Suppose you opened the mailbox one morning and found a $5,400 medical bill. Now, suppose you found another $5,400 bill for your spouse and one for each of your kids. It would be pretty shocking, of course. But that’s the
Suppose you opened the mailbox one morning and found a $5,400 medical bill. Now, suppose you found another $5,400 bill for your spouse and one for each of your kids.
It would be pretty shocking, of course. But that’s the average health expenditure per person in the United States each year. There is no one else to pay that bill besides the American people.
The individual bite varies with employment, age and health. But the chances are that you’re paying a lot more for health care than you think.
How? You pay through your paycheck. You pay every time you buy a car or a bag of groceries. You pay through taxes. And you pay through diminished opportunities for good jobs.
The American system of health care finance is a bizarre and wasteful mix of private insurance, government aid and consumer spending. It obscures the cost of health care and masks the truth about who gets stuck with the bill.
When all the layers are peeled away, the bill still lands with you. Let’s break that bill down to make it understandable.
In America, 63 percent of people under retirement age have health insurance through their employers. Family coverage costs an average of $9,950 a year, according to the Employee Benefits Research Institute. The average worker might think that, after she pays her share of the premium ($2,660 on average), her co-pays and deductibles, that she’s home free and the company picks up the major tab.
But most economists have a different view. Employers pay for health insurance in order to attract and keep good workers. If they didn’t pay for health care, they’d have to pay higher wages. Insurance is a part of the price of your labor.
Viewed through economists’ eyes, the bulk of that $9,960 family insurance bill really falls on you, the worker.
When health insurance costs rise (the increase this year was between 7 and 12 percent), employers limit raises for the rank and file and shift more insurance costs to their employees.
“The consensus among economists is that, perhaps after a short lag, employer costs fall on workers through retarded wage growth,” says Henry Aaron, an economist at the Brookings Institution.
Part of the rising cost also gets passed on as higher prices for consumer goods. And therein lies a problem for job seekers and for the entire U.S. economy.
Fewer jobs
America pays about twice as much per person for health care as Western Europe, Canada, Australia and Japan, based on a measure adjusted for purchasing power. The cost gap is even wider with poor countries.
General Motors says that health care costs add $1,400 to the cost of every new car made in America. The estimate is $1,000 at Ford. The rising cost of health care spreads to everything from groceries to your gas bill.
That’s a growing problem for American companies that compete against imports. “Our foreign competitors don’t share these problems,” Ford Vice Chairman Allan Gilmour told the National Governors Association last July. “They have created a competitive gap, that if unchecked, will drive investment decisions away from the United States.”
In other words, the health insurance mess could move your job to Mexico.
Or Canada. In a 1999 study, the Conference Board of Canada concluded that American employers paid 2 times to 2.8 times more than Canadian employers for health care, even when higher Canadian health taxes are included. The cost of employee health insurance alone equaled 9 percent of American payrolls, and only 1.4 percent to 2.1 percent of Canadian payrolls. Of course, American health care costs have skyrocketed since then.
It’s also a problem for companies whose main competition is down the block.
The Wal-Mart effect
Retailer Costco provides good health insurance for 96 percent of its eligible workers, according to figures quoted in The New York Times. Competitor Wal-Mart offers a worse health plan that covers only 58 percent, and it’s harder to become eligible at Wal-Mart. So analysts on Wall Street denounce Costco for being too generous and its stock takes a hit. “At Costco, it’s better to be an employee or a customer than a shareholder,” huffed an analyst at Deutsche Bank in a BusinessWeek article last spring.
To dimmer job prospects and shrunken wages, add taxes to your health care bill. State and federal governments directly pay about 45 percent of America’s health tab, largely through Medicare and Medicaid. That comes straight from Joe and Jane Workers’ hides, with a bite out of their employer too. More taxes spent on health care mean less spent on schools and highways.
All that adds up. Using data from five years ago, researchers at Harvard Medical School calculated that the average American family of four was actually paying $17,400 for health care. It would be much higher today.
That high price tag creates a high stakes game of hot potato between employers, workers, doctors, hospitals and uninsured people. The game is called “cost-shifting.”
Much of it is played with 45 million uninsured Americans. More than half of them work at jobs that don’t offer health insurance.
They’re stuck with the potato first, because they can’t afford to get sick. A study of uninsured people with chronic illness found that four in 10 went without needed care. Two of three delayed care. Seven in 10 did not fill a prescription in the past year, according to the Center for Studying Health System Change.
When the uninsured do seek care, hospitals try to toss the cost – and then some – right back at them. Hospitals in St. Louis charge the uninsured as much as 230 percent of the actual cost of their care – far more than an insurance company would pay.
Naturally, that creates a lot of bad debt and personal bankruptcy. Hospitals try to pass that debt on to insured patients through higher bills. Their insurance companies then toss it on to employers paying premiums, who try to push part of it onto employees.
The bottom line: The uninsured get minimal care and get sicker because of that. Frequently, they end up very, very sick. Then, through the shell-game of cost shifting, employers that offer good insurance pick up the medical bills for employers who offer no insurance at all.
Up go insurance rates, leading more employers to drop insurance, which means more uninsured. And around goes the hot potato again, with everyone getting their fingers singed.
A similar routine involves the rising cost of technology, as the cost potato flies between hospitals, insurers, employers and workers.
American medicine works marvels. But medicine works the same marvels in other advanced nations at much lower cost. To the extent that we’re paying more than we need to for health care, we’re shrinking other parts of the economy. Billions wasted on medical bureaucracy and unneeded care could otherwise be invested in something productive, and all the unneeded billing clerks, hospital marketers and drug advertising executives could be doing useful things.
For the sake of every worker in America, for their employers and for the uninsured, we need to create a rational system of health finance in America.
