06 survey)-$4,479 per individual
$12,206 per family
Individual Plans (04 data)-$3,331

Determine What We Are Getting
No matter how you look at health costs in the United States, we are spending much more than any other industrialized country. Using this comparison of current health care programs and their costs, the reader should conclude they have a minimum budget of $3,397 per person for health care. As a society we need to determine the best way to finance our health care, which is already paid for by the individual through taxes, direct contributions, and increased costs in goods and services to cover corporate benefit programs. The question on the lips of everyone then becomes "What am I getting, not just what is the cost of the program."

Assessing Hidden Costs
To reveal the true cost of any program you have to do a solid cost/benefit analysis, which takes into account hidden costs like pass-through expenses for inadequate reimbursements to clinicians. An example of a hidden cost is when Medicaid fails to adequately pay hospitals or physicians for services, thereby requiring those providers to recoup higher fees from other patients in order to stay solvent. Other hidden costs include re-insurance for catastrophic claims for private plans, which the government could subsidize through a stop-loss guarantee and save employers about 5% in administrative expenses. Other areas of expense include plan administration and claims payment, which could be streamlined by requiring regional health care organizations to offer uniform benefits, and standardized claims processing. This could generate another savings of 3% to 6%. This combination of changes then creates the budget for allocating health care benefits, such as covering everyone for primary care.

Budgeting National Health Care
I did a quick calculation on how our health care investment, which averages $3,758 per person (excluding Medicare), compares to the average USA wage, and it is 7.68% of the average wage. So, if employers were going to continue to contribute to the cost of national health care, their share would be about half of that, or close to 4% of wages. This could be paid by contributions to a mandated benefit plan or through a payroll tax increase, but I am betting employers would rather contribute to a health plan than pay more taxes. Individuals would pay half of that figure also. For people who are of low income, the federal government would subsidize their cost. In this way we would have the start of an equitable health care financing system, where the budget is transparent, and inclusive of everyone. So, the next time you hear someone talking about health care costs, make sure you consider the whole picture, not just the insurance premium and not just the tax contribution.

This article was written by Roberta Winter, MHA, MPA and may be reprinted with her permission.


Recap on Presidential Candidate Health Care Reform Platforms
Deciphering Health Care Reform Platforms
This is part four in a series on the health care reforms as stated by Clinton, McCain, and Obama. I review wage and tax, as well as Medicaid and private health plan cost data. Briefly here are the summaries of the candidate health care reforms:
Clinton
Would extend health coverage to all residents through a combination of Medicaid/SCHIP expansion, employer mandates, and federal subsidies. Clinton would allow U.S.A. residents to enroll in the Federal Employees Health Benefits Plan if they do not have employer-sponsored coverage.
Who Pays
Clinton would require large employers to offer health insurance to their employees. She would also require residents to have health insurance. Clinton would limit tax cuts for taxpayers with incomes over $250,000 per year and use the revenue generated to pay for the federal subsidies for health care, like Medicaid expansion. She also estimates a reduction in expenses for payments to hospitals for the uninsured, probably through reduction in disproportionate share reimbursements.
McCain
McCain would not extend health coverage to all residents, but he would expand Veterans Benefits.
Who Pays
McCain want to change clinician reimbursements through the creation of a single fee for coordinated patient care, as opposed to the current DRG reimbursement based on billing per item. This reimbursement might benefit primary care providers more and possibly specialists who work with chronic diseases, like diabetes. It may not be to the benefit of all physicians however as some current reimbursements would either be eliminated or reduced. He indicates he would reform the tax code, including the elimination of tax preferences for employer paid health benefits. He would also provide a tax credit for individuals to obtain health insurance. He advocates medical savings accounts and high limit catastrophic insurance coverage with multi-year contracts.
Obama
Obama would require all children to have health insurance or to be covered on the Supplemental Childrens Health Insurance Plan, SCHIP. He would also require employers to offer health insurance coverage or to contribute to the cost of the public health plan alternative. Obama does support mental health parity, which would be a big plus for hospitals, who are the refuge for the mentally ill who can’t obtain other treatment. Obama would offer to federal reinsurance to employers, to protect them from significant medical claims. This provision would be very attractive to employers who are currently struggling with an unstable re-insurance marketplace.
Who Pays
Employers would be required to pay for the cost of health insurance under the Obama plan. Obama would also discontinue tax cuts to those with incomes over $250,000/year. He has not specifically identified revenue recapture under projected savings for health care reforms, but he does talk about gains through efficiencies.