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Health Care Reality Will Be Ongoing Economic Drag

Posted by Larry Doyle on September 3, 2010 6:39 AM |

I have often thought that staying physically fit is not only a good way to live but also makes enormous economic sense as well. Not that staying fit will keep one’s healthcare premiums totally in check. The simple fact is the cost of healthcare insurance in our country is downright scary. The pace of change in healthcare premiums has been even scarier. How much so? Do you care to make a best guess as to what the average increase in a family’s annual healthcare premium has been over the last decade? 50%? Keep going? 75%? Still too low? 90%? Getting closer, but still not there. The Wall Street Journal gives us this answer and much more in writing, Employers Sharply Raise Workers’ Share of Health Costs:

Overall, annual premiums for families reached an average of $13,770 this year, up 114% since 2000.

Will Obamacare address and mitigate the underlying forces driving this increase? Honestly, I am not optimistic. I view Obamacare as nothing more than another of the redistribution and rationing programs in which those who can pay will absorb the costs for those who can’t. But how are these increases truly being absorbed? To an ever increasing extent, the cost of healthcare is being shifted from the employer to the employees. The WSJ further highlights this reality in writing:

Employers passed health-insurance costs onto employees at a sharply higher rate this year, and businesses’ premiums grew more slowly than they have in a decade, according to an annual survey of companies.

The increased cost-shifting reflected an acceleration of a trend that has been on the rise for years. As companies struggle to cut costs amid difficult economic times, more of them are reducing benefits they offer workers or making workers pay more for them. Still, companies are paying nearly three-quarters of workers’ health-care premiums.

[benefits]

Employees paid an average of about $4,000 toward their family coverage this year, up 14% from last year, according to a report by the Kaiser Family Foundation and the Health Research and Educational Trust. But total insurance premiums paid by the employer and the employee rose just 3% for a family plan—the slowest rate of growth in 10 years, according to the data.

The nonprofit research groups surveyed about 2,000 large and small companies between January and May.

“It’s the first time I can remember when employers have coped with costs by shifting it all to workers,” said Drew Altman, the Kaiser Family Foundation’s president and chief executive.

The survey showed workers with family plans are now paying 30% of their premiums, compared with 27% last year and 26% five years ago.

Businesses explained the shift by pointing to stark choices between cutting staff and reducing benefits.

“It’s no surprise, since businesses are struggling to keep their doors open,” said James Gelfand, director of health policy at the U.S. Chamber of Commerce. “The premium increase may have been modest but it’s still a premium increase and businesses can’t absorb those costs.”

As the increased costs are shifted to employees, what is the knock on economic impact? There is no doubt that discretionary consumer spending will suffer a further drag. That reality is nothing more than Principles of Economics 101.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Mike

    If I broke a bone I would probably Google how to fix it myself rather than go to a doctor.

    If there’s any benfit to these increased health care costs, it’s the fact that people will start taking their own health more seriously.

  • Mk

    More costs will be shifted to the citizens as Obamacare goes into effect. Forty million forced to buy insurance, most can’t afford it will be subsidized by all taxpayers. Big companies are already planning on dropping ins. coverage for employees and paying the Obamacare fine because it will be cheaper. So even more citizens will be forced into taxpayer subsidized insurance. Plus, if we see such an upheaval of 40 million+ citizens entering health care, what will this do to wait times for an appt., non-emergency services or even emergency services? The US will end up with a Canadian/Europe style health care system at over two-three times the cost per capita and a much more inferior delivery system of said health care. Look around. These are the good ol’ days.

    • fred

      Mk,

      I agree with almost everything you said, except that at least a portion of the cost will be born by those paying for healthcare coverage in the form of higher premiums.

      Ultimately, Obamacare is an attempt to control healthcare costs by establishing reimbursement rates. Currently, Medicare/caid takes an average of insurance reimbursement rates when making payments to providers.

      As more employers/ees opt out of private insurance plans for Obamacare (due to higher costs), Obamacare will move towards reimbusement per patient rather than fee for service. The incentive for working harder in the form of a potentially higher income or profit will be removed.

      Medicine will become as much a marketing machine, screening for both numbers and healthy patients, as it is a healthcare provider. As for efficiency, forget about it, what now takes days, will take weeks and months.

    • Disgruntled BD

      Don’t worry about that too much, Mk. The individual mandate will most likely get lobbied out of existence prior to its 2014 inception. And businesses will find ways of at least mitigating any pressure / penalties for not having all employees covered. If, however, I am wrong, I agree with you about the negative impact of mandated coverage. A great example to look at is MA, where supposedly 95% of the population has been shoved into insurance plans. 40% of the newly insureds (those forced to buy coverage) wound up going to hospital emergency rooms for non-emergent care; where it is much more expensive to administer. If universal coverage can’t work in a doctor-rich state such as MA, how will the rest of the country fare?

  • Disgruntled BD

    ObamaCare almost pushed me to the other side of the aisle. Blaming “those darn insurance companies” and their “pre-existing conditions” on the one hand, while taking handouts and talking points from the insurance lobby with the other, will lead to much misery ahead. When it comes to issues of coverage, passing a ‘snappy-sounding’ idea may have unforeseen consequences; and ObamaCare has so many snappy ideas that I really fear for the future. Not that this is the worst aspect, but the “Cadillac Plan” is one of my ‘favorites’ because it is even more phony than the concept of “sophisticated investor.” Though this provision may be dropped, it is symbolic of the anarchy of ideas that is supposed to address a ticking time bomb.

  • ourdad55

    This is nothing less than socialism if not Marxism. Approximately 150 new agencies to do what? A plan so good Congress won’t take part in it. So socialistic that unions are exempt from it. I was on the Board of a major private teaching hospital (in Dallas) for 9 years and know several physicians personally. Every one of those I have talked with either have or are in the process of dropping Medicare/Medicaid patients. It is already a chore getting the money from the Government. Our emergency department never turned anyone away period. What all of you are saying is true and much more. I am a liver transplant patient. At 55 now the chances are I would not be allowed to receive a new liver. On another note all Americans need to stand up right now and stop this Mosque from being built. It is time to move away from this “politically correct” BS and stop this enemy now. I pray all of you will listen to me on this. There are true American Muslims that have stood up and said do not let them build this Mosque. This is a test of our courage and strength. This is an assault on our Constitution. Using our laws to hurt is must not be allowed. Go here:
    http://www.jihadwatch.org/2010/06/pat-condell-on-ground-zero-mosque-is-it-possible-to-be-astonished-but-not-surprised.html






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