The Real Problem

Now that it looks as though the Affordable Care Act is here to stay, it’s high time that we paid more attention to the graver problem in health care—its increasingly unaffordable cost. How unaffordable? Consider this report from eHealth:

• In 47 of 50 cities surveyed, the lowest-priced plan would be officially unaffordable under Obamacare affordability standards for families earning 401% of the federal poverty level (about $82,000 per year in the contiguous US, making them ineligible for Obamacare subsidies).
• In these cities, the average three-person household would need to earn an additional $28,939 per year before the lowest-cost plan becomes affordable according to Obamacare rules.
• Government subsidies are generally made available to persons earning up to 400% of the federal poverty level, but middle-income households earning 401% or more of the federal poverty level are not eligible for subsidy assistance

In other words health care is sapping the economic strength of every other sector of the economy. You can only spend the same dollar once. Every dollar spent on health care or health care insurance isn’t spent on housing, food, clothing, saving, and so on.

To gain a better understanding of how basic the problem is, consider the graph above, something I stumbled across in this article at Bloomberg from a few months ago on the same subject.

As you can see health care spending is outstripping the growth in U. S. GDP, incomes, and inflation by a multiple but, even though it’s difficult to believe, that understates the issue. GDP, median income, and inflation all include health care spending, incomes in health care, and health care cost increases.

A better comparison would be to compare health care spending with the increases in GDP exclusive of health care, incomes exclusive of within the health care sector, and inflation of non-health care goods and services. I believe that what it would reveal with respect to the actual relationship between health care and inflation, for example, is that health care is responsible for about half of inflation.

But health care unlike, say, clothing or food is heavily dependent on government spending. Between half and three quarter of all money spent on health care comes from government at one level or another. That in turn means that health care needs a strong and growing non-health care economy and that’s just not the case.

The Affordable Care Act always attacked the wrong problem (as I’ve been saying for the last seven years). It did so presumably making the incorrect assumption that extending coverage would reduce the growth in the rate of cost increases in health care. Now it’s time, well past time really, to address the graver problem. The increase in health care costs must be restrained to the same rate as the non-health care economy. That will require decreasing utilization, decreasing wages in the health care sector, or both.