Health Care Brain Teaser
Posted by Jeff Pruitt - 7/31/09 @ 12:49 am - Filed Under National Politics
A while back I read an excellent post on health care costs that included the following chart but I don’t want to link to the post quite yet (I promise to give attribution soon enough). The reason is I want people to look at this chart and try to make sense of it. It shows the percentage growth in human health care costs have been matched by those in veterinary costs.
During this whole debate we hear a lot about the unsustainable growth in health care costs. Usually this is said to be caused by over-regulation, government subsidy, malpractice insurance, etc. But if that’s the case then how do you explain the rising veterinary costs? There is little regulation, no Medicare for pets, malpractice suits are essentially non-existent and if the care is too expensive then the patient is allowed to die.
It really does seem to shatter the conventional wisdom - more on this later…
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10 Responses to “Health Care Brain Teaser”
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Jeff, the chart showing “human” healthcare is the one I would like to comment on. It is based on total healthcare when in fact we should be looking not on total healthcare, but healthcare costs by age.
For example healthcare costs for those under 18 have not risen appreciately, half the rate of growth for the average. When looking at those under age 45 their rate of growth in healthcare spending is again much less than the average. There are two age groups where the rate of growth in healthcare spending is growing far faster than the overall average.
Given our birth rate for the past nearly 40 years since Roe Vs Wade, we have been at 2.1 births per woman (no less fooling around, just more ways to deal with potential events) our population has not kept the same percentage make up by ages. This results in what is referred to as Aging of America.
What would happen to the average age if there were no births. Within ten years, the youngest person would be 10. All these young ages would no longer “dilute” from older Americans and the average age would shift dramatically older.
With low birth rates, our population will reach an equilibrium in another 40 years where the average age of the US will be about six years older.
Healthcare spending is increasing as we age, but for some reason politicians do not want you to realize this and want to spin it as a government problem. In some ways it is a government problem. Roe Vs Wade and the pill reduced live births, resulting in fewer workers and consumers. This resulted in a lower worker to retiree ratio, resulting in each worker needing to contribute higher taxes to support SS and Medicare. Had these been funded programs, not ponzi schemes, we would not be having this discussion now.
One other factor many fail to comprehend is what type of productivity growth can be achieved with a doctor? Inflation when less than wage growth means that we either used fewer raw materials to make the widget or we made more with fewer people, reducing labor. With teachers and doctors we face the fact we are dealing with nearly 100% labor. For these two occupations, for them to see their standard of living rise like everyone else, their wages like everyone else will be larger than inflation.
In my opinion, we should expect education and healthcare to rise faster than inflation. However, we are also hit with another hurdle, technology. Technology is a two edge sword that can provide better treatment, shorten stays in the hospital, but also save people who 20 years ago, saying it nicely, would have no longer be competing or needing healthcare.
Now I hear no exclusions for preexisting conditions (excessive eating, smoking, risky behavior and more). This means increased cost on an individual basis. Auto insurance uses risk ratings to determine an individual costs as does life insurance. What government is now looking at doing doing away with this. Those with high risk life styles will be subsidized by those who live low risk life styles, in other Medicare which uses no risk ratings. This will result in no meaningful incentive to change life style or curb costs.
Bill,
A little off topic but I wanted to comment on this and try and tie it into the chart. Most health care NOW is not individually risk based and that IMO is part of the problem. Most employer provided plans pool risk over the entire company and the government plans are certainly not risk based.
Having said that, how do you extend that argument to the chart? For all intent and purposes there is no pet insurance industry, yet vet expenditures are increasing at the same rate as human health costs. That seems to go against the argument you are making.
The idea was to challenge the conventional wisdom here and force people to think about how (or if) the chart makes sense given their preconceived notions regarding the causes of growth in health care spending…
You’re wrong Jeff.
As the one who buys insurance for a group, this is patently incorrect. It is individually risk based and once those individual risks are assessed, a new group modifier is determined.
If you have a major operation it affects “your rate” and within the group at a smaller percentile, it can have an also affect their rate, albeit to a lessor degree. Conversely, if no one has a catastrophic event, rates can actually stabilize to a certain degree.
You have to wonder what the plot would show if you added a line that tracked CPI. Since veterinary costs have nothing to do with health care costs, one would suspect that both are tracking upward at a similar rate as the economy.
Abe,
I appreciate you sharing your insights and experience.
I don’t think I was clear enough. I was referring to the fact that the employer typically charges everyone under their policy the same rate. Even worse, people with 8 kids many times pay the same as those with 1 or 2. These are choices made by the employer but to the employee there is no risk basis for the portion of the premium they are paying.
Sorry for going too far off topic. Chalk it up to all the meds the VA has me on (Thanks to FWPD).
The point I was attempting to make was with birth rates being low, many who have pets treat them more like “children.” In this I mean they love their animals and will do just about anything to keep them alive.
The charts show the same rate of growth. Without more information such as how many procedures or the median income of those paying the bills, a rate of growth could be matched fairly easily if the growth is isolated to the rich. $12 Billion annually amount 1 million people is $12,000 a year. Make this 2 million people and you get $6,000 each. There are 9 million people in the US who have a million dollars or more.
If you divide it among millions more, the cost per person drops dramatically which then becomes a small portion of a families total income.
Jeff,
I don’t know what you have to compare it to, but that’s not how it works for us. Everyone has “their own rate.” All employees pay based on how many are covered. The only thing that is mutual to what they pay is the modified group rate “increase” each year. This past year it was 3%.
Frankly, I’ve never heard of a company charging the way you state. I’ll look into, but I don’t think that can be done legally.
For me and 2 dependents, it costs a total of $494 a month. The company pays 75% of mine, and 50% of dependents. We have a single guy age 23, his cost is $98 a month for the same coverage.
It’s an HSA, and everyone loves it.
Abe,
Every company I’ve worked for and every health care plan I’ve seen from companies friends/parents/etc work for basically has the following structure. (Granted these are usually large companies and maybe that’s the difference. Perhaps they are all self-insured, I do not know)
Single Rate
Single +1 Rate
Single +N Rate or Family Rate
Everybody in the company falls into one of those categories and nobody pays their share of the premium based on their individual risk. In other words I pay the same amount as a 65 year old worker or the same as a 20 year old worker who might be much healthier.
Most companies that have more than 250 employee’s are self insured. This means they hire an administrator the plan. The company determines what “They” want covered. The administrator does just that, they receive claims and pay the bills as they come in according the plan. At the end of the month the adminisrtator sends a bill to the company for the costs plus agreed upon fees. I am not sure, but I would assume the number of truly private insured plans that are actually purchased are few compared to all insured.
Many companies I have worked with have come up with incentives to reduce costs based on risk. They do it in two ways, everyone pays the same monthly fee, but if you do not smoke, the contribute $1,000 to your medical spending account, more if you exercises, more if you join a gym and if you agree not to engage in dangerous activities (rock climbing, jumping out of planes, etc).
Risk based payments are now becoming very common.
Jeff, your brain teaser is a no brainer. Since “free” health care is now a basic right, your chart proves that my dachshund, Ollie, should be entitled to veterinary coverage under Obamacare. He cetainly deserves it after being unable to pay for two disc surgeries and the yearly rabies shots required by unfunded government mandates.