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David Crisanti Headshot

Healthy, Wealthy and Wise

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In a WSJ op-ed, John Cochrane sagely writes that no matter the outcome of the Supreme Court decision on Obamacare we will still be left with a broken healthcare system. Cochrane outlines the root causes, none of which the Patient Protection and Affordable Care Act addresses, from opaque pricing, to skewed doctor incentives, to the fact that health insurance isn't restricted to catastrophic coverage.

But there are still those that disagree with Cochrane and contend that our health care system is the envy of the world and that neither Obamacare nor any other change is a good idea. When I picture these defenders of the status quo the image that comes to mind is Springfield's wealthiest citizen, energy mogul Montgomery Burns -- someone who has either never paid for their own insurance or who lives in fear that they will someday be struck with a debilitating condition and in need of high-end services.

From college graduation in 1986 until 2000 I was employed by corporations that provided typical benefits packages and so I was unaware of the cost of health insurance. That changed in 2002 when I no longer worked for a big company, my COBRA had run out and I started footing the insurance bill myself. I chose a policy where I could see any doctor I wished -- what today might be called a Cadillac plan -- that cost $220 a month. By 2008 my premium had tripled to $660 a month though by then in concession to exploding premiums I entered a far more restrictive plan with a limited doctor network and higher deductible. Just as one doesn't come out of meeting with Donald Trump and say 'what a humble man' one doesn't come away from an encounter with this sort of spiraling expense and say 'the system is working nicely.'

Today there is enough chatter about health insurance premium inflation (averaging 10 percent per year in the past decade while the CPI has averaged less than a third of that) that the message is starting to spread to many that don't pay for their own insurance. I was recently speaking with an acquaintance who is considering retiring from his long-time job. He is in his forties but has done well enough financially that he does not need to work again. Yet this person had one question for me as he considered cutting the cord with his employer: What would his health insurance cost?

So while those who were unconcerned about exploding costs are dwindling in number, defenders of the status quo who believe that our outsized premiums are justified by our standard of care seem to be holding firm. What is their justification for this?

It is well documented that we spend far more than western Europe on healthcare ($7500 per person per year versus $3500) but we aren't living significantly longer (life expectancy is virtually the same at 78 versus 79) or better (we have more chronic conditions such as diabetes and asthma (U.S./Europe). The defenders of the system say, 'Yes, but never mind the average -- we have the best top-end care. Developing-world dictators don't go to Paris when they have cancer, they come to the U.S.' Let's for a moment assume it's true that Sloan-Kettering and the Mayo Clinic are the destinations of choice for the gravely ill despot. Just because we have the best high-end care does that mean we are getting our money's worth given our outrageous expenditures?

One way of answering that is to look at productivity gains to the sector. Efficiency is the hallmark of a well-functioning economy -- increases in productivity create wealth and well-being. The U.S. manufacturing sector has enjoyed healthy productivity growth over the past 50 years as its output has quadrupled (here and here) in real dollar terms while it has employed 25 percent FEWER people in 2010 than 1962. By comparison the Education and Health Services Sector (government data combines the two) has quintupled its real GDP, but it has also quintupled its employees over the same time span. Productivity has actually decreased in this sector. No capitalist worth his atomic plant should be defending this status quo.

If the status quo isn't the answer, what is? We can make meaningful change in a very simple way: Eliminate the depression-era tax breaks that encourage employers to provide all-encompassing health plans. Companies would immediately stop splurging and coverage would revert to what insurance was intended to do: Cover catastrophic events. This would go a long way toward affordable plans for individuals and price transparency in healthcare services, which in turn would encourage doctors to target patient outcomes rather than number of prescriptions. It might even lead to productivity gains that approach levels seen in the manufacturing sector.