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What's Missing From the Health Care Debate

A business school professor tells Michigan Capitol Confidential some surprising facts about the U.S. health care system

September marked the six-month anniversary of when the Patient Protection and Affordable Care Act became law.

Antony Davies is an associate professor of economics at the Palumbo-Donahue School of Business at Duquesne. Davies argues that much is left out of the debate on the rising costs of health care:

"The cost of insurance is frequently misrepresented because regulatory proponents quote prices for low- or zero-deductible insurance. According to America's Health Insurance Plans Center for Policy Research, the national average cost for individual coverage is $3,300 per year. This varies markedly by state . The highest cost states are New York and Massachusetts, where individual insurance averages over $6,300 (for New York) and $5,000 (for Massachusetts). The lowest cost states are Iowa and North Carolina, where individual insurance is around $2,500. The reason for the discrepancy is state laws that regulate insurance. For example, New York has "community rating" (meaning insurance companies are not allowed to charge more for people who are of higher risk) and "guaranteed issue" (meaning that insurance companies must insure anyone who asks for insurance). If we look at insurance costs across states, we see that much of the cost of insurance is due to existing regulation, which calls to mind the late Robert LeFevre's quip that government is a disease masquerading as its own cure.

"To put these numbers in perspective, the average American family spends $5,500 per year on vehicles and gas, almost $7,000 on food (eating in and out), and $3,500 on entertainment. By comparison and given that insurance coverage is integral to longevity, the cost of insurance is not overwhelming.

"Finally, lost in the discussion of the cost of health care is any reference to what the increased cost of health care has bought us. Fifty years ago, people routinely died from diseases that, today, can be treated with over-the-counter medicines. Yes, our infant mortality rates are higher than in other developed countries, but that is actually a sign of improved health care. Children who die in utero are not counted in the infant mortality figures because, to count as "an infant", one must survive to birth. Pre-natal care in the U.S. has advanced to the point that many children who would otherwise have died in utero (and thus not show up in the infant mortality figures), live to birth. Thus, when some of these children do die, they are now counted among infant mortalities and so make our infant mortality rates higher. What is important is that our infant mortality rates are higher, not because disproportionately more children are dying, but because disproportionately more children are surviving to birth.

"Regulatory proponents will tell us that what they want are the 1960s health care prices that were almost half of what they are today. But what they really want is impossible - they want 1960s prices at 2010 quality. If the US mortality rate today were the same as it was in 1960, 500,000 *more* Americans would die each year. That's what the increased cost of health care has bought us - half a million lives saved annually.

"One last thing: There is one price that has, historically, risen faster than the price of health care. That's the price of government. On a per-person and inflation adjusted basis, the price of health care has risen 2000% since 1954, but the price of government has risen almost 3000% -- and those are the people who claim that they can control the costs of health care."

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See also:

The Slacker Mandate

The Book on ObamaCare's True Cost

State Lawmakers Map Out New ObamaCare Battles

Health Care Freedom Petition Comes Up Short

Ending the Individual Mandate

ObamaCare: To Tax or Not to Tax? 

Court Asks for New Brief in Ann Arbor Firm's ObamaCare Case

Challenger Takes on Sander Levin

L.A. Think Tank Pushes Another Option for Stopping Federalized Health Care 

A Cost-Containing Health Insurance Plan That FedCare Will Kill 

Injunction to Stop Federalized Health Care Filed by Michigan Legal Team

Penn Jillette and John Stossel discuss health care on FOX's Glenn Beck

Does Your Candidate Pledge to End Federalized Health Care?  

Truth and Taxes: The Obama Record

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

News Story

Legislature's Early-Out Deal: New Government Retirees 21, Taxpayers 3

Legislators celebrated a "victory" last week by passing a state employee early retirement scheme that generates upfront savings of just under $140 million (but at the expense of higher costs down the road). This will be used to fill in a gap between their desired 2011 government spending vs. expected revenue (aka "the deficit"). The measure lets politicians get back to the campaign trail, but in the long-term may cost taxpayers more overall, despite some "rosy scenario" projections that claim otherwise.

On the positive side, taxpayers can celebrate another part of the package that requires remaining state employees to kick in an additional 3 percent toward the cost of their future retirement benefits. But only for three years! So powerful are the government employee unions in Lansing that they forced lawmakers to place a 2013 "sunset" on these taxpayer savings.

Unless the next legislature makes the co-pays permanent, that is. Attention, tea partiers looking for accountability yardsticks for newly elected or re-elected candidates who swore on stacks of Constitutions that they are "fiscally conservative."

The "early out" pension sweetener scheme will give as many as 6,400 state employees richer lifetime benefits if they retire this year. Supposedly, the state will only hire two-thirds of that number to replace them at lower starting salaries, thus the short-term savings. We'll see - pension increases are forever, but politicians' workforce reduction promises may have a shorter shelf-life.

Actually, these pension increases aren't forever, but just 21 years on average: That's the additional life expectancy for state employees eligible for the early-out "sweetener," assuming they have an average age of 59. Thus the overall package "score" of 21 years of benefits for new state retirees versus just three years of savings for taxpayers.

Fiscal analysts presented optimistic workforce reductions figures suggesting that paying high-seniority state employees more to stop working won't mean higher costs in the long-term but instead will generate net savings that average out between $19 million and $33 million over 10 years. Even if the higher figure is correct, it saves just $1 out of every $13,636 in the $45 billion annual state budget - practically a rounding error. To get this, taxpayers will have to give all those new government retirees - many in their 50s - a 6.7 percent increase in their monthly pension checks for the rest of their lives.

Most important to lawmakers, however, was the larger but temporary upfront savings that allows them to claim they "balanced" the budget for the new fiscal year that starts Oct. 1 (a claim that would never stand up under private-sector accounting standards.)

The 3 percent increase in retirement contributions from remaining employees really will save money, however - around $82 million each year.* For the next three years, anyway. Another provision makes small cuts in the future health benefits of newly hired employees (contrary to popular belief, these could have been trimmed for current retirees also), and a third closes a "double-dipping" scam that allows government workers to retire, start collecting a pension, and also collect a paycheck working for the state as a "contract" employee.

Incidentally, no one should become too exercised over the modest additional co-pay required of remaining state employees (for three years only). Since 2002, they have received across-the-board pay raises 10 times, in addition to regularly scheduled individual employee "longevity" boosts, "step" hikes, plus increases in the amount that taxpayers have been forced to kick in to pay for their health care and other benefits.

Can any other group of workers in this state say the same? Adding injury to insult, yet another 3 percent state employee pay hike goes into effect this Friday (because lawmakers in the House and Senate failed to veto it earlier this year).

All told, state employees receive an average compensation package (benefits included) that costs taxpayers $93,039. State salaries surpass private levels in many job categories. And government employees at all levels in Michigan receive benefits that exceed private-sector averages by $5.7 billion annually.

 

*Even this provision's value was compromised, however: The money will be used to pay retiree health benefits that are not an enforceable obligation, rather than to supplemented underfunded pension commitments that really are enforceable.

 

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.