Health care spending – use it, don’t abuse it

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Expert Perspective by Grahall’s OmniMedia Editorial Board

As the heath care debate continues so does the press coverage.  Reed Abelson says in his February 26th 2009 article in The New York Times (“The Cost of Doing Nothing on Health Care”) “…health policy analysts and economists of nearly every ideological persuasion agree [that without health care reform] …The unrelenting rise in medical costs is likely to wreak havoc within the system and beyond it, and pretty much everyone will be affected, directly or indirectly.”

The cost of health care is high and going higher without reform.

Abelson quotes Frank McArdle, a consultant with Hewitt Associates, as saying: “Spending so much on health care is ‘really a waste of people’s money.”   This raised a few eyebrows at our morning breakfast.

We sincerely hope Mr. McArdle didn’t mean our healthcare spending is a misuse of money, but rather an inefficient use of it.  We believe that caring for the health of the people of our country might be THE most important place to spend our money.   As Robert Cirkiel said in his blog Riddle me this Taxman:  “Americans have continued to enjoy an envious standard of living for just a handful of reasons – free markets that engender ingenuity, plentiful natural resources, and high worker productivity.  I wouldn’t take any of that for granted any longer.  An unhealthy population won’t be able to maintain high productivity or for that matter defend our country’s safety and security.”  

Essentially the US is paying double what the rest of the world is paying for health care, and sadly we don’t have the twice the healthy citizens.

Abelson continues: The typical price of family coverage now runs about $13,000 a year, but premiums are expected to nearly double, to $24,000, by 2020, according to the Commonwealth Fund. That equals nearly a quarter of the median family income today.

While some employers will continue to contribute the lion’s share of those premiums, there will be less money for employees in the form of raises or bonuses.

We must remember that our economy (if not our approach to heath care) is an efficient system.  Thus, we do not believe that in the long run employers will pay for something they cannot afford.  Unlike governments, companies cannot run at a deficit for very long.

Therefore, while employers will continue to contribute the “lion’s share” toward health care costs as costs continue to rise,  One very surprising fact is that currently only about 60% of employers even provide health care coverage to their employees. And that number is declining. Without a cheaper, more efficient alternative, escalating costs could cause the number of employers providing health care coverage to plummet, leaving workers with the need to purchase health care, if not for themselves then for their dependents. 

Rarely mentioned as an aspect of American health care is the fact that many of the things making Americans sick are actually profitable in our consumer driven economy.  Living a “healthy” lifestyle can contribute to healthiness.  However, it may be politically untenable to include in the discussion of health care reform any proposals to tax business or individuals for unhealthy products, or individuals for unhealthy choices.  For example, the city of Philadelphia is considering a “soft drink tax,” as are other localities.  Let’s see what happens.And although one can see a similarity between an individual’s premium for auto insurance and that for health insurance (premiums could be lower for healthier individuals as they are when the driver has a “good record”), the argument against the comparison’s validity is usually that people don’t HAVE to drive. But they do have to stay healthy, and genetics and environment can play a big role in well being. 

On the other hand, perhaps that comparison could be reinforced when we acknowledge that non-drivers do have access to a “public” transportation option, whether it is a subway, a bus, a bicycle or their own two feet.  Sure, these aren’t as fast (or expensive) as driving a car, but they do get you where you need to be. Is a public health care option a part of the solution?

Another consideration in the health care cost area concerns  inefficiencies, errors, fraud – and just plain whopping prices for mundane services.  Elizabeth Cohen Senior Medical Correspondent for CNN (in her video “$1000 toothbrush?” says: “A trillion dollars is wasted in this country in ridiculous medical expenses” and gives examples including a hospital charging patients $1000 for a toothbrush, $140 for a single Tylenol and $23 for a pair of disposable gloves that retail for about $.24. And whether it is overpriced items or “errors” in billing (Cohen mentions a case where a woman was changed for 41 bags of saline rather than the single bag she was administered), it is at best abuse and at worst exploitation.  Cohen asks: “What the heck is going on here?”

We think that is a good question, but a better one for us to answer is “What the heck does Grahall recommend?” 

Grahall’s Robert Cirkiel offered this in his blog Ok Wise Guy What Would you do?: “Lower overhead costs.  Integrate care. Interject some competition.  Stop providing free care to illegals. Force some ‘tough love’ on Congress. Get healthy. Interject some more competition.”

Health care costs are the largest uncontrollable cost in an employer’s budget. absorbing about 50% of profit.  For the benefits manager charged with the job of controlling a company’s health care costs, a “good outcome” is seeing its costs rise by “only” 9% when competitors’ costs increase  by 10%.  With health care costs already rising at twice the CPI, the situation is unsustainable for any company.

For the most part, employers have waited in a state of inertia for the past year, waiting to see what changes, sweeping or not, Congress might enact through health care reform.  Now as prospects for significant health care reform are becoming more unlikely, it is increasingly urgent for employers to review their heath care programs and costs. 

Employers can no longer afford to look at health care benefits programs as basic entitlements, and they would be wise not to look at them merely as a component (ever growing) of the total rewards pie.  Rather employers should consider health care as a productivity tool, one that can increase the efficiency and effectiveness of its workforce and drive profits.  Viewing health care from this perspective can help a company and its employees to better connect heath care to the business strategy and the bottom line.

Contact Grahall’s OmniMedia Editorial Board at edie.kingston@grahall.com

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