Why does Health Care cost so much?

By Lynn Harsh

Do you know employers pay an average cost of $545 per month for medical insurance for their employees with families? The cost for single employees is barely under $200 monthly. On average, employers factor hourly costs for health care of $2 to $4 per employee.

Where does this money come from? Who really pays for these high health care costs?

If you are an employee, look in the mirror for the answer to that question. If you are a consumer, factor those hourly wages into the price you pay for goods and services.

All benefits received by employees, including health care, are paid in lieu of wages. In 1998, the U.S. Chamber of Commerce reported that benefits account for 37.2 percent of payroll costs. But most employees believe "somebody else" is covering these costs, so the average worker never considers benefits expenses as part of their total compensation. Worse, most employees view benefits as an "entitlement" rather than compensation.

This gross oversight can be temporarily mitigated in a tight labor market where employers are scrambling to find warm bodies to fill vacant positions. But as our global competitors–with fewer regulatory burdens and lower production and employee costs–beat us in the marketplace, jobs will not be so plentiful. American employers will be less able to pay high wages and high benefit costs.

Small businesses are particularly vulnerable because variables in the small employee health insurance market can easily cause annual premium increases two to four times that of the average increases for larger companies.

If consumers are not willing to absorb the increasing cost of employee health benefits by paying more for the products and services, jobs will be lost and employees will become vulnerable to the excesses created by their own ignorance.

Compounding Concerns

The marketplace has a wonderful way of sorting out consumer priorities and prices if allowed to do so. But government has been tinkering around with health care concerns for so many decades, that its market is now distorted and unrecognizable. The nexus of this problem can be identified in both the supply and demand side, but the result is upward spiraling costs and unnecessarily limited access to health care.

On the supply side, our state has been a vanguard in sending the insurance industry packing. In an attempt to "help" consumers obtain access to better and cheaper health insurance, every new legislative session for the past ten years has "reformed" the health care industry: new mandates for services and people insurance companies must cover; new conditions for delivering services, more regulations for primary providers, etc. These "reform" efforts made profitability for the private-sector insurance industry in Washington state unpredictable at best. Most left our state for greener pastures, leaving government officials wondering what to do with the newly uninsured left behind.

And to say the reformed health care arena also made physicians and other health care providers unhappy would be an understatement.

So, using more taxpayer dollars, lawmakers created new government-designed and run solutions to make up for the vanishing health insurance product. The health care bureaucracy now has many expensive layers, each removing the consumer further from the physician and the true cost of services. And as in any market with limited suppliers, the consumer is moved out of the driver's seat. Health care insurance options are few and costs are high.

On the demand side, we consumers, in general, have behaved badly. We are unwilling to become informed about quality, price and alternatives in health care. We have walked away from experiencing the financial and health-related consequences of our own choices, even while refusing to maintain good personal health practices. Instead, our demand for more and more health care services has escalated. This concern is aggravated by our aging population–a population with chronic, disabling conditions.

Health care insurance and services have become so expensive that most of us experience grave concerns that one incident could wipe us out financially. The solution for this is not more government intervention. Nor is it to turn our backs on society's aged or vulnerable.

Solutions

• The health care insurance markets must be opened up again making it relatively easy for companies to enter and exit according to marketplace demands. This will increase our insurance options while decreasing costs.
• Lawmakers need to let consumers decide what services they require, and they need to remove government from getting in between physicians and their patients.
• The vulnerable among us should be protected in a much more compassionate and cost-effective manner.

As consumers, we must

• remember what we are insuring ourselves against: the unexpected and catastrophic, not routine medical care;
• understand the financial consequences of our choices–health care is not cheap or free, and when our employers pay for it, eventually it is in lieu of increased wages;
• reduce the demand, misuse and abuse of our health care system;
• become smarter and more skilled consumers.

Is this difficult? Oh, yes! But what are the options? Either we do this or, within ten years, government will make our health care decisions for us, from start to finish.

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org