Are hedge-fund managers making my health insurance premiums expensive?
The Kaiser Family Foundation’s annual survey of employer health-insurance was released yesterday, and it showed a 9 percent increase in premiums for employer-sponsored premiums.
The average family plan now costs over $15,000. Employees kick in just over $4,000 directly, but most economists will tell you that they actually “pay” the remainder in the form of wages that are lower than they would be if this insurance was not provided by their employer. This is, as everybody knows, a staggering cost for most American families. And, while year-to-year changes in premiums may differ from underlying health care costs, the enormous increases in health spending in recent decades can pretty much be explained by these underlying medical costs – so if we want premiums to stop rising so fast, we better do something about these underlying costs.
One would be remiss to not point out that America’s largest single-payer insurance system (Medicare) actually has done a much better job of controlling health care costs than the private system that provides employer-sponsored insurance. Take the most recent estimates comparing per beneficiary costs in Medicare to costs of comparable benefits in private plans (table 13 here). If these private costs had matched the slower growth rate of Medicare over the past three decades, that $15,000 family plan would cost just over $10,000 today. And most experts think that there’s plenty to be done to even restrain Medicare’s costs. In short, there seems to be a lot of room to figure out how to reduce cost-growth – and very good reasons (about $5,000 worth, in the case of family premiums) to do it.
But, since the point of this post is more raw speculation, it’s also useful to think about the role of rising economic inequality in driving up health care costs. A recent paper in Health Affairs (gated, sorry) by Miriam J. Laugesen and Sherry A. Glied demonstrates that physician salaries (particularly specialists – orthopedists, in their study) are significantly higher in the United States than compared to even those in our rich industrial peers. The authors make the smart point that, “One explanation for the higher incomes of U.S. physicians may lie in the broader U.S. income structure. The share of income received by people in the top 1 percent of the U.S. income distribution far exceeds the corresponding share in the comparison countries.”
The intuition is simply that prospective doctors need to earn more as doctors in the United States in order to keep them from pursuing high-salary careers in finance, law, etc. The broader point is that if doctors are going to be in the upper reaches of the income distribution (which seems fine – they are well-trained, accomplished people), and if policies are pursued that drive vastly disproportional growth in these upper reaches, then this means my insurance premiums are going to get expensive; one person’s income is another person’s cost. This point applies to doctors’ salaries as well as to many other aspects of the medical-industrial complex (pharmaceutical companies, device-makers) and it’s one that we should think about right away when we read the Kaiser report.