Cutting Away at Your Paycheck

We’ve seen how skyrocketing rents and home prices have been consuming an increasing share of the average American paycheck. 70% of Americans have experienced well over two decades of year-to-year decreases in the effective buying power of their earnings… even during a period of reduced prices at the pump and declines in the cost of heating homes. Taxes haven’t gone up. But there is something else, some really, really big, that is eroding American earning power.

David Chase, writing an op-ed for Forbes (September 5th), drills down on what he sees as the greatest hidden cost-center that is responsible for a good chunk of the problem: “Trillions Have Been Redistributed from the American Workforce to the Healthcare Industry Creating An Economic Depression for the Middle Class.” Hey, Peter, hasn’t globalization and allowing undocumented workers into our country been the greatest source of that wage stagnation? After reviewing the statistics and the landscape, Chase concludes that these factors account for a mere 5% of that wage erosion. He attributes 95% of wage hit to the unchecked rise of healthcare costs – insurance premiums, pharmaceuticals, co-pays, procedures that aren’t covered and deductibles.

Chase names the culprit; Americans pay more at every level of healthcare, from surgical procedures to prescription drugs, than consumers pay for comparable services/drugs in the rest of the entire developed world. World Bank statistics tell us that, outside of the United States, the most expensive medical care systems on earth, per capita, are Switzerland ($9674) and Norway ($9522). Both these countries have universal healthcare that is generally considered to provide higher quality average individual healthcare services than are accorded here. The battles that Americans routinely have with their healthcare insurance carriers over what is and what is not covered are rare in these countries. Our neighbor, Canada, is a mere $5292, way down the list.

But these numbers are calculated in countries where everyone is covered; there are still millions of people in the United States who still do not have any form of healthcare coverage. So although we are roughly comparable on a pure per capita basis with Norway and Switzerland, when you run the same numbers on what is spent on people who are covered, our costs are 30-40% higher than those in Norway and Switzerland.

Back in the 1960s, when Canada began introducing her universal healthcare system, every single argument that you are hearing today against the Affordable Care Act (“Obamacare”) was used to crush the political carriers of sponsoring and supporting legislators. Most of those who backed the program lost in subsequent elections. As the years passed, even with flaws and much-cited delays (often depending on the province where the services are provided), Canadians are more willing to give up ice hockey than their universal healthcare system. American carmakers had moved substantial assembly centers to Canada solely because the American medical insurance were so substantially higher than comparable costs in Canada. Still, we stagger from outrageous medical costs.

The Kaiser Family Foundation tells us: “Health spending [in the United States] is rising faster than incomes in most developed countries, which raises questions about how countries will pay for their future health care needs. The issue is particularly acute in the United States, which not only spends much more per capita on health care, but also has had one of the highest spending growth rates. Both public and private health expenditures are growing at rates which outpace comparable countries. Despite this higher level of spending, the United States does not achieve better outcomes on many important health measures.”

Medicare has limits on what doctors and hospitals can charge for various procedures, and as a result many providers don’t take Medicare patients. But as the Obama administration pushed the Affordable Care Act to passage in 2010, they had to get the support of a very powerful and skeptical healthcare industry, particularly the insurance carriers. The first part of the proposed statute to be dropped was the proposal to offer a government insurance provider (effectively, expanding Medicare); the insurance companies didn’t want competition. Next, the pharmaceutical industry made sure that the healthcare exchanges to be formed under the act could not use their aggregated/volume-based bargaining power to negotiate lower prices for prescribed drugs.

So David Chase focuses the cause of this massive erosion of American buying power to one single issue: pricing (for services and drugs). And he lays most of the blame against PPO (“preferred provider organization”) insurance plans. Each carrier in a PPO system has a list of “preferred” physicians/hospitals who have agreed to caps on specified medical services. Often, the enrolled physicians don’t accept the limitation for all their services, so those services are simply not covered by the carrier. For those with ailments for which there are no real specialists, they are faced with an ugly choice: go with an unqualified physician with “sort of” knowledge that the carrier says is the relevant expert or go out of the system and pay staggeringly high deductibles for the expert that is really needed.

So Chase decided to dig a little deeper: “There are a number of tricks the industry plays on healthcare purchasers but none is more pervasive, yet easy to fix, than PPO Networks. This has caused Americans to spend 30-50% (over $1 trillion per year) more than necessary resulting in nest eggs getting crushed and putting millennials on the path to be indentured servants to the healthcare industry.

“To get a deeper perspective, I interviewed Mike Dendy over email. Dendy is the Vice Chairman and CEO of Advanced Medical Pricing Solutions, Inc., a healthcare cost management company. [Dendy says] The average of so-called PPO ‘discounts’ nationwide is that employers pay roughly 2.6 times greater than what Medicare pays, however it varies widely between markets from some paying less than Medicare to most paying far greater.”

The problem is that since profits are based on percentages of expenditures, there’s a hidden reality that de-motivates the players involved in covering and providing healthcare.  There are lots and lots of “administrators,” from within hospitals to the carriers themselves, constantly dealing with a truly complex, form-driven industry and a truly bloated bureaucracy that feeds on a system designed to maintain the status quo. Even corporate HR managers know that a significant portion of their job description, and hence both their jobs and pay scales, depend on that complexity. Lots of conflicts of interest.

“Since this is his business, Dendy goes into detail on how… money that can end the economic depression for the middle class if it isn’t redistributed from the middle class to an administratively bloated industry paying executives fabulous salaries for average performance (from a health outcomes perspective).” Get rid of the expensive bureaucracy, make pharmas negotiate with the healthcare exchanges on a true level playing field, and move those savings on to consumers and taxpayers. We know the Affordable Care Act needs fixing! Fixing… expansion… but not repeal.

Every piece of seminal American social legislation, from incomes taxes to Social Security and Medicare, went through a vast and constant upgrades and modifications through the

Congress, starting almost as quickly as the relevant enabling statutes were passed. Every piece of such legislation except the 2010 Affordable Care Act.

Six years have passed. No attempt to fix the Act… only almost 60 failed bills introduced by Republicans to repeal the entire act. We know many of the problems that need to be fixed. And while we know adjustments and changes need to happen, the GOP Congress – bought and paid for by the big business (campaign contributor) healthcare lobbyists – want to repeal the entire act and kick back to a healthcare system… losing most of the regulation and allow the private sector ro continue its commitment to a scheme that cannot remotely cap costs.

Gridlock and a desire to cater to big business interests in healthcare have pretty much insured that consumers have paid and will continue to pay an unjustified but constantly escalating price for a system that could be, but is unlikely to be, repaired. And if we really were to adopt the very few GOP proposals to replace the Affordable Care Act, the one true thing we absolutely know: Americans will continue to have the most expensive healthcare system on earth with accelerating cost-increases we simply cannot afford. We will just continue to watch medical bankruptcies and people entirely left out of the system.

I’m Peter Dekom, and not only do we have the most expensive healthcare system on earth (one that does not cover everybody), but unless you are rich, it is hardly the best.