Healthcare Costs in America or My Hernia Repair Cost How Much?

Imagine you’ve only been home from the hospital for a few weeks and you finally get the bill for your hernia repair: $6,000![1] After you catch your breath you wonder how can a four-hour trip to the hospital cost so much? Especially considering that half of your time was spent in the waiting room or in the discharge area eating graham crackers, sipping soda and talking to your family.

There are many factors that go into the total cost of any given encounter with the medical system. They include:[2]

* Professional care

* Facility costs – inpatient and outpatient

* Administration

* Insurance

* Research and development

* Medications

* Wasted resources and inefficiencies in delivery of care

Let’s look at some of the details.

Milliman, an actuarial firm, tracks medical costs using the Milliman Medical Index which measures the cost for a family of four covered by a traditional employer-provided insurance policy.[3] The index shows that the cost per family has increased from $9,235 in 2002 to $19,393 in 2011,[4] a 110% increase when the consumer price index increased by only 25%.[5]

For 2011 the cost of care breaks down as follows:[6]

* Physician 33%

* Inpatient 31%

* Outpatient 17%

* Pharmacy 15%

* Other services 4%

Within each category there are many parts. Let’s look at some of the complexities of running a hospital in the 21^st Century. Personnel such as nursing, laboratory, pharmacy, physical therapy, dietary, social work and radiology staff, all of whom must meet specific educational requirements and must be credentialed by a state agency, are expensive but necessary. Nursing care alone accounts for 44% of total inpatient costs.[7] Additional staff includes the administrative staff, comprising day-to-day operations, financial analysis, billing and other support workers.

Government and third party regulatory agencies require the hospital to use financial resources to ensure compliance and protect their accreditation. Other costs include liability insurance, programs to ensure that the staff meets continuing education requirements, interest on bonds for capital improvements in facilities and equipment, medical supplies and some things that might be taken for granted such as heating, air conditioning, lighting, general grounds and building maintenance and even public restroom supplies.

Another aspect of cost is the inherent inefficiency in the U.S. healthcare system. Inefficient use of resources may account for more than half of our total healthcare spending.[8] Briefly, the top three areas of waste, according to a study by PricewaterhouseCoopers’ Health Research Institute, are:[9]

* Redundant, inappropriate or unnecessary tests and procedures

* Inefficient healthcare administration

* Costs due to conditions such as obesity

Who actually pays these costs? For the average family in 2011, the employer paid for $11,385 and the employee paid the balance of $8008 ($4728 as employee payroll deduction for health insurance, plus $3280 as out-of-pocket expenses).[10]  The employee’s share of total medical expenses for our average family of four has increased faster than the employer’s.[11] In fact we all pay for the increase in healthcare indirectly, as it increases the cost of doing business and therefore raises the cost of goods and services.

Healthcare costs as a percentage of Gross Domestic Product (GDP) are steadily increasing every year.[12] In 1960 costs were 5.2% of GDP; in 2010 they were 17.9%.[13] By 2019 the Federal Government estimates that healthcare costs will reach 19.3% of GDP.[14] In addition, the Congressional Budget Office (CBO) now estimates that the Patient Protection and Affordable Care Act (PPACA), popularly known as Obamacare, will cost the Federal Government almost $1.5 trillion through 2021, adding almost $1.1 trillion to the deficit.[15]

Why not Obamacare?

* Complexity – The Department of Health and Human Services has turned six pages of the 907-page law into 429 pages of new regulations.[16] At that rate, 907 pages translates into 64,850 pages of new regulations!

* Cost – more people on Medicaid, federal insurance premium subsidies, and preexisting condition coverage will increase total costs.[17]

* Government growth – The Congressional Research Service identified dozens of new government organizations that are created by Obamacare, but concluded that the exact number is “unknowable.”[18]

* Independent Payment (Medicare) Advisory Board – members are appointed by the President, and the Board’s purpose is to reduce the growth rate in Medicare costs with no oversight by congress or the president;[19] a situation that will likely lead to government rationing of healthcare to control costs.

* Decrease the individual’s choice in healthcare – The Federal Coordinating Council for Comparative Effectiveness is charged with establishing treatments that are effective.[20] In other words Federal bureaucrats, not your doctor, will determine your treatments.

* Decline in private (employment-based) insurance – The CBO estimates that 3 to 5 million fewer people will obtain coverage through their employer each year from 2019 to 2022 than would have without Obamacare.[21]

* The uninsured problem is not solved – by 2019 there will still be up to 23 million uninsured people.[22]

What does real reform look like?

* Reforming Medicare and Medicaid by giving a set dollar amount to individuals in these programs to buy private insurance (voucher system).  This controls cost and allows individuals choice of coverage and level of care.

* Reconnect the healthcare consumers with the healthcare providers via Health Savings Accounts and high-deductible insurance plans.

* Tax credits for individual health insurance.

* Interstate sale of health insurance, which will promote competition between health insurers.

* Medical malpractice liability reform.

* High-risk pools, at the state level, for those who cannot obtain health insurance because of preexisting conditions.

In the upcoming series of articles on healthcare reform, I will take on the problems of Obamacare one at a time with a clear statement of what we need to do to reform the real issues facing our nation.  Until then, there is much that each of us need to do.

Those who favor government intrusion into healthcare in the upcoming election will increase the size and complexity of government, expand the cost of healthcare, ration healthcare to control costs, decrease individual choice and private insurance, and still not solve the problem of the uninsured.

Look for leaders who will push for real market-based reforms in the next Congress. This will save Medicare and Medicaid by allowing consumers to use vouchers to choose their own coverage. It will also reconnect the consumer of healthcare with the healthcare providers.

Back the candidates who will promote competition in health insurance through interstate sales, and who will reform medical liability laws to decrease waste. It will also benefit those who cannot buy insurance if we have policies that allow formation of high-risk health insurance pools managed at the state level.

Together we can put a halt to the insanity of this current path toward destruction of the world’s greatest health care system-