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April 26, 1993
"The Hidden, High Costs"
San Jose Mercury News

By Timothy Taylor
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THE MOVEMENT to reform America's health care system has very little to do with the nation's health.

After all, no one even argues that such a system will much affect the health of the 85 percent or so of the population that already has health insurance. As for the rest, better health insurance coverage can only improve health to the extent that it leads people to receive more care, and to the extent that that care improves their health.

But the reasons why people don't receive medical care include culture and habit, not just a lack of insurance. Moreover, health is determined primarily by factors like nutrition, exercise, genetics, and whether a person smokes or drinks to excess, not by whether they see a doctor.

As Victor Fuchs, an eminent health care economist at Stanford University, wrote almost two decades ago: "Today... differences in health levels between the United States and other developed countries or among populations in the United States are not primarily related to differences in the quantity or quality of medical care. Rather, they are attributable to genetic and environmental factors and to personal behavior."

In a 1991 essay in Health Affairs, Fuchs added: "Does national health insurance improve the health of the population?... In my judgment, such a system has little effect on health one way or the other." He cites evidence from several European countries that health differences across socioeconomic groups didn't seem to change when national health insurance was introduced.

The fact that more health insurance doesn't necessarily buy health is illustrated every day. After all, the United States spends far, far more on health care than any other nation, without having measurably higher health status. The main reason America's poor are less healthy than the middle class or the well-to-do is because of the pathology of poverty, not because their Medicaid insurance coverage isn't as generous as private health insurance.

Let me be clear: I'm sure that guaranteeing universal health insurance coverage would help someone, somewhere, sometime. But the overall gain to America's health from such a program is not likely to be large, and not nearly enough to justify a sweeping reform of America's $900 billion-per-year health care industry.

The most powerful reasons for reforming health care involve economics, not health.

For starters, rising health care costs are the main propellant behind federal spending and the budget deficit in the next decade. Health care was 12 percent of federal spending in 1990; on current trends, it will double to 25 percent of federal spending by 2002, according to the Congressional Budget Office.

According to CBO calculations, if health care spending continues on its current trend, then the budget deficit (measured in relation to the size of the economy) will grow to an all-time high in a decade or so. On the other hand, if medical spending could be restrained to grow no more quickly than the rest of the economy, the deficit would shrink to unworrisome levels over that time. The single factor of health care spending makes that much difference.

High budget deficits threaten long-term economic growth, but the explosion in health care costs also affects the short-run standard of living. The productivity of America's workers has been rising at a reasonable pace in the last few years, but their take-home pay has not. The reason? Gains in productivity have been buying more health insurance, rather than higher wages and salaries.

Of course, when an employer spends more on health insurance, that amount is often invisible to employees. As a device for public education on health care costs, it would be useful for the government to require that on every pay stub, along with state and federal taxes, disability and unemployment insurance, and all the rest, employers should list how much they paid for health insurance on the employee's behalf during that pay period.

If employees had been watching their health care premiums climb during the last decade, while their wages stayed flat, they would probably be considerably more willing to limit any demands for gold-plated health insurance.

Finally, because most Americans receive health insurance through their employers, U.S. companies are forced to be in the health care purchasing business. The big American auto companies, for example, point out that about $800 of the price of every new car is because of health insurance payments.

Every minute an American company spends worrying about health insurance for its employees would be better spent thinking about new innovations and strategies for dealing with competition from Asia and Europe and Latin America. The world of international competition is plenty brutal, without having to divide one's energy and attention.

The main problem of the U.S. health care system is not that 15 percent of the population has limited access to the system, because they lack health insurance, but rather that 85 percent of the population is receiving more health care than the economy can afford.

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