Dimension 1: "Health spending already totals more than $2 trillion annually, about 16 percent of national income (gross domestic product). By 2030, it could easily exceed 25 percent — one dollar out of four — projects the Congressional Budget Office. Higher health spending is the main force expanding the federal budget."
Those figures presumably include both private and government expenditures on health care, whether they come out of patients' pockets to cover their medical expenses, copayments, and insurance premiums; out of insurance companies' payments to health care providers; out of employers' payments to insurance companies to provide health coverage to the employers' workers; out of government health care payments through programs like Medicaid and Medicare; or what have you. Total it all up, and we Americans now carve 16 cents out of every dollar of our income "pie" to spend on health care, on the average, and within the lifetimes of many of us, that number will go up to a shiny quarter of a dollar or more.
Dimension 2: "There's a massive transfer of income from young to old. Americans 65 and older now represent about an eighth of the population and about a third of all health spending. By 2030, their population share will be about a fifth, and they could account for nearly half of health spending, finds a study by the Centers for Medicare & Medicaid Services. Under present law, the 19- to 64-year-old population would pay most of those costs."
Put those two dimensions together, and by 2030 working adults between the ages of 19 and 64 will be covering the lion's share of the nearly half of total health spending that seniors will by that time represent. That's roughly a dime out of every dollar of each youngster's income. Under present law, every able-bodied member of the pre-retirement workforce would have to fork that dime over in one form or another to underwrite the health care of doddering Americans. Hence the description, "massive transfer of income."
Dimension 3: "Neither the government nor the private sector has succeeded in controlling health spending. From 1970 to 2005, average spending per Medicare beneficiary rose 8.9 percent a year; spending for Americans with private health insurance rose 9.8 percent annually over the same period (the figures cover similar health services). The small difference may reflect cost shifting. When Medicare imposes price controls, doctors and hospitals increase prices for privately insured patients."
Think about that a while. Recent history has shown that health care prices are not held in check either by market-based activities of private insurers and health care providers looking to improve their bottom lines or by government agencies trying — and failing — to rein in costs through price controls.
Samuelson says we Americans don't see how the money flows through the complicated plumbing of today's health care system. It comes out of the pockets of us all, but in hidden, indirect ways. For instance, the health insurance coverage an employer buys for a worker is paid for — in part, since the worker also pays in premiums — by money the employer gives the insurance company. That money could alternatively have come directly to the worker as higher wages. But the worker never sees that.
When governments, federal and/or state, provide insurance coverage, as in Medicare, or subsidize patients' health care costs directly, as in Medicaid, some of the expenditures come out of general tax revenues, largely derived from income taxes or sales taxes. Again, the taxpayer doesn't see his or her tax dollars flow through the system and come out in the bank account of a doctor, nurse, technician, hospital, or pharmaceutical manufacturer.
Meanwhile, the patient himself or herself racks up expenses that are — apparently — paid for by other people. Other members of the same insurance plan. Other taxpayers. Other patients at the same hospital, through the accounting practice called cost shifting. Whoever the "other people" are is hidden from the patient's view, and the patient has no incentive to comparison shop for the lowest prices consistent with getting the best quality of health care services.
Often, the patient not only has no incentive to shop for health care bargains, he or she simply cannot do so. Perhaps the prices for drugs and other commodities are fixed at a certain level by the health insurer's agreements with providers in its network, so shopping around is pointless. Or perhaps there is only one available source of whatever it is the patient needs, because the health care system limits competition as an unintended consequence of how it is currently set up.
Patients today are therefore not really "consumers" in the usual sense of the word: people who desperately prefer to keep prices as low as possible when they shop for goods and services, and who avoid paying too much by bargain hunting.
And that, oldstyleliberal thinks, is both a good thing and a bad thing.
It's a good thing because, if you need a heart bypass, a liver transplant, or a mastectomy, the last thing you want to do is shop around ad infinitum for the best quality-to-price ratio. That takes time and effort when what you really want to do is get the scary thing over with as quickly as possible. You want to put yourself in the hands of the best surgeon you can find, and not necessarily the one who charges the least. You're unexpectedly sick — or maybe you've finally found a solution for a debilitating condition that's been sapping your strength for a long time — you're frightened, and you just don't want to die. So careful comparison shopping is not going to be uppermost in your mind.
But the fact that the current health care system pretty much obviates the need for comparison shopping and bargain hunting is also a bad thing because, as Samuelson points out, it is driving the explosion in health care expenditures. As a 60-year-old, oldstyleliberal can easily remember when there was not all that many surgical remedies available for heart patients, there were no liver or bone marrow transplants, there were no CT scans or MRIs, no screenings for breast cancer.
Medical care was pretty cheap in the days when penicillin was still the latest wonder drug. There was nothing that could be done to prevent you from getting tuberculosis or polio in 1947, oldstyleliberal was born, and if you did get one of these dread diseases you could easily die from it without ever racking up a lot of the life-prolonging medical expenses associated with ongoing patient care today.
Or you could wind up crippled or in diminished health for the duration of a normal lifetime — yet the monetary costs associated with post-polio or post-tuberculosis status were not all that high. President Franklin Roosevelt, a polio victim, could do little but visit the spa at Warm Springs, Georgia, and wear braces on his legs.
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| Sick by Jonathan Cohn |
At the time, as already noted, health care costs were moderate for even the sickest among us. The fact that being covered by insurance took away a patient's incentive to price-shop for health care had little negative impact. Things are a lot different now.
A little back-of-the-envelope figuring shows that when $2 trillion is spent each year to provide health care for 300 million Americans whose average life expectancy is 78 years, then every American will on average use $5.2 million worth of health care over the course of a lifetime. Think of it. Even in this age of homes that cost more than $1 million, that figure dwarfs what used to be considered the single most expensive thing a middle class person would most likely buy in his or her life: a house.
Of course, the prices of health care have gone way, way up, and way too fast, so oldstyleliberal figures the amount of money actually spent on his own health care needs during the first 60 of his allotted 78 years has been much less. Then again, if prices keep skyrocketing, he may still wind up costing the health care system $5.2 million by the time he is done.
A baby born today can expect to cost the health care system a lot more than $5.2 million, owing to the fact that health care costs continue to zoom upward. Something must be done, and soon.
As Samuelson points out in his article, "People need to see and feel health costs." Whatever else we do, we have to stop letting health care consumers proceed as if they're getting a free ride (even if the dollars they don't think they are spending on health care are actually feeding the present system in hidden, indirect ways).
Samuelson want to: "First, make Medicare beneficiaries pay more; many retirees can afford more. Second, create a dedicated federal health tax to cover all government health spending (Medicare, Medicaid, etc.). If health spending rose, the tax would rise. People would know why."
Third, he wants to "eliminate the income-tax exclusion for employer-paid insurance and replace it with a tax credit of lesser value. Workers would have more pretax income, but they'd have to spend more after-tax dollars for insurance."
Of the three proposals, oldstyleliberal likes the second one best. He thinks there ought to be a dedicated federal health tax as an income surtax. It ought to cover all of Uncle Sam's health care expenditures, such that Medicare, Medicaid, S-CHIP, and the various other programs would not draw from general revenues at all. It would be charged at a flat percentage of income; there's no sense in alienating economic conservatives by making it progressive, so as to take a proportionately greater bite out of the pocketbooks of the rich.
Starting it at a flat (say) 5 percent of income would make it easy for Americans to see how the rate was changing from year to year and ask embarrassing questions of politicians if the rate went up too much — and that's the whole point.
Meanwhile, oldstyleliberal favors substituting for Samuelson's first and third proposals — designed to re-jigger the monetary disincentives of the current health care system to patients to comparison shop and thus hold the line on prices — so-called "large HSAs": health savings accounts with fewer restrictions than today's HSAs currently have. Americans would use these accounts as "401(k)s on steroids" to replace or amplify the proceeds of regular health insurance coverage with their own tax-free dollars — dollars that it behooves them to spend wisely.
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