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Posted at 02:04 PM ET, 09/29/2011

Stuck in a vicious health-care cost circle


We’ve just gotten new evidence confirming the shortcomings of the Affordable Care Act (ACA) — a.k.a., Obamacare. The Kaiser Family Foundation reported that in 2010 employer-sponsored health insurance premiums soared. The average cost for a family policy jumped 9 percent to $15,073, with companies picking up 72 percent ($10,944) and workers the other 28 percent ($4,129). Health costs never decline, but the size of the increases surprised even experts.

You can’t blame the cost surge on the ACA, whose constitutionality the administration has now appealed to the Supreme Court. A few provisions (allowing children to stay on their parents’ policies until they’re 26; eliminating patient payments for some preventive services) probably added a percentage point or two to the total, reckons Kaiser. But that’s just the point: The study reminds us that runaway costs are the health system’s core problem; the ACA does nothing to solve it — and would actually make it worse.

The ACA focuses on insuring the uninsured, beginning in 2014. Well, if roughly 30 million or so Americans get insurance and no basic changes are made in the delivery system, then added demand will lead to higher costs, longer waiting periods, or both. The administration dealt with costs through complex proposals (“accountable care organizations,” “comparative effectiveness research”) that sound good but are unlikely to achieve large savings. Similarly, it cut Medicare costs on paper by reducing reimbursements in ways that some experts believe will be repealed.

So health spending remains uncontrolled — with severe consequences.

One is a growing squeeze on take-home pay. Higher health premiums don’t increase total compensation; money is simply shifted from wages to fringe benefits. The more companies pay in health costs, the less they pay in wages and salaries. A recent study by actuaries Steven A. Nyce and Sylvester J. Schieber shows how savage the squeeze has been. In 1980, employer-paid health insurance represented about 6 percent of a median covered worker’s wages; by 2009, that had more than tripled to 19 percent.

“A considerable share of the disappointment with the rewards that many workers have received in recent years (reflects) the voracious appetite of health benefits,” they write. The squeeze will probably get worse. Under plausible assumptions, Nyce and Schieber project that rising health insurance costs will account for almost 60 percent of the compensation gains for median full-time workers over the next 20 years.

A second consequence is that health spending is crowding out other government programs and putting upward pressure on taxes. It is only a slight exaggeration to say that out-of-control health programs are the federal budget problem. The numbers are astonishing. In the early 1960s, health programs represented only 2 percent of federal spending. By 2010, that had zoomed to 26 percent, reflecting huge outlays for Medicare, Medicaid and military and veterans’ care.

Put differently: One in four federal dollars now goes to health care. This, too, will rise. Earlier this year, the Obama administration projected that health spending in 2016 — further swollen by the ACA’s subsidies for the uninsured — will reach 30 percent of federal spending.

Given the financial crisis, it was a mistake for President Obama to stage a grand health-care debate. It was bound to be divisive and distracting. Regardless of how the Supreme Court decides, the losing side is likely to feel outraged. The ACA was also bound to raise the cost of hiring workers by compelling employers to provide expensive coverage. That prospect can’t be helping job creation.

Having made one mistake, Obama then compounded it by concentrating on the wrong health-care problem. Though steeped in a high moralism, the case for insuring the uninsured was never as strong as it seemed. In a perfect world, of course, everyone would be covered — and that’s a legitimate goal. But in an imperfect world, choices have to be made. Many of the uninsured, young and healthy, don’t need insurance, even though it would be nice to have. And many uninsured who become ill do get care, with costs shifted onto the premiums of the insured.

Meanwhile, fee-for-service medicine propels the cost spiral upward. Insurance becomes less affordable for small businesses — leading to more uninsured — while living standards and other government services are pinched. Breaking this vicious circle is genuinely hard. That may be why Obama chose not to do it.

By  |  02:04 PM ET, 09/29/2011

 
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