Healthcare in the United States: Rising Costs and Effects - Essay Example

Healthcare in the United States: An Analysis of Rising Costs and Effects on Both Employees and Employers Healthcare has increasingly become an issue of concern for many Americans. Because the issue is so intricately tied to other issues of race, class, economic resources, and social justice, it has become charged both politically and socially. As Gwendolyn McFadden-Wade writes, “On March 15, 2004, the Wall Street Journal reported the results of a recent survey regarding the economic concerns of the nation. Of those surveyed, 47 percent indicated concerns ranging from the ‘shrinking availability of health care and pensions, to the intensified job losses from foreign competition’ (abstract)." 47 % of any given country’s population is a comparatively large percent, and certainly merits attention from lawmakers and policy specialists. Health insurance is a system by which companies ensure that their clients have regular access to healthcare and drugs. The importance of this coverage should not be underestimated in a society such as the United States whose medical costs can be extremely high. Those who are uninsured over the long term, on average, have poorer health and die earlier than do those people who have insurance; estimates suggest that this issue is associated with costs of between $65 billion and $130 billion annually (Stanton, 2). “Health insurance premiums have increased rapidly over the recent past, growing a cumulative 78 percent between 2001 and 2007 and far outpacing cumulative wage growth of 19 percent over the same period (ER 2).” Within this context, it is evident that the average US citizen concerned about their health faces a severe problem.   The government has tried unsuccessfully to respond to these concerns, but the incentives that it provides are insufficient, skyrocketing healthcare costs continue to be inhibitive, and many Americans remain uninsured. In 2003, Congress used a tax credit to expand the coverage of health care insurance for these American workers. Effective in 2003, workers whose employment has been negatively affected by outsourcing and retirees receiving benefits from the Pension Benefit Guaranty Corporation (PBGC) were entitled to a tax credit for the cost of health insurance they purchase for themselves and their dependents. This credit was designed to offer a financial incentive to maintain health insurance coverage (McFadden-Wade, 1). However, eligibility requirements were restrictive, and the policy did not provide have the hoped-for effect. The high cost of health insurance has affected many stripes of society, from employers to employees, and it has drawn particularly decisive divisions along racial and class lines. As levels of higher education are often related to social and economic class, the issue then becomes one of education as well. The National Center for Health Statistics reports that in 2006, 43.3 million Americans under the age of 65 were uninsured, and 9.3 % of children under the age of 18 were uninsured. Of the children who were insured, 32.3 % had public insurance, such as Medicaid (ER 1). From January 2007 to June 2007, 42.5 million people of all ages were uninsured; additionally, 53.2 million had been uninsured for at least part of the year prior to the interview, and 30.8 million had been uninsured for over a year at the time of the interview (Cohen & Martinez, 1). Based on data from the January – June 2007 NHIS, a total of 53.2 million (18.0%) persons of all ages were uninsured for at least part of the year prior to the interview. Working-age adults were almost twice as likely to experience this lack of coverage (23.4%) as children under the age of 18 (12.3%). The percentage of children uninsured during at least part of the year prior to the interview decreased from 18.1% in 1997 to 12.3% in the first 6 months of 2007 (Cohen & Martinez, 3). Though the fact that more children are becoming insured is laudable, there is something very indicative about the fact that working-age adults are very likely to experience a lack of health coverage. As the majority of Americans depend upon their employers for health coverage, this particular statistic is very troubling. What is the root of this national healthcare crisis? Who is responsible for the problem, and who is responsible for resolving it? In attempt to consider the question holistically, this paper will examine health insurance from a race/class perspective, in addition to analyzing healthcare costs from the perspective of both employers and employees. Differences in the health outcomes between white and minority patients has been well documented in medical, sociological, and economics literature, and an oft-cited reason for the disparity in health is unequal access to treatment. Minorities, statistically speaking, are poorer and less likely to be covered by insurance than are whites. They do not have the economic resources to insure themselves and their families, and this lack of consistent health insurance leads to hiccups in care, inconsistencies, and numerous doctor changes. In a paper by Emilia Simeonova, the author tries to explain some of this racial division. She writes that doctor quality accounts for 5% of the mortality gap and socio-economic factors account for 20% of the differences in mortality, but that the real difference lies in the fact that blacks are less likely to take their medication than whites (Simeonova, 1997). She writes: I show that doctor quality significantly influences patient outcomes. While minority patients visit slightly less competent doctors, this does not explain the large gap in survival. Individual doctors are found to treat their patients similarly regardless of race. On the patient side, I demonstrate that variation in compliance triggers a racial mortality gap. Differences in patient response to treatment significantly alter survival probabilities. Considerable reductions in medical costs could be achieved by convincing patients of the importance of strictly following the therapy regimen. I estimate that targeting compliance patterns could reduce the black-white mortality gap by at least two-thirds (p. ). However convincing her technical argument may be, Simeonova’s paper does not contemplate the sociological factors behind the findings. Several possibilities occur to me as a writer: people who have had inconsistent access to healthcare for most of their lives often have poorer healthcare habits, or do not fully comprehend the importance of taking their medicine consistently. The inhibitive cost of drugs themselves could be an enormous, unnoted factor in this analysis: a Black woman who does not have insurance coverage may not be able to afford her medication, and therefore may not be taking it regularly. These and myriad other reasons may play substantial roles in this analysis, and have not been recognized as potential factors. From reading the excerpt, it would be easy to draw the conclusion that blacks are statistically more irresponsible with their health. This paragraph represents the kind of single-minded explanation that has contributed to so much confusion and exploitation in healthcare and beyond. Health insurance costs also relate to occupation, which, in turn, relates to social class, race, and economic accessibility. As Kaiser notes, in 2005 the employer costs for health insurance varied between $1.64 per hour for workers in retail, sales, or service, to $2.96 for executives and managers and $3.38 for professionals (ER 2). Statistically, minorities are less likely to occupy executive, managerial, or professional positions than are whites, and this data indicates that their healthcare costs, and presumably their healthcare quality, would necessarily be less. In addition, in the first half of 2002, the groups statistically likely to have employer-sponsored insurance include: workers in small establishments, minorities (especially Hispanic males), young adults (19-24), near-elderly working women with health problems, and retirees (Stanton, 5). Cohen & Martinez expand: Lack of health insurance coverage was greatest in the South and West regions of the United States. Among adults who lacked a high school diploma, 31.2% were uninsured at the time of interview, 35.1% were uninsured for at least part of a year, and 26.1% had been uninsured for more than a year at the time of the interview. These rates are 2 to almost 4 times as high as those for persons with more than a high school education. Among currently unemployed adults 18–64 years old, 51.8% had been uninsured for at least part of the past year, and 33.5% had been uninsured for more than a year. Among employed adults 18–64 years of age, 22.3% had been uninsured for at least part of the past year and 13.8% of had been uninsured for more than a year. Married adults were more likely to have coverage than those who were divorced, separated, living with a partner, or never married (5). These statistics paint a clear picture of the insurance issue as it relates to education: higher education is clearly a factor in obtaining, or not, health coverage. As the graph below clearly shows, poverty status has an enormous impact on whether or not one is likely to be insured. Among adults under the age of sixty-five, those who qualified as ‘poor’ had an lack of coverage of 29.2 percent, while those who qualified as ‘not poor’ experienced a lack of coverage as low as 8.9 percent. The difference here, 20.3 percent, is both significant and telling. The difference holds for all poverty status, though it is admittedly less severe for age groups of ‘under 18’ and ’18 to 64’. Though the youth category might be explained in part by the fact that youth do not work and are therefore less subject to the fluctuations of coverage as it relates to the job market, the differences in all categories are present and disturbing. Percentage uninsured by age group and poverty status: United States, 1997 – June 2007 Age group and year Poverty status1 Total Poor Near poor Not poor Under 65 20063,5 16.8 (0.29) 29.2 (0.98) 30.8 (0.80) 8.9 (0.22) 2007 16.2 (0.43) 27.7 (1.33) 32.3 (1.25) 8.0 (0.22) Under 18     7.8 (0.20) 20063,5 9.3 (0.34) 12.7 (1.06) 16.5 (1.05) 8.7 (0.22) 2007 8.6 (0.52) 11.6 (1.35) 17.4 (1.57) 8.4 (0.21) 18–64     9.5 (0.24) 20063,5 19.8 (0.33) 40.0 (1.33) 38.6 (0.89) 9.1 (0.25) 2007 19.2 (0.47) 38.4 (1.70) 41.2 (1.32) 9.4 (0.23) Source: Cohen & Martinez, 11 For those who cannot obtain insurance through their jobs, due to educational or other barriers, the cost of purchasing private health insurance is also extremely inhibitive. A basic plan costs approximately $120 a month, and if we calculate that the average wage in the United States is $1,600 a month, health insurance figures at approximately 14 percent of the total. When housing is included, and in a major metropolitan area housing can be calculated between $900 and $1,200 a month for a single person, this leaves $280 left for food, transportation, education, taxes, and other costs of living. Even for a college-educated, white-collar worker, private healthcare insurance is out of reach. The arithmetic provides a painful, obvious answer as to why many Americans who are uninsured by work do not purchase private insurance. The economics of the situation simply won’t allow it. The impulse in such a situation would be to blame employers and their stinginess. However, inhibitive costs do not affect patients alone. Employers are increasingly finding themselves saddled with new, high prices associated with insuring their employees. In the global capitalist marketplace, it is unsurprising that these employers would look for ways to cut prices in order to ensure their own economic survival. Though analysts would demonize companies for cutting benefits, the employer position is not unexpected given the costs associated with insuring their workers. Among workers receiving health insurance benefits, the average cost for the employer per employee hour went from $1.60 to $2.59 during the 1999 to 2005 period.  “This almost 62 percent increase in average costs per hour is much larger than the 23 percent increase in average employer payroll costs per hour for these workers…Overall, the percentage of workers in jobs where employer costs for health insurance exceeded 10 percent of payroll rose from 38 percent to 56 percent between 1999 and 2005 (ER2). Employers are being saddled with costs that are far above their profit margins as well. In the United States, employers are responsible for a large portion of health insurance costs annually. This system was developed for a number of reasons. As Mark Stanton writes, In the first half of 2003, the U.S. employer-based health insurance market provided insurance to over 159 million Americans who constitute nearly two-thirds (63.4 percent) of the population under 65. In this voluntary system, employers may choose whether to offer health insurance to their employees and employees may choose to enroll or forgo enrollment. Most employers have chosen to offer health insurance as a fringe benefit to attract employees. It is an attractive option to offer because of the favorable tax treatment to both employer and employee. In addition, employment-based health insurance is likely to be less expensive than individually purchased coverage (for the same set of benefits) and typically provides a broader scope of benefits than is available in individually purchased coverage (Stanton, 2). The author is quick to acknowledge that this system comes with specific beneficiaries. He continues, “…small employers with predominantly low-wage workers are much less likely to offer health insurance since the greater cost of underwriting and administering coverage for each enrollee in a small workforce adds to the cost of the premium. Since smaller firms face higher rates of employee turnover, it is likely that a smaller percentage of their workers will fulfill the waiting period required for enrollment (2).” Though in principle the system makes sense, it does not account for different working hours, and the educational restrictions that define who works where. New mothers, for example, often work part time in order to have the flexibility to care for their children, and under this system are almost automatically denied healthcare benefits although, technically, their contribution to society is equally great. As a result of these factors, enrollment rates even among eligible workers have gone down. Stanton notes that from 1996 to 2002, among all private-sector employees, “the offer rate [for health insurance] increased from 86.5 percent to 88.3 percent, the eligibility rate decreased from 81.3 percent to 77.1 percent, and the enrollment rate dropped from 69.6 percent to 62.4 percent. In addition, the enrollment-when-eligible rate dropped 4.5 percentage points, from 85.5 percent in 1996 to 81.0 percent in 2001…According to recent research, the principal reason for decreasing enrollment during the period 1987-2000 was that the cost to employees had risen substantially (3).” Additionally, low-wage workers statistically more sensitive to the size of their contribution to coverage than are workers who earn a higher income. In 2002, “63.5 percent of employees in predominantly low-wage establishments (50 percent or more of employees earn less than $9.50 per hour) were enrolled in a health insurance plan. In establishments in which less than 50 percent of employees earned less than $9.50 per hour, 83 percent of workers were enrolled in a health insurance plan (Stanton, 5). When even the employees with work-related health benefits cannot afford health insurance, the situation begins to look more severe. American healthcare policy in recent decades has focused on reducing the additional health care that is ‘consumed’ when a person becomes ill, a concept which is called moral hazard. According to both conventional healthcare theory and conventional economics, moral hazard represents a social loss, as its purported cost exceeds its purported value (Nyman, 759). As John A. Nyman continues, Empirical support for this theory has been provided by the RAND Health Insurance Experiment, which found that moral hazard—even moral hazard in the form of effective and appropriate hospital procedures—could be reduced substantially using cost-sharing policies with little or no measurable effect on health…[my] article critically analyzes these two cornerstones of American health policy. It holds that a large portion of moral hazard actually represents health care that ill consumers would not otherwise have access to without the income that is transferred to them through insurance. This portion of moral hazard is efficient and generates a welfare gain. Further, it holds that the RAND experiment's finding (that health care could be reduced substantially with little or no effect on health) may actually be caused by the large number of participants who voluntarily dropped out [...]Indeed, almost all of the reduction in hospital use in the cost-sharing plans could be attributed to this voluntary attrition. If so, the RAND finding that cost sharing could reduce health care utilization, especially utilization in the form of effective and appropriate hospital procedures, with no appreciable effect on health is spurious (759). Nyman concludes his article by observing that that the preoccupation with moral hazard is misplaced, and that, based precisely on this erroneous conviction, both policymakers and insurance companies have worked to mask or subvert policies that would better reduce health care expenditures. He concludes by noting that “It [the concept of moral hazard] has also led us away from policies that would extend insurance coverage to the uninsured (Nyman, 780).” Let there be no doubt that economic gain is at the bottom of this phenomenon. Health spending in the United States in 2001 was 14.4 % in 2001, and is projected to reach 3.1 trillion in 2012 (ES 2). That is a big industry, a big business. We as a nation dislike anything that smacks as much of socialism as the concept of Universal Healthcare. Such a perspective is certainly our prerogative as a country, however, it must be said that the US healthcare situation is grave indeed. Though ideology may have some effect on policy, economic gain appears to be the fundamental impulse behind these rising healthcare costs. Under the current system of operation, our short-term economic view of employee health is indicative of the same economic short-term view that permeates global management. We have not, as a global market society, recognized that it behooves us to maintain the health, both physical and emotional, of our employees, because what we as employers and we as taxpayers pay for sick employees in the long-term is a high economic and social cost. One of the fallacies of our market system is to systematically ignore long-term costs, such as employee replacement, employee training, new insurance, and all the costs associated with ill workers. The fact that our health and health insurance costs our soaring is indicative of the fact that we as a society have our hands tied: we are torn between support for our economic model, and our conviction that the average working American should be able to afford healthcare for themselves and their family. Regardless of cause, if we as a nation wish for a healthy workforce and for a reasonable level of productivity, we must find a way to resolve this insurance crisis. The divisions that healthcare creates and accentuates do nothing for our purported national commitment to justice, especially along racial lines, and large numbers of ill people on Medicaid and public insurance wind up being a weighty cost to society, despite the fact that the system was designed to cut expenditures. Additionally, insurance can be seen as a human rights issue: young children and the elderly who do not have access to legitimate coverage, drugs, or medical care are an embarrassment to this country, the wealthiest in the world, who cannot or will not honor our commitment to the basic human right of health. Works Cited Cohen, Robin A, PhD, and Michael E Martinez, M.P.H. Health Insurance Coverage: Early Release of Estimates from the National Health Interview Survey, January – June 2007 Division of Health Interview Statistics, National Center for Health Statistics McFadden-Wade, Gwendolyn. A new Health Insurance Tax Credit (Academic Perspectives). © 2004 Catalyst, Dublin, Ohio. Nyman, John A. American Health Policy: Cracks in the Foundation. Journal of Health Politics, Policy and Law vol. 32, no. 5, October 2007, pp. 759-783. Simeonova, Emilia. 2007. Doctors, Patients, and the Racial Mortality Gap: What Are the Causes? Working Paper, Nov 2007. Stanton, Mark W, MA. Employer-Sponsored Health Insurance, Trends in Cost and Analysis. Research in Action, Issue 17 Electronic Resources 1. National Center for Health Statistics. http://www.cdc.gov/nchs/fastats/hinsure.htm 2. Kaiser Family Foundation/Health Research and Educational Trust, Employer Health Benefits 2007 Annual Survey. http://www.kff.org/insurance/7672/index.cfm. Works Referenced Manning, Willard G., Joseph P. Newhouse, Naihua Duan, Emmett B. Keeler and Arleen Leibowitz. Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment. American Economic Review, 1987. Suzanne Felt-Lisk, Gilbert Gimm and Stephanie Peterson (2007) Making Pay-For-Performance Work In Medicaid Health Affairs, Volume 26(4). Read More