Posts filed under ‘Health Economics Rant’

Government Shutdown Over ACA…forward to the past?

Our political system has become dysfunctional over the issue of access to healthcare for the people of the United States. Protectors of capitalism claim that the Affordable Care Act will undermine business. The keepers of our democracy claim that those without the money to pay the high price of healthcare have spoken, and the nation has heeded their call. The real problem is that capitalism has failed to fund a real winner in recent memory.

Healthcare inflation has been fueling our economic growth to far too long. It has accounted for expansion of private business, growth in employment, and favorable stock performance. The industry has been a rare goose that laid golden eggs. Unfortunately, it has been one that has crowded out investment in other factors of production, consuming an ever-growing percentage of our nation’s GDP. And the result has been an over-reliance on healthcare investments that paradoxically leave too many citizens of the US unable to afford to get well. The ACA seeks a cure for the latter, but Wall Street is totally freaked about losing the former.

The false dichotomy has become one of choosing between sick people and capitalism. But the real culprit is our new generation of pseudo-capitalists running the markets. We do not have a market economy that is funded by shareholders taking long positions. After three decades of supply-side economics the result has been a net divestment of the supply function. Out-of-control healthcare costs and real estate shenanigans have been the darlings for investors. Oh yeah, and serial monogamy in pursuit of each paradigm shift in tech stocks.

Today’s growth opportunities for investors on the margin are driven by boom-bust cycles in fool’s gold. Buy stocks or other financial instruments while they’re hot, sell at the right time before they crash and burn. We’ve been here before…in the 80s, a heyday of stock market gains based on insider trading. Today’s formulas are more complicated, the code among thieves more discreet, but the watchdogs must smell smoke by now. Healthcare stocks that celebrate $78,000 cures for ovarian cancer for the rich, on the other hand, seem virtuous by comparison. At least the assets are real.

The ACA is a done deal: legislated in Congress, signed by the President, and validated by the Supreme Court. But where is the strategic vision for real economic development in the US?


October 1, 2013 at 10:17 AM Leave a comment

Response to EducationNext on Ryan Healthcare Plan

In response to Michael Petilli’s post of 8/20/2012 in which he misleads the public on the Ryan healthcare plan…

Rep. Ryan has proposed a budget that raises healthcare spending while reducing benefits to the poor and the elderly. Obama has added benefits and reduced payments to providers, creating a net improvement in the healthcare trust fund, which Ryan’s plan further depletes. I have addressed healthcare spending and the remedy with the aging of the population more fully in my blog as a topic of relevance to retired educators, and I concur with the President’s approach through the ACA. Read more here…

August 28, 2012 at 6:12 PM Leave a comment

Health Economics Rant

Healthcare costs for government employees and retirees have been bones of contention in contract negotiations across the nation. However, a perfect storm of rising costs, recession woes, and aging of the population could be offset by introducing the laws of economics to the supply side of healthcare.  

The supply of healthcare products and services has been subject to relatively unrestrained inflation and economic rents for decades despite policy initiatives to contain costs. Aside from some success with government as the payer, healthcare providers have been in a position to mandate rising payments for services. They have taken advantage of their position as controllers of supply and demand for products and services, and they have wielded this power to eliminate the law of diminishing returns with increased volume. Cost containment efforts have produced shadow-pricing in products and procedures; technological innovations have become the cornerstones for institutional expansion and growth for the bureaucracy. So why isn’t there more aggressive opposition?

Through tough economic times, healthcare stocks have offered the rare growth opportunity. Healthcare providers and suppliers have increased their contributions to employment. Facilities expansions have boosted new construction. Despite the fact that healthcare has crowded out other investments in our economy, especially the factors of real production, we have come to rely on these benefits, however short-sighted, as bright spots in a dismal economy. Costly therapies have spun out of control, and we cannot afford to get well. Still, no one wants to kill the goose that lays the golden eggs.

For a visionary, there is a way out of this mess. And it comes in the form of an opportunity that many prefer to see as the challenge that is going to sink us: the aging of the population. We merely have to begin to analyze the supply side of health care with an eye to diminishing returns that lower units cost of product/service provision. The resulting drop in unit price would be offset by growth in unit demand with population redistribution toward middle age and old age. If done right, employment would be stable and healthcare stocks would not have to crash.

We are not helpless in the face of rising healthcare costs, nor are we beholden to it for what remains of our wealth. Ideally, we could contain total healthcare expenditures to a stable percent of GDP while addressing healthcare needs in the private markets. The industry might grow a bit faster than the economy initially, but there would be an incentive for orderly transfer of investment out of healthcare and into emerging growth markets.

Twenty years ago I watched in dismay as we made key bad decisions that vilified the managed care industry and gave carte blanch to provider groups. The latter consolidated their power in local markets and eliminated the crucial role of health insurers as agents of purchasing power for the consumers. Key provider groups began to walk away from price negotiations, and insurers caved lest they lose all of their customers. Today, not even the largest state employee insurance pools have the power to bid down prices in healthcare. That suggests that healthcare providers function as monopolies in their local markets – a role that baffles them all the way to the bank.

Eventually, with the aging of the population and unrestrained healthcare inflation, there will be enough pain in the industry for politics to overrule on the supply side. In the meantime, we can use enlightened management of costs within these operations to reduce the redistribution of wealth from ourselves to healthcare providers and suppliers. Alternately, we can go broke watching the gradual erosion of healthcare provision and outcomes in that coming Perfect Storm.

October 17, 2011 at 11:11 AM Leave a comment