Two Trillion Spent on Healthcare Each Year: A Sick Way to Prop Up an Ailing Economy
By Joshua Holland, AlterNet
Posted on July 28, 2007, Printed on July 29, 2007
http://www.alternet.org/story/58099/
For the first four years after the dot-com bust in 2001, a weak economyin most sectors was masked by an explosion in real estate sales,rocketing home values and a surge of consumer spending as people takingadvantage of super-low interest rates and easy credit grabbed chunks ofequity out of their newly high-priced digs and went shopping.
In the summer of 2005, the New York Times reportedthat the real estate biz -- "everything from land surveyors to generalcontractors to loan officers" -- had added 700,000 jobs to the Americaneconomy during the previous four years, while the rest of the workforce had lost 400,000 jobs over the same period. Technically the economy was in "recovery," when in fact most of it remained soft.
A few economists sounded a warning about having all our eggs in one economic basket. People like Yale's Robert Shiller and Dean Bakerat the Center for Economic Policy and Research pointed out that homevalues weren't syncing up with the fundamentals of the market, and thatwe were headed for an "adjustment" -- either a real estate crashleading to a recession or, in the best case scenario, a "soft landing."
Butwhile there were some voices of caution, other economists told us thateverything was going gangbusters. This was the New Economy in action:American manufacturing may have been gutted during the previous fewdecades, but the service sector is where more "value" is added anyway-- where the big profits are -- and Americans would be just fineselling each other houses, insurance and the occasional cheeseburgeruntil the Next Big Thing came along.
It was a hot debate, butsomething else was going on at the same time that got less attention:There was the emergence of what could be called the healthcare economy.As Michael Mandel wrote in Businessweeklast September, "Without [the health sector], the nation's labor marketwould be in a deep coma." Between 2001 and 2006, 1.7 million new jobswere added in the healthcare sector. Meanwhile, the rest of the privatesector added exactly zero new jobs (net) during that period.
(Theconventional wisdom is that the economy needs to add about 150,000 jobsper month to keep up with the growth of the working-age population.)
Ifcurrent trends continue, 30 percent to 40 percent of all new jobscreated in the United States over the next 25 years will be in thehealthcare business. Mandel argued that this trend is partlyresponsible for the United States' low overall unemployment rate. "Takeaway healthcare hiring in the U.S.," he wrote, "and quicker than youcan say cardiac bypass, the U.S. unemployment rate would be 1 to 2percentage points higher."
One could argue that this isprecisely how a vibrant economy should work. A dynamic industry takesoff and compensates for weaknesses in other sectors. When it cools,another field will explode, perhaps one we can't even conceive of today.
What'smore, healthcare jobs have increased at the same time as we've shedmillions of relatively high-paying manufacturing jobs. Wages in thehealth sector vary widely, but the average is slightly higher than theaverage income in the private sector as a whole. Healthcare islabor-intensive, so a lot of the more than $2 trillion we'll spend thisyear in the Unites States will end up in healthcare workers' pockets.It's also an industry in which offshoring and outsourcing are uncommon;you might be able to schedule your colonoscopy with a guy at a callcenter in Mumbai, but ultimately your ass has to be in the same countryas the personnel who do it.
So, is a healthcare economy a bad thing?
Itis, and for three reasons in particular. The most obvious is that thesejobs are coming at a cost that the United States can't continue to paywithout facing severe consequences (especially as the baby boomers getinto their Golden Years). According to government data (PDF),healthcare costs exploded between 2000 and 2005 -- increasing by awhopping 47 percent. Over a longer period, from 1995 to 2005, percapita healthcare spending increased by 77 percent. That's slowed abit, but not by much; total costs are projected to reach $2.25 trillion dollars this year, up 14 percent just since 2005.
Thatkind of growth outpaces the overall growth in the economy by a mile --the share of America's total economic output being sucked intohealthcare has increased from just under 14 percent in 2000 to over 16percent this year, and is expected to equal one fifth of the total economy in 10 years.
Those costs put the squeeze on millions of American families. A studyby the Commonwealth fund found that families' out-of-pocket expenses(and premium copayments) rose in direct proportion to overallhealthcare spending. With wages stagnating, that's leading to realpain; almost half of those declaring bankruptcy in 2001 cited healthcare costs as a "major contributor." An ABC News/USA Today Pollfound that one in four Americans questioned said that their family hadhad a problem paying for medical care during the past year, up 7percentage points over the past nine years.
It may also have an indirect impact on wages, which have remained stagnantfor most of the working population since 2001. Right-wing economistslike Greg Mankiw, the former chairman of Bush's Council of EconomicAdvisors, who infamously suggested that assembling cheeseburgers at aStuckies should count as a manufacturing job, argue that looking at wages isn't an honest measure of how workers are doing, because their overall compensation-- including medical and other benefits -- has risen faster thaninflation, while wages haven't. Allan Hubbard, another Bush economicadvisor, told the Wall Street Journal that "employers are spending more money on healthcare, and that's robbing people of wage increases." The claim is controversial-- corporate profits and executive pay have both increased at the sametime, and fewer than half of all American workers get coverage fromtheir employer -- but it is a simple fact that the gap between the cashworking Americans are pocketing and the money their employers pay foran hour of their time has been growing. According to a study by theKaiser Foundation (PDF),workers' pay rose by 18 percent between 2000 and 2006 -- not quitekeeping up with the 20 percent total inflation -- but employers'healthcare premiums rose by almost 90 percent.
That lastnumber gets to the heart of the second problem, one that Big Businessis becoming increasingly aware of: Those costs are much higher than inother countries and, unlike every other advanced economy in the world,much of the burden is born by U.S. companies instead of being spreadacross society through a progressive tax system. That puts them at adistinct disadvantage in terms of labor costs, and encourages U.S.firms to offshore and outsource as many jobs as possible. So while thehealthcare industry is adding jobs, the spiraling costs create apowerful incentive for other sectors to shed them.
Lastly, andmost importantly, we're talking about investing an enormous chunk ofour national income into a healthcare system that offers the lowestimaginable value for the dollar. In 2004, we spent $6,102 per Americanon healthcare. Not only did that figure lead the world, it did so by ahuge margin -- No. 2, Switzerland, came in at just over $4,000 perperson, two grand less than the United States. For that money, we rankbetween 15th to 37th out of 153 countries studied by the AmericanSociety of Integrative Medicine in every single measure of health outcomes. The authors note that "almost every major study of America's healthcare system has concluded that we could hardly do worsein terms of how much well-being is yielded for the resources currentlyexpended." We're paying for a Ferrari, and we're driving a Pinto.
Thereare many reasons these costs are so bloated, and some are subject tofierce debate. But what is arguably the biggest problem is also one ofthe least discussed: The fact that the whole system is set up withperverse and essentially self-defeating incentives. America'shealthcare economy is actually a sickness economy, where all theemphasis is on treating people once they've gotten sick, instead ofkeeping people healthy in the first place. It is reactive rather thanproactive, despite a large body of research that proves the old adagethat an ounce of prevention is worth a pound of cure. Studies show thata dollar spent on preventive health will save up to four dollars by thefourth year that the data are tracked ($$).But while public health experts preach prevention, only about onepercent -- a penny on the American healthcare dollar -- goes to actualprevention programs (depending on how you add it up, that figure may beas high as ten percent, which is still far below what other advancedcountries spend on prevention).
And we're also paying a steeppenalty -- all of us -- for our system's lack of universality. Studiesshow that people without coverage often put off medical care until thesymptoms are so bad that they end up in an emergency room, where theyran up about $65 billion in charges in 2005. According to a study bythe advocacy group FamiliesUSA, they pay a bit more than a third of thecosts out-of-pocket, the government picks up a third of the remainderand the rest is paid by people with health coverage through higherpremiums. According to the FamiliesUSA study, that adds up to almost$1,000 per fully insured family.
That's where we are: With $600billion per year picked up by the government, our healthcare system,while a rip-off by any reasonable measure -- is becoming a fabulouslyexpensive jobs program. The idea of the government shelling out bigbucks to stimulate growth in the number of decent jobs is passé amongpolicy makers, but we do it year in and year out in the healthcareeconomy. There are other sectors that, with proper governmentencouragement, could use that kind of stimulus -- things like renewableenergy, rail and public infrastructure.
We need a healthcaresystem that's about caring for people's health, not a healthcareeconomy that is more effective at making an uncertain economy lookstrong than it is at keeping us well.
Joshua Holland is an AlterNet staff writer.
