May Newsletter

VOLUME 28 NO. 5

It is not surprising that the cost of health care is getting considerable national attention.  Health care is this country’s largest industry.  Government is the only segment of the economy that costs citizens of the United States more than health care.  (Health care is a significant portion of the cost of government.)  Several factors contribute to this high cost.  Two will be discussed in this Memo.  Over the past 60 years, the medical industry has developed a tremendous number of pharmaceuticals and treatments that either cure or strongly counteract diseases.  Illnesses that were a death sentence 50 years ago are now routinely treated, with the patients totally recovering.  Needless to say, medical treatments that result in recovery will usually be higher priced than just making the patient as comfortable as possible until he dies.  Until the early 1940’s, making the patient comfortable was about the only treatment for serious illnesses.  Penicillin was the first drug that provided a cure for illness.  To sum up, costs have increased because the health care industry has developed a huge variety of very effective treatments.

The second factor, cost shifting, has a great impact on private sector health insurance premiums.  Medicare payments cover about 50% of the price for services provided.  The other 50% of this price shifts to other patients.  Another cost shift is the result of emergency room treatments.  By law, a hospital emergency room cannot refuse medical treatment, regardless of the patient’s ability to pay.  Emergency rooms have become a primary medical provider for people with neither health insurance nor the ability to pay for treatment.  In Southwest border states, illegal aliens have contributed to overuse of emergency rooms for non-emergency medical services.  Furnishing medical care that is not paid for, has led to the closure of emergency rooms by some hospitals in southern border areas.  To survive financially, the health care industry has to cover costs.  Since a substantial portion of patients either underpay or don’t pay at all, medical facilities have to charge other patients more in order to survive.                                

This results in businesses paying a much higher price for their employees health insurance than they would if everyone paid the same price for the same service.  Gem Equipment pays approximately two thirds of each employee’s PPO health insurance premium.  This cost has steadily risen.  The company’s share of this cost  is over 10% of Gem’s total overhead.  There is, however, a light at the end of the tunnel: Health Saving Accounts (HSA).  Under Gem’s HSA plan, a fully paid-for health insurance policy with a large deductible is provided.  The employee can have pretax money withheld and deposited into his HSA account.  Money from his HSA can be used to pay for the deductible and treatments not covered by the insurance.  Over two thirds of Gem’s employees with health insurance are under the policy that provides for HSAs.  Over 90% of these have HSAs.  Health Saving Accounts have, over time, the ability to reduce the pain of paying for health care.  These accounts belong to the employees.  Paying for care out of his HSA provides incentive for the employee to seek the most effective and economical medical service.  Hopefully legislators and other revisionists will give HSAs time to work.