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Is Healthcare a ‘Tapeworm’ in the American Economy?

Tapeworms cause health problems in our bodies. They can rob us of important nutrients, block our intestines, and take up space in organs so they don’t function normally. Tapeworms keep our bodies from operating efficiently.

Warren Buffett described the American healthcare system as a “tapeworm in the American economy.” Given the latest failure of Haven, a joint health care venture with JP Morgan, Amazon and Buffett’s Berkshire Hathaway – the tapeworm appears to be live and well.

Buffett’s comment is brutally honest.

The tapeworm analogy is demonstrated in a new article from the New York Times, “Buoyed by Federal Covid Aid, Big Hospital Chains Buy Up Competitors.” This article paints a picture that some larger hospital chains are using Covid bailout money from the Provider Relief Fund and purchasing other hospitals and physician groups to grow their footprint in markets. Without much federal scrutiny, this bailout allows hospital chains to grow larger and dictate higher prices from private insurers, employers and individuals.

Multiplier Effect

I have to hand it to the American Hospital Association (AHA) and their state-based hospital members, including the Iowa Hospital Association (IHA). When payers demand to hold hospitals accountable to improve their outcomes at lower associated costs, hospitals revert to a tried-and-true formula to combat public scrutiny: Remind the public about how hospitals provide economic contributions to our communities and states.

As an example, in 2017, the AHA stated the “Health care sector has traditionally been an economic mainstay, providing stability and job growth in communities. Health care added more than 35,000 jobs per month in 2016.” The AHA mentions that hospitals employ more than 5.7 million workers, are one of the top sources of private-sector jobs, and purchase nearly $852 billion in goods and services from other businesses. More recently, Rick Pollack, President and CEO of the AHA, had a paid AHA advertisement in the Wall Street Journal titled, “Value of Health Systems Shown Clearly During the Pandemic.

This information is pumped out every few years for each state to tout, including Iowa. The AHA provides a state-by-state economic impact grid that illustrates the value hospitals provide to their respective local economies. The IHA readily uses this information to display on their website. Of course, we are constantly reminded of the ‘multiplying effect’ that supports “thousands of additional jobs.” We are told that “more than 143,000 jobs are tied to Iowa hospitals, creating an overall impact that is worth nearly $8.6 billion to Iowa’s economy.” It is true that, along with public schools, hospitals are the largest employers within many of our communities.

Not to be outdone, the lobbying organization for insurance companies – America’s Health Insurance Plans (AHIP) – employs a similar approach to tout how private insurance is an economic boon for local economies. In early May, AHIP posted By the Numbers: How Health Insurance Providers Contribute to State Economies and Peace of Mind.” The 2021 AHIP biennial report discusses how the economies of each state are impacted by health plans, specifically on the number of jobs generated and tax revenues paid to support the local economy.

Based on AHIP data, Iowa employs over 4,000 health plan employees and almost 13,000 insurance-related employees. Average annual wages for health plan employees are over $86,000 while insurance-related employees earn about $63,000 annually. By most standards, these wages are good for the Iowa economy, especially when using the multiplier effect.

Zero-Sum Game

Given the narratives being sold to us, perhaps we should supersize the entire U.S. economy by continuing to expand healthcare and health plans beyond their current size. But that simply will not work. There are economic tradeoffs that come into play.

It brings to mind poker and gambling, two popular examples of the zero-sum game. In poker, the sum of the amounts won by some players equals the combined losses of other players. In a zero-sum game, there is one winner and one loser.

“Currently, the U.S. healthcare and health insurance systems are really a patchwork of different programs, which create gaps and expensive inefficiencies”, according to economic health researcher, Katherine Baicker.

But who pays for these inefficiencies? ALL OF US.

What we pay to healthcare providers and insurers will indeed fund the job growth of doctors, nurses, medical technicians, health insurance personnel and professionals. To be sure, we need these services. But, as a consequence, we don’t have this money to spend (or save) on other economic necessities or preferences. This becomes an economic tradeoff that adversely impacts other parts of our economy.

Inefficient and opaque spending on healthcare creates another problem: a redistribution of our hard-earned money that is often being used to our own detriment – for lobbying efforts to ensure the status quo remains unchanged. Opaqueness breeds blind spending by those who pay. This is a vicious cycle that perpetuates the zero-sum game.

Law of Diminishing Marginal Returns & Opportunity Costs

Another economic term, Law of Diminishing Marginal Returns, is typically used when analyzing the production of a particular commodity. For example, when a factory employs workers to manufacture its products, at some point during production, the company will operate at an optimal level (with all other factors remaining constant). Over time, however, adding additional workers will result in less efficient operations.

At what point has healthcare exceeded the optimal revenue from its payers? When will the best possible returns obtained by healthcare diminish with every dollar invested? Are we there yet? The latest Kaiser Health News poll that found large employers are ready for more government involvement may suggest this point has been reached.

Put yet another way, what are the opportunity costs with each dollar spent on healthcare? Opportunity cost is the loss of the benefit that could have been enjoyed if the best alternative choice was chosen instead. Continuing to pay higher healthcare costs without receiving the commensurate benefits represents a lost opportunity of investing that money elsewhere – such as investing in updated infrastructures, efficient factory equipment or paying higher wages. Redirecting financial investments into other worthwhile opportunities would provide a multiplier effect for local economies.

Continuing to accept overpriced care is not the solution to sustain economic growth. In fact, overpriced and inefficient care is holding the economy back from becoming MORE robust. This is precisely Buffett’s point.

Summary

Contrary to the argument of being an ‘economic stimulus’ to local economies, the REAL purpose of healthcare is to enhance the quality of life by enhancing our health. It is true that creating reasonable profits to remain financially viable is necessary to stay in business to serve others. However, healthcare must focus on creating social health and well-being to fulfill its fundamental promise to society.

Marketing platforms being used by healthcare-related associations on how hospitals and health plans will benefit our communities is, at best, disingenuous. We live in a world of unfulfilled opportunities. Until these opportunities are given the chance to succeed, we will never know just how robust our economy can become.

How long do we allow the tapeworm to control our economic well-being?

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Role of Government in Healthcare – Has a ‘Tipping Point’ Been Reached?

Has a ‘Tipping Point’ Been Reached on the Role of Government in Healthcare?With great interest, I read a newly-released report by the Kaiser Family Foundation (KFF) and the Purchaser Business Group on Health (PBGH) on how corporate executives view the role of government when controlling health costs. Let me just say, the findings are not a flattering compliment to the status quo.

As we have found in Iowa and all over the country, healthcare costs continue to climb, year after year. In the past, employers have relied on private insurers and the quasi ‘market system’ to stem the tide of unaffordable healthcare costs, eschewing government regulations that would likely control how much providers are paid. As we know through Medicare and Medicaid, the government is able to reimburse providers considerably less than private payers.

This new survey of over 300 large private employers with at least 5,000 employees was important for yet another reason. The surveyed respondents were corporate leaders in key positions, such as CEOs, CFOs, COOs – individuals who have powerful decision-making roles within their organizations. They are prone to influence the trajectory of their organizations in the future. Equally impressive is the nice mix of industries represented: Agriculture, Construction, Financial Services, Manufacturing, Mining, Retail Trade, Services, Telecommunication, and Transportation & Distribution.

Key Findings

The overall takeaway is that a large share of corporate leaders are likely to SUPPORT government efforts to control health spending. Only a small share of respondents would oppose government regulations. 

As in the past, corporate leaders indicated they will continue to implement value-based payments, shift more costs to employees through plan designs and payroll-deductions – and find other ways to control their health costs – including direct-contracting relationships with health providers. But many leaders acknowledge that these measures have only been marginally successful, and despite conventional wisdom, large employers have little market clout to control their own costs.

This survey, therefore, sheds light on a new awakening that large employers may now have:

  • Bigger Role By Government – 87 percent of surveyed corporate officers believe the cost of health benefits will become unsustainable over the next 5 to 10 years. In fact, 85 percent indicate that the government needs to take on a bigger role in controlling costs and providing coverage.
  • Government Action on Hospital Prices – 78 percent of leaders expressed some level of support for government action on hospital prices, particularly in areas that have limited hospital competition. Of huge importance, less than five percent opposed these regulations.
  • Limiting Drug Prices – Surveyed leaders are equally supportive of having government limits on drug prices.
  • Public Insurance Option – About two-thirds (65 percent) of corporate leaders indicated having some level of support for a public insurance option for their employees. Additionally, a large majority support lowering the age for Medicare eligibility.

According to the surveyed executives, some advantages to having a greater governmental role in coverage and costs are:

  1. Employers are relieved of the responsibility and the costs of managing health benefits (61 percent).
  2. May enable the government to hold down costs (61 percent).
  3. May be able to increase consumer choices by offering public plans (e.g., public option or Medicare buy-in) to compete with private plans (47 percent).
  4. Might reduce administrative costs (29 percent).

Disadvantages include:

  1. Government doesn’t have a great track record of running big programs like this effectively (43 percent).
  2. Since the health care industry contributes so much money to political campaigns, lawmakers are never going to take steps to reduce costs (41 percent).
  3. Employers might not have the ability to tailor health benefits to their employee needs (30 percent).

Employers are in the Healthcare Business

Warren Buffett once said that “General Motors is a health and benefits company with an auto company attached.” In fact, GM spends more on healthcare than steel to make cars. Starbucks, as another example, spends more on healthcare than coffee beans. For most employers, after payroll, healthcare is the second largest expense. Whether employers like it or not, this puts employers smack in the center of the healthcare business.

It remains to be seen whether corporate leaders will put lobbying and advocacy energy into healthcare legislation that pushes for more government regulations on healthcare pricing. But if this latest survey is an indication of a new tipping point on the horizon, this could be a catalyst for real change. Of course, health providers and insurers will lobby hard to keep this from happening.

Executives of large organizations have historically been vocal on healthcare costs, but primarily resistant to increased government regulation. If employers no longer wish to be in the healthcare business, or at least, not quite like they have been in the past and present, their formidable voice for larger government involvement may become too loud for Congress to ignore.

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New Study on Exercise Guidelines

New Study about Exercise GuidelinesDespite religiously biking and working on both the elliptical and rowing machines, I recently learned that my blood pressure is somewhat elevated. I can only assume that this may be caused by my high-salt dietary habits. Having garnered my attention, it’s time to make necessary changes.

The motivation for change was also heightened by a new report on how high blood pressure can possibly be reduced without relying on medications.

A new study published in the American Journal of Preventative Medicine suggests that exercise guidelines from the U.S. Department of Health and Human Services (HHS) might require an update. Here are the new findings:

  1. Weekly Exercise of at Least Five Hours (300 minutes) – The current HHS guidelines suggest that adults should aspire to perform at least 150 to 300 minutes weekly of moderate-intensity exercise. Brisk walking, swimming, and mowing the lawn are three good examples. However, the new study concludes that moderate exercise should be around five hours per week. In other words, if you exercise at 150 minutes per week, you are only half-way to the new recommended level. As mentioned in the study, “Moderate physical activity levels may need to exceed current minimum guidelines to prevent hypertension onset using the 2017 American College of Cardiology/American Heart Association definitions.”
  2. How Five Hours Per Week was Determined – Researchers analyzed a mid-1980’s project that extended for 30 years. Of the 5,000 teens followed, only those who completed more than 300 minutes of exercise every week avoided hypertension. Hypertension occurs in nearly half of all American adults and is defined as blood pressure at or above 130/80mm Hg. High blood pressure levels can cause risk for cardiovascular disease and events, which can be fatal. In 2018, nearly half a million deaths in the U.S. included hypertension as a primary or contributing cause.
  3. Racial Disparities – The new study indicates that Black respondents exercise far less than White respondents. The result? Black individuals suffered more acutely from the effects of hypertension than White respondents. This finding, it should be noted, is not earth shattering. According to the Centers for Disease Control and Prevention (CDC) in 2020, racial disparities in hypertension prevalence is greater in non-Hispanic Black adults (54 percent) than in non-Hispanic White adults (46 percent), non-Hispanic Asian adults (39 percent), or Hispanic adults (36 percent). Hypertension rates also vary greatly by state.

Summary

It is widely known that high blood pressure can be treated by a combination of medication and lifestyle changes. For employers, worksite programs related to physical activities, nutrition, alcohol use, stress, type 2 diabetes and obesity can aid employees in prevention and reducing high blood pressure.

Of course, modifying behaviors is the ultimate challenge to employers, their employees and family members. It begins and ends with finding the ‘right’ motivations to alter lifestyle choices.

As for me, exercising is no problem, and I feel confident that my blood pressure can be reduced by making a few dietary changes that I should have been making earlier. With that said, I really will miss those salted pistachios!

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