Yesterday's posting discussed how even companies with excellence in manufacturing and recognized innovation like Delphi are in trouble. One of the reasons is rising health care costs. As David Wessel points out in his column today in the Wall Street Journal "Pressure Mounts to Mend the Health System":
Wal-Mart Stores, the master of controlling the cost of everything, is alarmed at the rising cost of employee-health benefits. The United Auto Workers, which negotiated the best health benefits in U.S. industry, will force its General Motors retirees to pay health premiums for the first time and surrender active workers' raises to pay for health benefits.
The fraction of Americans with government-provided health insurance has crept up during the past 15 years (27.2% in 2004 versus 23.3% in 1989) as the fraction with employer-provided insurance slipped (59.8% versus 61.1%) and the ranks of the uninsured have grown (15.7% versus 13.6%).
Private-sector wages, according to the government's best measure, have risen only 2.2% in the past year, not enough to offset rising prices, a fact that workers are noticing. The cost of benefits, including health care, has risen 4.8%, a fact that employers cite to explain why cash raises seem stingy. "Workers are giving their raises to the health-care system, and most don't fully understand that," says Helen Darling, of the National Business Group on Health.
These are the sounds of the foundation of the U.S. health system cracking under the strain of rising costs, the unceasing advance of often-costly medical technology and drugs and an aging population with an unquenchable appetite for health care.
GAO came to the same conclusion in its report earlier this year, 21st Century Challenges: Reexamining the Base of the Federal Government:
Between 1992 and 2002, overall health care spending rose from $827 billion to about $1.6 trillion; it is projected to nearly double to $3.1 trillion in the following decade. This price tag results, in part, from advances in expensive medical technology, including new drug therapies, and the increased use of high-cost services and procedures. Many policymakers, industry experts, and medical practitioners contend that the U.S. health care system--in both the public and private sectors--is in crisis. In the public sector, long-term simulations of the federal budget show a large and growing structural deficit resulting, in large part, from known demographic trends and rising health care costs. Since Medicare spending is driven by both these factors, its burden on the budget and the economy will balloon--tripling by 2035 and quintupling by 2075. One of the fastest-growing segments of health care in both the public and private sectors is prescription drugs. In 2004 the Medicare Trustees estimated that over a 75-year period the federal share of the new Medicare benefit would be $8.1 trillion in current dollar terms. In the private sector, employers and other private purchasers of health care services find that the soaring cost of health insurance premiums poses a threat to their competitive position in an increasingly global market, often contributing to company decisions to outsource American jobs overseas, to hire part-time rather than full-time workers, and to minimize cash wage increases and pension costs.
For some of us, this is deja-vou. Wessel points out:
We have been here before. Angst about health-care costs drove the attempt by former President Clinton and Hillary Clinton to restructure the system. When that proposal was disintegrating on Capitol Hill, the price of inaction was as clear as the shortcomings of the plan itself.
To paraphrase myself, from a June 24, 1994, column: Employers grew weary of picking up the tab not only for their own workers but for those without insurance or those covered by Medicaid and Medicare, which pay less than full cost. As they squeezed out inefficiencies, they cut their share of the cost of covering the uninsured. That forced up premiums for smaller employers. The number of uninsured grew and free care became harder to find. The government's costs, from the Medicaid program for the poor to emergency rooms at municipal hospitals, soared.
Yet the issue appeared to evaporate in the late 1990s. Profits were so fat that employers didn't worry as much about health-care costs, and tax revenue produced federal budget surpluses. Workers were so scarce that employers didn't try so hard to shift costs to workers. This largely defanged unpopular managed-care companies that had helped restrain cost increases.
We had an opportunity in the early 1990's and we blew it. I was on the Clinton health care task force - and my job was to try to make sure that the proposal addressed the competitive problems facing US manufacturers. It was one of the most frustrating experiences in my life. For once, we had large corporations and consumers clamoring for the same thing. But politics took over - and the opportunity was lost.
Now we are facing the same problems again. Rising health care costs are stealth threat to our transition to the I-Cubed Economy. But heath care is also one of the foundations of the intangible economy. Health care is both a major intangible service and one of those classic examples where attention to intangible can pay off. Many of the solutions to rising costs revolve around information and more customized preventative treatment (to head off more costly procedures later on).
But understanding the role of intangibles can play here is difficult. It is not clear they can lower health care costs while improving quality. For example, increased use of information technology (IT) is often touted as a solution. But, increased IT may not improve quality (see posting Better IT is not the same as better information). And IT may, like other medical technology, simply drive up costs. Likewise, a debate rages on whether stronger IPR helps (by providing incentives for more profit-seeking R&D) or hurts (by preventing use of generics which would lower prices and by keeping information from being shared). We need to think long and hard about how we do this right.
Wessel describes two possible approaches:
One is to prod Americans to be better health-care shoppers by making them spend more of their own money -- often wages that are shielded from taxes -- before health insurance kicks in. The notion is that people consume more health care than they need because it feels free, and there's something to that.
But discouraging Americans from unneeded trips to the emergency room is smart; discouraging them from teeth-cleaning, check-ups and blood-pressure monitoring isn't. And much of the increasing cost of health care isn't driven by too many people visiting the doctor, but by expensive procedures covered by insurance even in these new consumer-driven health plans. . . .
The other approach is to prod health-care providers to provide higher-quality care by paying them more for delivering it. Insurers, government and big health-care institutions are trying to devise quality measures -- from monitoring care of diabetics to evaluating surgical success -- as a step toward "paying for performance." Medicare's administrator, physician-economist Mark McClellan, is tweaking incentives in the giant government health-care-insurance program to the same end. This could give Americans more value for their health-care dollars, an unquestionably worthy goal, but whether it saves money is far from clear.
Of the two, I think prodding providers is likely to be the more effective. Finding ways to make expensive procedures cheaper -- and avoidable -- is where the thrust of our innovation efforts should be focused. And that will only happen if the providers see a benefit in sponsoring, and then adopting those innovations.
Otherwise, the status quo will simply grind along. And that is simply fiscally unsustainable and socially unacceptable.
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