Health care economics make definition of 'cost' problems difficult

Statistics about the access, cost and financing of health care in the United States are enough to make anyone sit up and notice.

• About one in seven Americans (15.7 percent) lack health insurance. That’s just short of 46 million people.

• According to the latest federal figures, health spending accounts for 15.3 percent of the nation’s economy. Health care spending of $1.68 trillion in 2003 works out to $5,670 for each American. By 2013, the government forecasts, health spending will reach 18.4 percent of gross domestic product.

• Spending on major government programs such as Medicare, primarily for the elderly, and Medicaid, mainly for the poor, continues to rise. The effects are being felt in the federal budget deficit and in the operating budgets of most state governments.

Then again, it’s been pretty much that way since the late 1990s – when a brief lull in health-care inflation ended – and the situation has yet to trigger a rush to innovation in the White House or the statehouses. Aside from suggestions to change the system around the edges, the “reform” world remains divided into two camps: Those who think the government should run a much larger share of health care, and those who think individuals should have the dominant role. One side preaches the merits of a “single payer” health-care system, while the other argues for “health care savings accounts.” This policy stalemate won’t likely break until both sides stand back from their solutions long enough to re-estimate the core problem: What effects, good and bad, is the status quo having on American economic competitiveness?

Wisconsin is a good example. Only 9 percent of its citizens lack health insurance, thanks mainly to a longstanding tradition of corporate coverage. The state’s insured rate is among the best in the nation, but the percentage of uninsured is climbing – even among working families.

Companies are trying to keep pace, but the cost of providing health-care coverage is often too much for them to bear. That’s especially true with start-up firms, which operate on thin margins – often losing money in their early years – and which must keep costs low in order to stay in business. They may wish to offer health insurance to their employees, but not at the cost of jeopardizing the business.

Wisconsin may also suffer a competitive disadvantage when it comes to employer-paid health-care costs. A few years ago, a study by the Business Health Care Group of Southeast Wisconsin revealed that health-care costs in the Milwaukee area were 50 percent higher than costs in other Midwest communities. At the time, Milwaukee-area employers paid an average of $6,000 per employee, per year for health care, compared to $4,500 in Chicago and $2,700 in Minneapolis.

Of course, Wisconsin business executives are not alone in their worries. A December 2004 survey of CEOs found that employee health care costs are the foremost cost concern in the minds of America’s business leaders.

Is the answer to rising costs a modified “rationing” of health care or controls on new technology? Let’s hope neither is a part of any solution.

Economists agree that health-care spending, while rising faster than inflation, is also contributing to a healthier, more productive workforce. That provides a competitive edge in a world where developing giants, such as China and India, have increasingly younger populations.

Innovative technology is more expensive up front, but it pays big dividends over time. A federal Health and Human Services study of the effects of health-care spending on the U.S. economy noted that many economists believe the cost of medical care is actually decreasing when adjusted for improvements in quality.

“In this view,” the HHS study noted, “increased health care spending improves access to new technologies — providing both new options of treatment (substitution) and treatment for a greater number of individuals (expansion).”

Finally, a case can be made that an expanding health-care sector is generally good for those regional economies fortunate enough to have a concentration of hospitals, clinics and research institutions. That appears to be true in parts of Wisconsin, the Milwaukee area included, where quality health care products and services are a growing “export” industry. In short, higher health costs are pinching some industries but creating jobs in other sectors.

If Wisconsin is a microcosm of the health-care debate, consensus will be elusive. The economics of reform must be carefully calculated to create more winners than losers. Let’s define the problem before digging in around solutions that may not fit the need.


The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.