The Moral Case for Health Care Reform: A Better Life for All
In evaluating the financial statements of insurance companies, the economist Uwe E. Reinhardt reports that McKinsey has compared the administrative costs of similar insurance companies in OECD countries with different healthcare market structures. The excess cost is estimated to be $150B in 2008. These administrative costs come primarily from product design (new insurance products/types of policies), underwriting (vetting for pre-existing conditions, among other tasks), and marketing. A pair of additional studies cited by Dr. Reinhardt compares administrative costs in Germany and Canada with those in the U.S. In the first case Americans pay $380 more per capita ($1,520 for a family of four in 1990, the year of the study), and in the second $752 more per capita ($3,008 for that family in 1999). These are amounts paid for the administrative costs of the insurance companies as part of their overhead, not for providing health care services, products or development. According to Dr. Reinhardt, the overall estimated overpayment in administration costs to the insurance companies would have covered this year’s cost for true universal health care. Within the health care industry this is just a portion of the excessive costs that add up to make it a bloated and inefficient way to deliver medical care to Americans.
The excessive costs borne by the American healthcare consumer are reflected in the day to day lives. Health care costs are absorbing the production capacity of individuals and businesses alike. According to a recent survey from the Kaiser Family Foundation reports that in 2009 the average cost of job-based family health insurance climbed 5%, making it the 10th year in a row that it has grown faster than inflation and wages. The average cost of this type of insurance was $13,375, of which 73% was paid by the employers. When faced with unemployment, the COBRA payments would average more than $1,200 monthly and when self-insured, and without the leverage of large pools of group insurance, families face an ever increasing financial burden, just to keep insurance. The moment a claim is filed, premiums go up, exclusions are triggered and payments are denied, following the economic logic of the current market structure. When need in health care, individuals then face the decision tree of getting the service, hence risking a rise in premiums and future exclusions, or not seeking treatment, risking further complications and definitely lowering the quality of life. When providing healthcare to their employees, businesses forego money for wage increases, new hires and expansion. A recent report from The Business Roundtable (an association of the largest U.S. company CEOs) estimates that, if nothing is done, by 2019, the average annual cost of providing insurance under our present system will be $28,530. The costs have increased and are increasing faster than inflation, but the quality of life and wellbeing of our nation as a whole has not increased by any measurable statistic.
The average family facing catastrophic needs, chronic or major illnesses is likely to get limited care, lose health care coverage, and face bankruptcy. In 2005, a Harvard study found that approximately 700,000 bankruptcies annually or 50% of the total, were directly caused by medical bills affecting nearly 2 million Americans, that more than 75% of those bankrupted by illness had insurance at the start of the illness, and that 38% had lost coverage at the time of filing for bankruptcy. In 2007, according to the American Journal of Medicine, the percentage of bankruptcies attributed to medical costs had increased to over 62%, still with 75% insured at the start of the illness. The rate of broken families and suicide associated with financial distress and home foreclosures adds to the impact of health care bankruptcies. Added to the stress of acute healthcare needs, these additional financial burdens directly strike to the heart of the American family and the American dream.
This is the system that we have now to provide for a public good, a formula that leads to the consequence of inadequate coverage and financial insecurity as a natural outcome. When combined with the waste of a bloated administrative overhead, this is morally wrong; as it is morally wrong to allow our fellow citizens to suffer a condition that can be demonstrably alleviated in a reform that is beneficial to all the members of society.
- Link to Why Does U.S. Health Care Cost So Much? (Part II: Indefensible Administrative Costs)
- Link to Business Roundtable Report Shows Health Care Costs Will Skyrocket to Nearly $29,000 per Employee in the Next Decade Without Effective Reform
- Link to Medical Bankruptcy in the U.S. - American Journal of Medicine
- Link to Medical Bills Leading Cause of Bankruptcy, Harvard Study Finds