Health care economics make definition of 'cost' problems difficult


Health care economics make definition of 'cost' problems
difficult
By Tom Still • 01/02/06
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. Thats just short of 46 million people.
According to the latest federal figures, health spending
accounts for 15.

3 percent of the nations 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, its 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 wont 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 states 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. Thats
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 Americas
business leaders.
Is the answer to rising costs a modified rationing of health
care or controls on new technology? Lets 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. Lets define the
problem before digging in around solutions that may not fit the
need.
Tom Still is president of the Wisconsin Technology Council.

He
is the former associate editor of the Wisconsin State Journal in
Madison.
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.



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