My brother emailed me a USA Today story from Jan. 2 that observed that more low-income people are gaining access to healthcare through the expansion of Medicaid under ObamaCare, while middle-income workers are being forced to pay more and receive less from their employer-sponsored health insurance plans. My brother feels that in general, low-income people in the U.S. are receiving too many freebies at the expense of America’s middle class. Healthcare costs have risen substantially for middle-class workers. The article cited data from the Kaiser Family Foundation that the size of the average deductible for individual coverage more than doubled in eight years, from $584 to $1,217. The author then discussed some possible reasons for the unfortunate turn of events for workers: corporate greed, the Affordable Care Act, corporate belt-tightening from the economic downturn and stagnant wages.
OK, let’s start with corporate greed. The 2013/2014 Towers Watson/NBGH Employer Survey calculates that the average cost of healthcare per employee (including those with family coverage) among firms with at least 1,000 employees rose from $12,745 to $15,194 between 2011 and 2014. While the amount that the worker pays for these costs has risen $1,243 (from $4,381 to $5,624), the amount the employers pay per worker has also increased $1,196 (from $8,364 to $9,560). Perhaps one can accuse corporations of being a bit greedy, but they are still paying 63 percent of workers’ healthcare costs.
{mosads}Next, is ObamaCare to blame? The USA Today article reported that some employers have been forced to pare back generous plans, due to the “Cadillac tax” — a 40 percent excise tax that will be assessed, beginning in 2018, on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage and $27,500 for self and spouse or family coverage). Most economists I know are in favor of the Cadillac tax. Current U.S. tax policy exempts health insurance benefits from income and Social Security taxes, which causes workers to choose higher levels of health insurance and lower levels of wages in their total compensation package than they would otherwise. This tax distortion leads Americans to purchase overgenerous health insurance policies, which has fueled the rise of healthcare costs over the past few decades. But the Cadillac tax only penalizes healthcare benefits exceeding relatively generous levels — and not for another three years. In fact, 85 percent of firms surveyed said they don’t expect their health plans would trigger the Cadillac tax in 2018. It’s hard to believe the Cadillac tax could be causing this large of a reaction by employers and so quickly.
So are the economic downturn and stagnant wages to blame for workers’ healthcare cost problem? Certainly workers’ earnings have not kept pace with the rate of growth of healthcare expenditures in the economy. But stagnant wages have created challenges for workers to afford all sorts of products and services — not just healthcare. The middle class is struggling to pay for education, housing and transportation as well. Yet spending on healthcare has outpaced the general rate of inflation for decades. Perhaps the increase in spending on healthcare the U.S. has experienced has been worth it. We live in an era of remarkable advances in treating heart disease, cancer and other life-threatening diseases. Surely these treatments are worth paying for.
And this is when I start to wonder: Why are we such sheep? The USA Today article suggested many “wolves” that one could blame for devouring the incomes of sick American workers. But never once does the story consider the healthcare system itself. Employer-sponsored health insurance premiums are rising because healthcare has become extraordinarily expensive. While much of this increase is “worth it” in terms of services that lengthen survival and improve quality of life, research estimates that at least 21 percent, and perhaps 34 percent, of U.S. healthcare spending is waste. The sources of this waste are many, including overtreatment, failures of care coordination and failures of execution in care processes. Why do we passively accept the waste caused by healthcare providers, which is making healthcare increasingly unaffordable for middle-class workers?
I think we all want to trust our doctors and hospitals, because we are completely dependent on their care when we inevitably become sick. My guess is that the average American has greater respect for doctors than they do for some other high-paying professions, such as Wall Street bankers or members of Congress. But in my 20-something years as a health economist, I have come to learn that most doctors are not trained to be managers. And they are often poor managers of scarce resources. Until recently, they have faced few incentives to curb spending, due to the relative absence of price competition in healthcare markets. Given that doctors are highly trained and well-compensated, we should expect more of them. Let’s stop behaving like sheep and demand that healthcare providers stop behaving like wolves. It will go a long way in helping the average American workers get the healthcare they need.
Ho holds the Baker Institute Chair in Health Economics at Rice University’s Baker Institute for Public Policy. She is also a professor of medicine at Baylor College of Medicine.