The true cost of spiraling medical inflation.

Gossip, speculation, and scuttlebutt about politics.
April 17 2009 6:42 PM

Health Haves and Have-Nots

The true cost of spiraling medical inflation.

My Slate colleague Mickey Kaus believes I'm wrong to argue that skyrocketing health care costs are a reason to enact health care reform:

[J]ust because rising health care costs have eaten up all of the average American's wage increases, it does not necessarily follow that either this rise was unwarranted or that health care costs need to be controlled. Maybe Americans, like richer people everywhere, want to spend more money on health care (as opposed to, say, newspapers) and advances in health care have given them more valuable services to purchase (or have their employers purchase for them) [boldface his].

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It's a fair point, as far as it goes. What we pay for the necessities of life does not remain static over time. In 1935, food accounted for 34 percent of all spending in the United States. In 1959, it accounted for 25 percent. Today it's more like 16 percent. If agriculture's green revolution can halve the proportion of family budgets devoted to purchasing food, why can't expensive scientific and technological advances in medicine take up the slack with health care spending? In fact, they have. In 1959, health care accounted for about 5 percent of all spending in the United States; today it's about 16 percent. During this period, life expectancy has increased about 10 years. A bargain!

But compared with what other countries are getting for their health care buck, it isn't a bargain at all. In Canada and France, for instance, health care accounts for 10 percent of all spending, as compared with the United States' 16 percent. Yet life expectancy is higher, and infant mortality is lower. The United States ranks 34th in life expectancy among the nations of the world, well behind not only Canada and France (which rank sixth and seventh) but also Israel (10th), Jordan (27th), and Bosnia and Herzegovina (29th). *

The problem is largely one of maldistribution. The United States is a great place to be sick if you're rich and a terrible place to be sick if you're poor or middle class. Wealthy people can afford to pay the rising cost of health care; poor and middle-income people can't. This problem obviously becomes worse as the cost spirals upward. According to a study in the April 2009 McKinsey Quarterly, between 1996 and 2005, households that received health insurance through work saw their premiums rise from 7 percent of their total income on average to 10 percent. You could argue that medical advances during this decade justified Americans digging deeper into their pockets for health care. But some dug deeper than others. For households earning more than $130,000, the bump was from 2.6 percent of total income to an irritating but still-manageable 3.3 percent. For households earning less than $27,300, however, the bump was from an already high 14 percent of total income to an extremely burdensome 20 percent.

Remember, too, that like all forms of employer compensation, health insurance gets lavished more generously on higher-paid employees. When the price of health care rises, employers stop offering it to the grunts, or stop offering it with co-payments the grunts can afford. Between 2001 and 2004, the percentage of employees covered by employer-provided health insurance dropped from 81 percent to 77 percent. Two-thirds of these newly uninsured were low-income households. By 2005, 89 percent of all households earning more than $130,000 had employer-provided health insurance, compared with only 22 percent of all households earning less than $27,300. Among middle-income households earning $27,000 to $58,000, only 56 percent had employer-provided health insurance. "Employers are spending more on health care per employee," the McKinsey report concludes, "but for fewer employees." Medical inflation is causing even minimally decent health care to become a luxury item. That's intolerable.

Another kind of maldistribution is occurring, too. In addition to money haves and money have-nots, rising health care costs divide society into good-health haves and good-health have-nots. A spouse's long illness can easily become a financial catastrophe, one that's worsened by rapidly rising premiums, deductibles, and co-payments. I was pretty lucky in that regard after my own wife was diagnosed with terminal cancer in 2001. During Marjorie's three-year illness, our employers were generous with both time and financial assistance, and my health plan was spectacular. (In those days, Slate was owned by Microsoft, a very rich corporation with a very young work force; companywide, the only significant risk factor was megalomania.) Others similarly or better-situated than we were financially have fared far worse. Well-known abortion-rights advocate Kate Michelman published a heart-wrenching essay in the April 8 Nation detailing how her husband's Parkinson's and her daughter's paralysis from a horseback-riding accident have brought her to the brink of bankruptcy. Michelman's husband is a retired college professor with excellent benefits, but neither his private health insurance nor Medicare made much of a dent in the $9,000 per month charged by the assisted-living facility to which he was discharged from the hospital after he shattered his hip and femur getting out of a car. Against his doctors' advice, she brought him home. Michelman's daughter, a young woman in her 20s, had no health insurance at all, which is fairly typical among young adults. Michelman concludes by pointing out that her loss of life savings is not unusual under the current health care system.

For both money have-nots and good-health have-nots, even the most radical options under consideration by the Obama administration are a poor substitute for a government program funded entirely by taxes—no enrollment necessary—that provides health care to all comers. But if we can't get health care for all, the least we owe the have-nots is to lower health care costs to the maximum extent possible without compromising quality. Ignoring the whining of insurance companies that stand to lose market share to Obama's cheaper "public option" is a good start.

Correction, April 23, 2009: An earlier version of this column stated that the United States ranked 50th, an interpretation that failed to account for the fact that the list referred to many locales (for instance, Macau, Guernsey, and Gibraltar) were not nations. This same error led to incorrect rankings initially for Canada, France, Israel, Jordan, and Bosnia and Herzegovina. (Return  to the corrected sentence.)

Timothy Noah is a former Slate staffer. His  book about income inequality is The Great Divergence.

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