By John Mauldin | February 27, 2013
For this week’s issue of Time magazine, the cover story is “Bitter Pill: Why Medical Bills Are Killing Us, by Steven Brill. I had to have something to read while the plane was taking off, and that turned out to be it. (Since I got my iPad I no longer carry books, so I make sure I have something to peruse while waiting to be able to use my electronics in the air.) I have read work by Steve Brill in the past and like his style, so even though I don’t usually read Time, I picked up this issue on healthcare.
I wish I could get every voter in America to read that article and then go to the internet, Google the piece, and read the comments. I don’t agree with all he wrote, but he does a marvelous job of giving us the picture on just how broken the American healthcare system is in terms of costs. He goes into detail about how hospitals create those staggering bills. If you have private insurance or a government plan, you don’t have to pay those prices, but what if you don’t? The billing system is out of control: $1.50 for a 1.5-cent acetaminophen pill (Tylenol). A simple niacin tablet marked up 240 times. Routine products like gauze marked up 10 times. Billing for a lamp shade? Are you serious? Double and triple billing for routine items that no insurance company or government agency will pay for, but that you will be billed for if you are on your own. You have read the stories or heard them from friends, but Brill makes it real.
We spend almost 20% of our gross domestic product on healthcare in the US, and that figure continues to climb….
I know about those business healthcare burdens. At my very small business, the fastest-rising cost is healthcare. I have my staff get bids on healthcare every few years and try to hold down costs. I should note that after reading the Brill article I am actually going to go back and check a few items to make sure we have proper coverage. You think you do until…
Let’s be clear, the US has the best medical care on the planet. Expensive, yes, but our best is truly the best. As I get older, and as my kids have issues, having access to good healthcare seems a very good idea. I want to live a very, very long time. Which is why I worry. I don’t want to see our healthcare system get sidetracked.
Now, we are getting ready to dramatically change how we pay for 20% of our economy. I fear Obamacare is going to be a bureaucratic nightmare. Before you consign me to some Neanderthal Republican hell, let me quickly state that any necessary reform is going to be disruptive and expensive. Even if we adopted Paul Ryan’s plan, it would be very disruptive. You simply can’t change the incentives and payment structures of 20% of the economy without creating macroeconomic problems. There are more unintended consequences than we can imagine lying hidden in the grass of healthcare reform, like hungry lions.
Having to cover pre-existing conditions is going to raise the costs of private insurers. In my business, we are getting reports that our cost will go up by as much as 50%. Individual rates may rise even more.
Under Obamacare, businesses may have sufficient incentive to drop insurance coverage and pay a $2,000-per-employee penalty. I am not certain where they came up with that number, but $2,000 is cheap insurance. Insurance companies are going to lose business customers as they raise prices. If your employees can get government healthcare (mine can’t, I hasten to add!), then from a financial perspective you are better off paying the penalty. When insurance costs rise, the pressure to drop coverage will rise as well, which will mean those still covered have to pay more. It will be an ugly trap until things get sorted out.
I fear that the Medicare budget will rise even further unless we get aggressive on holding down costs. But that will not be easy. The systemic and political incentives to effect change are just not there until there is a real crisis. And while Brill talks about the excess profit in the system, when you take that away, things will change. Some think they will change for the better, but I am afraid we are all indulging in wishful thinking.
Obamacare may have brought forward the crisis that we all knew was coming. Rather than runaway entitlement spending being a problem for the latter part of this decade, it may soon be a topic for your child’s show and tell time at school. We either get a handle on the problem this year or things could quickly spiral out of control. Medicare and Medicaid costs could quickly rise by 5-10%, which would blow a hole a mile deep in our national budget. Yes, that would mean that costs that had been absorbed by emergency rooms and picked up by charities would now be paid for by the government, but while they might amount to the same total (unlikely), they would not be part of cost and budget projections.
Maybe the government does a better job at estimating future costs than it did in 1965, but I worry that it won’t. And the consequences of being wrong could be very disruptive to a healthcare system that is as vital as food and energy. Honestly, I do not get a good feeling when I think of Washington DC and crisis management. Call me silly, but I worry about that.
I don’t have an answer, or at least not an easy one. Should we treat healthcare as a utility? That is anathema to my free-market sensibilities. Should people be without basic healthcare? That is also not acceptable. Can we afford universal healthcare? Not as costs are currently structured. Can we change? Sure, we will have to. But I expect a bumpy ride. I read and think a lot about healthcare because I am worried it is going to impact our economy in ways we simply don’t yet understand.
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