Source: Investor's Business Daily
Big Spenders: Increases in health care costs rival the rising of the sun for inevitably. Should we blame greedy doctors and drugmakers? No, blame should be placed on the system the government has promoted.
The tax code encourages employers to buy health care insurance plans with pretax dollars. Because these plans are exempt from federal income and payroll taxes, employers salaries. Nearly 60% of American adults are covered by an employer-based plan.
For most, these plans work well. But the arrangement that so many have become accustomed to has driven health care spending ever higher. The cost of medicine increased 98% between 1992 and 2008, a period when the consumer price index rose 53%. Health care spending now makes up 17% of the economy, a far bigger slice than it did before the 1965 creation of Medicare and Medicaid, when it never went beyond 6%.
Why has this happened? Devon Herrick from the National Center for Policy Analysis has the simple answer: We have become big spenders on health care because our motivation to be thrifty has been legislated away.
"A primary reason why health care costs are soaring is that most of the time when people enter the medical marketplace, they are spending someone else's money," Herrick wrote in "Why Health Costs Are Still Rising," an NCPA report released last week.
Because Americans who have employer-based coverage see little money coming out of their pockets when they visit a doctor or go to the hospital, they have little incentive to keep costs down.
"When patients pay their own medical bills, they are conservative consumers," Herrick writes. "Economic studies and common sense confirm that people are less likely to be prudent, careful shoppers if someone else is picking up the tab."
According to Herrick, for every dollar of hospital care that is consumed, a patient pays only 3 cents. The rest is paid by a third party, the insurance company. When a patient visits a doctor, less than 10 cents of every dollar of care consumed is paid by the patient. Again, a third party pays the balance.
And "for the health care system as a whole, every time patients consume $1 in services, they pay only 12 cents out of pocket."
Medicare and Medicaid have also had an impact on spending, as they too are third-party payers that, similar to insurance plans, hide from patients the true cost of medicine.