Annapolis Institute Overview


Healthcare Problem Moves to Front Burner

by Phil Burgess, Unabridged from the Rocky Mountain News, March 9, 1993

Healthcare is now on the front burner. How this issue is managed could well determine the fate of the President’s economic plan and perhaps his presidency. Putting Hillary Rodham Clinton in charge of the healthcare working group, the president promised a proposal to Congress within the first 100 days. The problems to overcome are many, but four stand out.

  • Healthcare costs are out of control. For 85% of Americans who receive the best healthcare in the world, costs are going through the ceiling. Since 1981, healthcare costs have been rising at more than twice the rate of the Consumer Price Index. Healthcare now accounts for 14% of GNP and will top $900 billion this year. Reasons: pricey new medical technology and increasing intensity of care — including defensive medicine to avoid medical malpractice, and $70 billion in wasteful administrative costs.

Rising healthcare costs have two important impacts: (1) They are breaking the bank of federal and state governments, which share the substantial costs of Medicaid (for the nation’s poor) while the federal government funds Medicare (for older Americans); and (2) they are imposing very heavy costs on American business, making it more difficult for U.S. business to compete internationally. For example, the price of each U.S. produced car includes nearly $1,000 of healthcare costs, nearly double that of a car produced in Japan.

  • Too many Americans are uninsured — somewhere around 37 million — and the number of uninsured and underinsured grows daily as the cost of health insurance rises. Without insurance, access to healthcare is limited and tends to be more costly when it does occur. Reasons: (1) people with problems end up going to hospital emergency rooms, where healthcare costs the most; (2) there are epidemics of preventable diseases, such as measles; and (3) costs of “free” services given to the uninsured become hidden taxes on those who pay for and provide care, driving more into the uninsured category as insurance costs go up.
  • Healthcare consumers have insufficient information to make wise healthcare purchases. Examples: The Jackson Hole Group (JHG), an influential Wyoming-based healthcare reform group, points out that elderly residents of Miami, Florida spent twice as much per capita for medical care in 1992 as elderly living in Rochester, Minnesota — even though many of the latter received treatment at one of the world’s leading medical facilities, the Mayo Clinic. Yet, this information is hard to come by for the average consumer. As the JHG says, “Consumers lack standardized information on the comparative results achieved by healthcare providers (and) are reluctant to choose lower-cost providers for fear they will be sacrificing quality.”
  • The current healthcare system hurts small business. Even though half of all Americans work for companies under 100 employees, health insurance premiums and administrative expenses can be up to 10 times higher for small groups compared to large groups. Reason: small companies are unable to take advantage of rate competition, risk spreading and efficient claims administration when buying health insurance. The result, according to the Health Policy Council of the Center for the New West: Many small business employees, not covered by employer provided healthcare, become part of the uninsured pool, reducing access (and creating social equity and economic productivity problems) and driving up costs for the insured.

The challenge now facing the administration is daunting: how to control costs in the short-term without jeopardizing long-term needs for reform in the delivery and funding of healthcare.

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