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Featured Guest Blogger October 28th, 2009

Andrew Kang is a Graduate Policy Assistant at the Sloan Work and Family Research Network. This is a continuation of PART I: The Current Health Care System in America and PART II: The American Health Care System and Families.

How Health Care Costs Affect Businesses:

Since most people get their health insurance through their jobs, employers are saddled with most of the burden of rising health care costs and insurance premiums. As employees’ shares of the cost of insurance increase, it is easy to ignore the financial expenses employers are absorbing on their employees’ behalf.

• Health insurance expenses are the fastest growing cost components for employers.
• In 2008, employer health insurance premiums increased by 5%, twice the rate of inflation.
• Employer-sponsored health insurance premiums have been rising four times faster than workers’ earnings since 1999.
• This increase places corresponding downward pressure on salary increases, new hiring, and capital investment.
• For small businesses, health insurance premiums have increased 12% annually. Rapidly rising health insurance premiums are the main reason cited by small firms for not offering coverage.
• Surging health care costs slow the rate of job growth, contributing to a recessionary economy) and making it more expensive for companies to add new workers.
• The high cost of health care for businesses also suppresses wage growth for current workers by increasing total compensation costs.
• As health care costs rise as a percentage of operations expenses, corporate operating margins are reduced, which limits the capacity of companies to grow through investment in research, plant and equipment.
• High medical insurance costs place American firms at a disadvantage in world markets where they compete against companies with much lower health care costs in the nations where they operate.

Health Care For Profit

In America, health care is not considered a right, but a privilege to be earned. And as a privilege, a lot of money is made by providing it.

• In 2007, health-related companies in the Fortune 1000 earned nearly $71 billion.
• The medical establishment (hospitals, pharmaceutical companies, health insurers, medical device manufacturers, etc.) spend nearly $6 billion per year on advertising.
• Pharmaceuticals and medical equipment ranked third and fourth, respectively, in terms of profits as a share of revenue.
• From 2000-2007, the annual profits of America’s top 15 health-insurance companies increased from $3.5 billion to $15 billion.
• The 50 largest nonprofit hospitals or hospital systems made a combined net income (profit) of $4.27 billion in 2006, nearly eight times more than five years earlier.

Facts About Medical Malpractice:

Much has been made of the effect of medical malpractice jury awards, settlements, and rising premiums on the cost and quality of health care. However, there is little evidence establishing conclusive links. Meanwhile, medical malpractice premiums continue to increase at a rate that puts economic pressure on practitioners. The question is, does this influence outcomes?

• A new Dartmouth study suggests that medical malpractice jury awards and settlements are not responsible for raising insurance premiums or health care costs.
• The GAO recently found that access to care was generally not impacted by increasing cost of medical malpractice lawsuits.
• The GAO concluded that liability laws have positive effects on doctors’ behavior, and are frequently the only means by which the consumer can hold the medical establishment accountable.
• The Congressional Budget Office estimated that malpractice costs account for less than 2% of the national health spending.
• There is little research to support anecdotal reports that rising malpractice costs contribute to defensive medicine creating barriers to care and reduced quality of service.

With so much information circulating about heath care in America, it’s easy to lose sight of the forest for the trees. It’s difficult to navigate these thick woods of interested party rhetoric to gain a true understanding of the system, its strengths and its weaknesses, but only then can we make a proper evaluation of the best possible changes.

The information contained in this blog was obtained from the following sources:

Beider, P. & Hagen, S. (2004). Limiting tort liability for medical malpractice. Retrieved from the Congressional Budget Office web site: http://www.cbo.gov/doc.cfm?index=4968&type=0

Henry J. Kaiser Family Foundation. (2007). Health care costs, a primer: Key information on health care costs and their impacts. Retrieved from: http://www.kff.org/insurance/upload/7670.pdf

Henry J. Kaiser Family Foundation. (2008). Employee health benefits: 2008 annual survey. Retrieved from: http://www.kff.org/insurance/7672/index.cfm.

Henry J. Kaiser Family Foundation, (2005). Background brief: Medical malpractice policy. Retrieved from: http:/www.kaiseredu.org/topics_im.asp?id+226&imID+1&parented+59

National Coalition on Health Care. (2009). Facts about health care: Economic costs fact sheets. Retrieved from: http://www.nchc.org/facts/economic.shtml

Rowland, D. & Hoffman, C. (2009). Health care and the middle class: More costs and less coverage. Retrieved from he Henry J. Kaiser Family Foundation web site: http://www.kff.org/healthreform/upload/7951.pdf

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