Why a hospital Tylenol costs $10 and your insurance premiums go up

If you are fortunate enough to have healthcare insurance, you are likely astounded to see that the costs go up by double digits annually even if you have not had any claims.   If you are hospitalized, you are outraged that a Tylenol tablet that costs pennies at Costco may cost a few dollars per tablet.   If you are an employer that pays for all of this, you may be faced with difficult looming decisions about affordable (or not) healthcare coverage for your employees.

Any purported solution to runaway healthcare costs must address root causes.   Technological advances, new drug therapies, litigation and good old reliable avarice play their roles to variable degrees.   However, I will illustrate the real problem with a couple of examples.

A young motorcycle rider crashes and is brought by paramedics to a local hospital.   He requires emergency treatment, surgery and spends several days in the intensive care unit before he can be transferred to a county hospital.   He is transferred because he does not have healthcare insurance.   His hospital care may have cost several hundred thousand dollars, and despite aggressive attempts by the hospital-billing department, no significant offset is achieved.

Now you or your loved one, fortunate enough to have insurance, require hospitalization.   Unwilling and unable to absorb the entire cost of the uninsured patient's care, the hospital tacks a surcharge to all of your services, hoping to make up some of its lost revenue.   If this is a for-profit hospital, the charges may be even higher since their investors will not tolerate losses.   This phenomenon is called “cost-shifting”, and will increase your healthcare premiums even if you have not had any claims.   Ever.   And the tax-supported county hospital cannot afford to provide care either, but is often the only source of care for the uninsured.   The emergency room is ground zero for the cost of caring for the uninsured.   This is why trauma departments, emergency rooms and whole hospitals go out of business.   Hospitals cannot care for more uninsured patients that consume diminishing profits.

Another problem.   You are a small business owner, a dry-cleaner, for example.   You are a good employer and provide healthcare insurance for your employees, even though your premiums proportionately rise every year beyond inflation and your revenue.   Your dry-cleaner competitor around the corner feels no moral obligation to provide healthcare insurance.   Since your costs of doing business are the same, your competitor can afford to clean a shirt for a few pennies less, and thus undercuts your best price.   Since the public is always shopping for the best price, you start to lose business.   You have a dilemma.   You can continue to be a good employer and find less expensive insurance with less benefits and even try and have your employees pick up a bit more of the cost (which they will not like).   Or you have to drop healthcare insurance completely to avoid going out of business.

The only solution to these examples is to cover every citizen.   The United States is the only civilized country in the world not to universally cover its citizens.   Non-partisan healthcare economics analysts have estimated that the increased cost in covering all citizens with a basic benefits program would be less than the cost-shifts Americans currently bear.

Why don't we enact universal coverage?   Healthcare is a $1.79 trillion per year business.   There are a lot of companies and people invested in the transactional nature of American healthcare.   They all say, “fix some other part of this, but not my part.   I have a family and a mortgage”.   The for-profit healthcare insurance industry, hospital companies, healthcare infrastructure, and pharmaceutical industry have “legislative advocates” (lobbyists to you and me) spending millions of dollars to get the legislatures and especially the current White House to look favorably on their interests, not yours.

In fact, we are the only country not to control the price of medications, allowing the pharmaceutical industry to set its own prices.   This is the reason for the ferocious opposition to drug reimportation from countries like Canada.   And the pharmaceutical industry does make considerable money in other countries even with price controls, but the real party begins here in the good old U.S. of A.   And you get to pay for it.

The drug companies say without obscene profit incentives, there would be no innovation.   Don't you believe it.   What would stop would be the “me, too” drugs that do the same as others already on the market, and the huge marketing costs (passed on to you), getting doctors to prescribe them.   Any breakthrough drugs would still be lucrative, as would be truly improved drugs if evidence-based on fewer side effects or better patient outcome.   I would just make the cost of proving superiority the responsibility of the drug company and not let the Food and Drug Administration approve as many “same as” equivalents.   I even would propose higher payments if objective proof of superiority was presented.

Neither Senator Kerry's nor President Bush's healthcare proposals will fix this.   They are Band-Aids over an arterial hemorrhage, though Senator Kerry has proposed a bigger Band-Aid.

We should expand a Medicare-like program to all American citizens.   For those who will rant about higher taxes, how about this? NO more healthcare premiums.   If a Social Security-like or specific tax-exempt healthcare surcharge based on income, payroll or revenue were in place, the trade-off would be no further need for companies or individuals to pay hundreds of dollars per month for less and less coverage.

No denial of preexisting conditions allowed.   Everyone gets covered.   This fact alone eliminates the issues addressed in the above examples.   This would include a real drug benefit program without the outrageous Medicare “doughnut hole” Congress and President Bush enacted in 2003.   I can hear the political hysteria and sloganeering already about “government take-over”.   If you feel that way, then please turn down your Medicare.

The mantra I have adopted, courtesy of Dr. Bob Brook of RAND, is “necessary care for everyone”.   If you want extra coverage or special coverage beyond a basic package for additional, voluntary purchase, go for it.   Plenty of companies will step forward to provide what the market demands.

The barriers to this solution will remain for some time since so much money is being made on supporting an inherently unsustainable healthcare upward cost spiral.   But it will occur when CEOs demand it.   They will no longer be able to afford healthcare when its disproportionate rise exceeds acceptable corporate profitability.   They will demand the White House and Congress finally fix this.   That will be the final irony.   Businesses that have fought mandates for coverage will ultimately demand it in order to stay in business.