Posted by: dstieglitz | June 30, 2010

WHO PAYS THE BILL?

     The recent changes in health care got personal when I became eligible for Medicare on June 1st and was responsible for arranging my own coverage. Starting in April, it took three months to replace my previous policy with a complex set of insurance programs. I was granted Medicare Part A (hospitalization) and Part B (medical) coverage three weeks after submitting my application – then the challenges began. Which supplemental plan should I choose to pay for items that Medicare doesn’t cover, and should I enroll in a prescription drug plan (Medicare Part D). Those programs, which are offered by commercial insurance companies, were in limbo pending modifications to conform to the new health care bill passed by Congress.

    The bottom line is my combined monthly premiums for Medicare, supplemental coverage, and prescription drug coverage are roughly 10% higher than my previous policy which included dental. Furthermore, the deductibles (particularly for drugs) are higher than I paid under my old policy. I expect the higher monthly cost I pay for inferior coverage is subsidizing coverage for the 47 million previously uninsured people who may get health care coverage. Now that I manage my own health care (instead of my employer doing it for me), I am keenly aware of my responsibility for managing the cost of that coverage.

     In 2009, the U.S. spent $2.5 trillion on health care. By any measure, way more than other countries spend even though we have a younger population than most. According to the World Bank: (1) the U.S. ranks #1 in percent of GDP (15.4%) spent on health care – France is #2 at 10.5%; (2) the U.S. ranks #1 in health spending per person ($5,283) – Japan is #2 at $2,243 per person per year; and (3) the U.S. ranks #28 in life expectancy – 77 years versus 82 years for the Japanese who are ranked #1. Health care costs in the U.S. are rising faster than GDP – but so are sales of 3D televisions, hybrid cars, and iTunes but no one sees those increases as a problem. We’re concerned about rising health care costs because we feel we aren’t getting our money’s worth. But that’s a problem for which we are individually responsible. 

     You may ask: How am I responsible for the cost of health care? It’s because collectively we are getting older and heavier, we have bad habits, and we are afraid of lawyers. The U.S. health care system is twice as expensive as European plans because we have twice the amount of chronic conditions caused or exacerbated by lack of exercise, over-eating, smoking, excessive alcohol, and avoidable stress. Fortunately, the rate of lung cancer related to smoking is declining, but nearly one-third of us are clinically obese. Nearly 4 million Americans weigh more than 300 pounds, and the average weight of an adult American women is a shocking 163 pounds! Obesity contributes to an expensive set of chronic conditions including diabetes, heart attacks, and strokes. To the extent you and I have an unhealthy life style, we drive up the cost of health care.

     Relative to our fear of lawyers, the biggest health care cost isn’t malpractice insurance or malpractice awards which the AMA estimates to be 1% to 2% of health care costs. Rather, it is the marginally necessary procedures our doctors order to protect themselves from career-ending lawsuits. Experts estimate that defensive medicine is the reason for nearly 25% of all MRIs, X-rays, ultrasound, lab tests, and other diagnostic procedures. You and I are responsible for the cost of such procedures because we accept them, and unconsciously assume someone else (our insurance carrier, our employer, or the government) is paying the bill.

    Over 80% of Americans have health insurance but no idea how much it costs or who really pays for it. Workers with employer-provided health insurance think their employer pays the bill, but in fact it comes out of their wages. Similarly, taxpayers pay the bill for the old and the poor through Medicare and Medicaid. According to the Bureau of Labor Statistics, employer-provided health insurance reduced wages by 8%. The recent stagnation in middle-class wages is partly caused by health care inflation.

    Some say fee-for-service medical care is why the costs are high. The fee-for-service argument asserts that since doctors are paid for each service, we incentivize them to prescribe more services. But fee-for-service isn’t a problem when we buy dry cleaning services or car repairs and decide exactly how much we need. On the other hand, when I go for my annual physical and my doctor recommends a test or procedure, I always say yes. Why would I say no when, at most, I pay only 15% of the bill. I walk away thinking the costs are paid by my insurance company when, if fact, they are passed on to my employer as higher premiums, who passes them on to me in the form of lower pay. So the reason we receive excessive health care services isn’t the fee-for-service business model. Rather it is that we think someone else is paying for them. If each of us felt responsible for the cost of our health care, we would be more deliberate in selecting the services we receive.

     Another cost-driver in health care is the reality that we will die some day – but we don’t want it to be today! So demand skyrockets for expensive, near-death care that delays the inevitable. Politicians don’t acknowledge this, of course. Instead, they imply we will receive whatever treatment is required. But what does that mean? Everyone would agree that spending $10,000 to save a child’s life is a no-brainer. But what about spending $1M to extend the life of a terminally ill patient=s life for a month? If five patients need a heart transplant and there’s only one heart, who gets it? Who will decide – should it be the government, the insurance company, or a “death panel” of doctors? And who should pay for such services? The logical answer to these questions is politically and emotionally untenable because the answers are more about personal responsibility than public policy.

     Like myself, few Americans understand how the far-reaching health care changes enacted by Congress will affect them. The 47 Americans who are uninsured have a lot to gain – but they are just 15% of the population. Everyone else has something to lose. Most of us don’t trust the government to do anything, let alone make life-and-death decisions under an open-ended entitlement system that does nothing to contain health care costs. But you and I can reduce health care costs by making responsible life style and health care choices.

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