Unless you have been hunting in the back woods, you have heard a great deal recently about healthcare. The politicians in Washington have made some interesting claims lately and today I’d like to talk about one simple issue: cost.
As of 2006 total healthcare costs in the US exceeded $2.1 Trillion, or $7,000 per US citizen. Of that, the Federal government provides roughly $650 billion. It is also noted that roughly 45 million US citizens have no health insurance. (Note that these 45 million are not the 45 million poorest in the nation – they (the poorest) are provided healthcare through Medicaid and other elements of the existing healthcare law. Rather, the bulk of those who have no health insurance are those in the next income slice of the nation, made up usually of young adults who have just entered the work force and choose to delay health care coverage.)
What that means is that the cost of care for those that are covered is roughly $8200 per year. Simple arithmetic means that if you want everyone to receive essentially the same average coverage that the majority now receives will require a total health care cost of $2.5 trillion. If the health care is to be truly universal, allowing the provision of healthcare to illegal immigrants, as has been suggested, that would add an additional 11 million people and $90+ billion, bringing costs to almost $2.6 trillion.
So, if nothing else is done, “universal healthcare’ will require an additional $500 billion per year committed to healthcare, assuming healthcare costs have remained flat since 2006 (they have not).
On the other hand, if we want to keep costs flat, as some politicians have claimed is possible, we need to parse out $2.1 trillion among 45 million more US citizens, and possibly an additional 11 million illegal aliens. That would mean that the average actually spent on each citizen would need to drop from $8200 to $6688, a reduction of nearly 19%.
The politicians are claiming that they can reduce the real cost and keep the level of service unchanged in the face of this simple accounting (though none of them bring up the numbers). There are only a couple of ways that is possible:
1) Actively control costs. The government would then tell everyone associated with the healthcare community how much they can charge. Because the healthcare community is so large (1/7th of the US economy), this would require exercising control over everyone who relates to the healthcare community, such as the people who are building the new hospital wing (plumbers, brick layers, electricians, etc.,) the people who supply hospitals (caterers and food workers, linen, drycleaners, etc.) and limiting the income of everyone employed by the healthcare community, to include all their retirement and benefits programs. They will need to control everything that directly or indirectly affects healthcare costs, because it is such a huge industry.
2) Expand supply. Develop new and substantially cheaper means of producing health care of the same quality, or hope that someone else does. In short, get more for the same dollar. This sounds good, but hope is not a plan. In fact, the economic history of healthcare over the past 50 years is one of continually improving technology, treatment and medicines, but all at increased costs. This option is also known as “And now a miracle occurs.”
3) Control demand. Seriously review how healthcare is provided to the individual, reducing the amount of healthcare that each can receive so that all receive some. That is, re-align and ration the existing level of healthcare. (A recent paper from the Congressional Budget Office discussed ‘overuse’ of the healthcare system and discussed means that might be employed to force recipients to use less healthcare.) This will require the development of an even larger government bureaucracy to oversee the process – an additional expense that will need to be factored in.
4) Fib.
There may be other options, but in fact they all fit into one of the four categories outlines above. The only other option to expand healthcare is to actually expand available healthcare, without regard to cost. That is not something the federal government is likely to get right. I’ll discuss why tomorrow.
As of 2006 total healthcare costs in the US exceeded $2.1 Trillion, or $7,000 per US citizen. Of that, the Federal government provides roughly $650 billion. It is also noted that roughly 45 million US citizens have no health insurance. (Note that these 45 million are not the 45 million poorest in the nation – they (the poorest) are provided healthcare through Medicaid and other elements of the existing healthcare law. Rather, the bulk of those who have no health insurance are those in the next income slice of the nation, made up usually of young adults who have just entered the work force and choose to delay health care coverage.)
What that means is that the cost of care for those that are covered is roughly $8200 per year. Simple arithmetic means that if you want everyone to receive essentially the same average coverage that the majority now receives will require a total health care cost of $2.5 trillion. If the health care is to be truly universal, allowing the provision of healthcare to illegal immigrants, as has been suggested, that would add an additional 11 million people and $90+ billion, bringing costs to almost $2.6 trillion.
So, if nothing else is done, “universal healthcare’ will require an additional $500 billion per year committed to healthcare, assuming healthcare costs have remained flat since 2006 (they have not).
On the other hand, if we want to keep costs flat, as some politicians have claimed is possible, we need to parse out $2.1 trillion among 45 million more US citizens, and possibly an additional 11 million illegal aliens. That would mean that the average actually spent on each citizen would need to drop from $8200 to $6688, a reduction of nearly 19%.
The politicians are claiming that they can reduce the real cost and keep the level of service unchanged in the face of this simple accounting (though none of them bring up the numbers). There are only a couple of ways that is possible:
1) Actively control costs. The government would then tell everyone associated with the healthcare community how much they can charge. Because the healthcare community is so large (1/7th of the US economy), this would require exercising control over everyone who relates to the healthcare community, such as the people who are building the new hospital wing (plumbers, brick layers, electricians, etc.,) the people who supply hospitals (caterers and food workers, linen, drycleaners, etc.) and limiting the income of everyone employed by the healthcare community, to include all their retirement and benefits programs. They will need to control everything that directly or indirectly affects healthcare costs, because it is such a huge industry.
2) Expand supply. Develop new and substantially cheaper means of producing health care of the same quality, or hope that someone else does. In short, get more for the same dollar. This sounds good, but hope is not a plan. In fact, the economic history of healthcare over the past 50 years is one of continually improving technology, treatment and medicines, but all at increased costs. This option is also known as “And now a miracle occurs.”
3) Control demand. Seriously review how healthcare is provided to the individual, reducing the amount of healthcare that each can receive so that all receive some. That is, re-align and ration the existing level of healthcare. (A recent paper from the Congressional Budget Office discussed ‘overuse’ of the healthcare system and discussed means that might be employed to force recipients to use less healthcare.) This will require the development of an even larger government bureaucracy to oversee the process – an additional expense that will need to be factored in.
4) Fib.
There may be other options, but in fact they all fit into one of the four categories outlines above. The only other option to expand healthcare is to actually expand available healthcare, without regard to cost. That is not something the federal government is likely to get right. I’ll discuss why tomorrow.
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