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Articles by Donald E. L. Johnson

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Return on investment in health care is tremendous

For anyone whose life has been saved, improved or extended by modern medicine (since the 1940s), the cost of health care is not an issue. The benefits are priceless. And that is why neither politicians nor employers dare deny asscess to even the most costly procedures, although they try rather unsuccessfully to give consumers incentives to think twice about the cost of services before they use them.


I wrote this last month in reply to David Wessel’s Capital column in The Wall Street Journal: “Health Spending: How much?” Jan. 9, 2003. Today’s release of the Health Affairs forecast of slowing cost increases reminded me to publish this here.

For anyone whose life has been saved, improved or extended by modern medicine (since the 1940s), the cost of health care is not an issue. The benefits are priceless. And that is why neither politicians nor employers dare deny asscess to even the most costly procedures, although they try rather unsuccessfully to give consumers incentives to think twice about the cost of services before they use them.


Most people over 30 have either benefitted from our health care delivery system personally or have had indirect encounters through their grandparents, parents, children or other relatives. Bob Dole has lived some 55 or 57 years with one kidney. Ask him about the return on investment in his two-plus years in hospitals and in the medical technology that saved his life. How many millions of people have benefited from his leadership and advocacy? There are millions of other beneficiaries just like him who have survived everything from premature birth to childhood illnesses to life-threatening trauma, and the ROI must be 100s of times the cost of saving and extending those lives.


While costs are not such an issue for the beneficiaries of life-saving procedures, the managers and executives (proxies) who have the responsibility and power to buy health insurance for employees and constituents talk of nothing but costs. The price of health care affects corporate profitability, institutional budgets and how much Americans are taxed. In other words, those who buy health insurance and health care services for others are more concerned about how health care costs affect their careers and estates than about how health care affects individual lives.


Everyone with the power to serve as a proxy health care purchaser has good health insurance, and the cost of that insurance is not a personal issue for them or their families. So they do everything they can to extend their careers, including making bad health care policy and health insurance purchasing decisions.


Small business owners like me buy for themselves and their families as well as for employees. We always look out for ourselves first and then worry about the employees. That’s human nature. And since most business owners are older folks, we’re more aware of health care costs and the benefits of good health insurance. So while we are upset with the soaring costs, we are unwilling to give up our health insurance, whatever the cost, unless we simply can’t afford it. And many can’t.


What hurts is that health care insurance premiums, deductibles and co-pays are soaring while most people and organizations paying those higher costs are seeing their real incomes flatten or decline in soft labor, materials and services markets.


The biggest reasons for soaring health care costs are shortages of nurses and other allied professionals, cost shifting by Medicare and Medicaid and, in most states, risk rating of individuals and groups in the private insurance market. Providers are paying higher wages to attrack people to health care professions and to their institutions, and they are passing these costs on to consumers. Labor costs are a huge part of health care costs. And new medical technology, drugs and alternative medicine add to services offered and purchased, increasing costs even more.


That labor is such a big component of health care costs only highlights the major problem with the health care delivery system. The business can’t be automated. It’s a hands-on-patients business.

Professional caregivers do their best to deliver quality care, and health care professionals are the most trained and credentialed people in the world. Yet, they make mistakes every day, as we all do, despite intensive efforts to minimize those “medical errors”, which aren’t as pervasive as the Insitute of Medicine would have people believe. But they happen. And health care workers are only half of the equation. Patients and their families play important roles in health care, and they aren’t trained, compliant or as likley to do what a doctor suggests as you might think. Their mistakes complicate things even more. So we muddle through and get pretty good outcomes, all things considered.


The biggest differences between the American health care industry and health care delivery services in other countries is that ours is more diverse and less standardized. Canada’s government basically runs its health care system as if it owns it, and it’s mired in financial and political problems. To be blunt, the Canadian system denies some services and delays others in the hopes that patients will die before they have to be served. Americans won’t stand for socialized medicine.


In the U.S., individual providers, national and local companies, local governments and the federal government all own health care institutions and services and provide consumers with more choices than are available in most countries that have nationalized and socialized medical systems. We pay a high price for choice, and we’re not about to give it up. The January 2003 issue of Consumer Reports said that of some 21,000 readers who responded to its survey, 78% “were highly satisfied with their stay” in hospitals. “Overall, readers rated their hospital experiences higher than our survey respondents have rated service in banks, restaurants or hotel chains.” You can’t please everyone, and not everyone can afford our expensive health care services or our expensive hotels and restaurants or likes their prices.


As frustrating as dealing with doctors, hospitals and nursing homes and home health care services is in this country, Americans are nowhere as frustrated as they would be if everyone had to deal with Medicare, Medicaid and a nationalized health care system. Just ask Medicare and Medicaid beneficiaries. And anyone who believes nationalized health care in America would be cheaper than what we have today doesn’t understaned Americans, American politics or health care economics.


There are many ways to contain costs without governmental price-setting and the burdensome regulations of today, but politicians, providers, employers and insurers have such conflicting interests and so much political clout that real regulatory reforms seem unlikely. Instead, the private sector is moving to contain costs as much as possible and as quickly as possible. Health care markets are heavily regulated, so there are limits on how much they can reform themselves without political action. But as more people are forced by employers and Medicare to spend more of their after-tax incomes on health care services, demand for those services will soften and costs increases will slow. And as more people enter nursing and other well-paying health care professions, increases in health care labor costs also will slow, which will help make health care insurance costs less of an issue. Health care marekts are like most other markets, despite some major government-imposed distortions, and they will work.

Posted by Donald E. L. Johnson on 02/07/2003 at 09:17 PM

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