Wednesday, August 09, 2006

Econ-Atrocity: Health Care on a Wing and a Prayer

Health Care on a Wing and a Prayer
By Jonathan Teller-Elsberg, CPE Staff Economist

Millions of employed Americans who are offered health insurance through their jobs are turning down the benefit because of high costs. This has been a tragic fact for many years, but the situation is only getting worse.

According to a recent report from the Robert Wood Johnson Foundation, the number of workers who declined to accept health insurance when it was offered by their employer increased by three million between 1998 and 2003. All told, some 12 million workers eligible for work-based health insurance turned it down in 2003.

Over the years of the study, the average annual cost to the worker to accept employer-supplied insurance went up by over $1,000, a 42% jump. It hardly needs mentioning that average wages have not kept pace.

Rising costs are not necessarily the reason that all of those 12 million workers declined the offered coverage—some workers turn down the health insurance from their own job because they are better off being covered as part of a family member’s work-based insurance.

Still, cost is the reason that most uninsured people lack coverage. Insurance costs have been rising for workers and employers alike. In both 1998 and 2003, employers who offered health insurance to their workers covered an average of 82% of the premiums. This means that employers also faced a 42% increase in their costs of providing health benefits. A predictable result is that more and more employers decide not to offer health insurance even as an option.

Altogether, 34% of full-time workers in private industry were not covered by employer-provided health insurance in 2004. Even those lucky enough to have insurance as an option, and lucky enough to be able to afford their share of the premium, have faced rising healthcare costs that take a toll. Rising deductibles, capped coverage, and other aspects of miserly insurance plans leave working people facing terrible financial risks. In 2001, half of Americans filing for personal bankruptcy cited medical expenses as helping to push them over the line. Of those, three quarters had health insurance when their illness or injury struck.

Clearly, the health care system in America is out of whack. When millions of workers can’t afford coverage, and many who have coverage are still driven to bankruptcy because their insurance is so stingy, we need real alternatives.

The simplest solution is a national health plan that provides universal coverage. From Canada to New Zealand, all the other economically advanced countries of the world offer examples of health care systems that care for peoples’ health instead of insurance and pharmaceutical corporation profits.

Until citizen pressure drags such a solution out of a resistant government, people can band together to create insurance alternatives. A leader in this type of grassroots movement is the Ithaca Health Alliance health care co-op, which provides a wide range of services for only $100 per year.

Sources and resources:

© 2006 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author's opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.


At 9:31 PM, Anonymous Brook Monroe said...

The simplest solution is a national health plan that provides universal coverage. From Canada to New Zealand, all the other economically advanced countries of the world offer examples of health care systems that care for peoples’ health instead of insurance and pharmaceutical corporation profits.

Show me an "economically advanced" country offering universal health care to 300,000,000 citizens and I'll believe you. Great Britain has 60.8 million people, and the universal care system there is demonstrably broken. Canada has ~33.1M people, and Canadians still wait in line for many procedures. New Zealand isn't even in the top 50 most populous countries.

The problem is, the universal health care proposition doesn't scale well. The more people you put into it, the less workable it becomes. Even if the unworkability function is simply linear, any universal health program developed in the United States would end up approximately five times worse than what Great Britain has now. What rational being would want that?

The tax consequences on the population would be horrendous. Essentially, the vast majority of citizens would be working just to provide revenue to pay for other people's health care. If you disagree, show me some numbers that prove otherwise, Mr. Jonathan Teller-Elsberg, CPE Staff Economist!

Point of order: the vast majority of major pharmaceutical companies are not based in the United States, and the United States has no obvious vested interest in keeping foreign corporations in business. Furthermore, you miss the essence of the problem entirely. The system we have today isn't built on generating profits for insurance and multi-national pharmaceutical corporations, it's the result of generating profits for multi-partner law firms. Once lawyers realized there was money to be made in (often dubious) actions against these companies, the attacks began, and they haven't stopped yet.

Practically every day when I drive to work, I hear a radio ad from Jacobs & Goodman, in which some friendly-sounding lawyer says that when you've been injured, the insurance companies want to pay you as little as possible. (Well, duh. That seems like basic business economics to me.) He then goes on to relate that by hiring the firm, you will force the insurance company to pay you "everything you deserve." He fails to mention that most, if not all, of the extra collection from the insurance company will simply fall into the law firm's coffers, not your own. As adding Jacobs & Goodman to the mix will delay the payout, it seems to me that one would just be better off taking what the insurance company offers. To eke out another 1% isn't worth the wait. For some reason your writeup doesn't mention this issue. Why is that?

The pharma-corps operating in the United States have only 17 years of patent protection on the medicines they create. It takes (most times) five to ten years to develop a medication to the point where it can be tested on humans, at which point the FDA demands years and years of testing before deciding that the drug is safe enough for the marketplace. Many times the pharma-corps are left with less than thirteen months of patent protection left before the medicine can be produced generically. They invest $20-30 million in development, and have enough time to sell a couple of thousand pills before the hangers-on start crowding the marketplace with knock-offs. Is it any wonder that the cost of the end product is high? (Corporations exist to make money for stockholders, yes? These monies often end up in retirement accounts for people smart enough not to rely on Social Security pensions for all their needs in old age. Why would we want to endanger this?)

But wait--after the drug hits the streets, as soon as someone taking the drug decides it caused a runny nose not mentioned on the info and warnings sheet, they go to Jacobs & Goodman and sue for $300 million, which is often 10 times what it cost to bring the drug to market in the first place. The legal system, being largely populated by people with little or no scientific background (and therefore no relevant perspective), often just award the money because they figure they're "sticking it to the man." Many of the jurists and jurors, depositing money in mutual funds or managed 401K programs for retirement, are in fact sticking it to themselves, because in our economy, we are "The Man." Money not paid to greedy lawyers is money that either ends up in the hands of investors (nothing wrong with investors), or used in the development of new medications, advancing the science.

I notice you didn't mention this in your writeup. Why is that?


Sorry, I just realized that I'm writing to a Socialist.

Never mind, you wouldn't understand economics anyway. My bad.



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