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The Supremes and the health overhaul

Chris Farrell Mar 26, 2012

The Supreme Court started three days of arguments about the constitutionality of President Obama’s health-care law, the Affordable Care Act (better known as Obamacare).

It’s intriguing to note that at the offshore betting market Intrade — the so-called prediction market — investors are speculating there’s only a 36.4% chance the Supreme Court will rule the individual mandate unconstitutional.

That’s down from nearly 55 percent late last year. 

Still, however the Supreme Court decides its ruling will push health-care reform to the top of the campaign debate. Health reform won’t go away. The costs of the system are too high. The fiscal, economic and household pressures are too great.  

I think there are four takeaways from recent history involving health care.

There’s no going back. The Affordable Care Act marks a fundamental divide in America’s 100-plus-year debate over the health-care system. The U.S. has embraced universal coverage starting in 2014. It may take longer than that to get there. But there is no returning to a health-care system based on preexisting conditions and millions of uninsured Americans. Put it this way: A health-care Rubicon has been crossed. Both Republicans and Democrats will debate major health-care legislation and structural reform based on universal coverage. The underlying ideas are different, sometimes sharply different. There are also underappreciated areas of agreement.

The pressures that are pushing up health-care costs will push government and business and families — no matter who claims the White House — to put a greater effort into controlling costs. Certainly, families are feeling the strain. For example, from 1999 to 2009, the inflation-adjusted median income of a family of four with employer-based health insurance rose 30 percent to $99,000. Not bad. Yet the gain was mostly offset by higher health-care costs. According to the Rand Corporation, this typical family had $95 more in monthly income to devote to non-health spending in 2009 than in 1999.  

The combination of stagnant wages, an aging population and long-term fiscal pressures mean the need to overhaul health care won’t go away.  

The next big change in health care — a couple of years from now — will be a move away from an employer-based system and toward an individual-based system. It’s a direction that almost all health-care economists — conservative and liberal alike — agree would mark a major improvement. Yes, these economists would differ on the design details but not on the wisdom of abandoning an employer-centric system. 

An employer-based system is both inefficient and inequitable. Even though workers don’t own the plan, they pay the full cost of the benefit through reduced wages. Health-care costs weigh on management’s hiring, firing and promotion decisions.

The way we think about health care and health-care spending is dramatically affected by the economy. Yet despite the huge cost of medical care, the main issue is not primarily economic. It’s more a question about what sort of society we wish to live in.  The percentage of the economy devoted to health care has climbed close to 18 perecnt, around twice its share in 1980. Even more striking, the U.S. spends about twice as much on health as the average country in the OECD, which is made up of 30 democracies. The payoff for all that spending is disappointing. You can pick what numbers you want, but by most common measures — from mortality to life expectancy to ease of seeing a doctor on the weekend — the U.S. falls short.

That said, my expectation is that we’ll end up spending even more of our economic wealth on health care. We’ll spend it more efficiently. The distribution of health care will be better throughout the population. But we’ll spend more — a lot more.

Take economic research by Robert Hall and Charles Jones of Stanford University and the Hoover Institution. The scholars argue that the rise in health-care spending doesn’t simply reflect more expensive treatments and technological advances. It is largely driven by an increase in household incomes and the high value consumers put on health.  After all, consumers can decide where to spend their money, and they clearly value the medical advances that allow people to live longer — and better — lives. Their estimate is that Americans will spend about 30 percent of GDP on health care by 2050 — and it’s a good thing.  Yes, on a relative basis we’ll spend less on cars and homes and more on education and health care. The richer America becomes, the more resources citizens will devote to health. That is what wealthy nations do. 

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