The Big Debt Driver: Rising Health Care Costs, Not Medicare

As both our national debt and health care costs continue to swell, America's CEOs and other "influentials" insist that Congress cut Medicare spending. In truth, we do not have a "Medicare problem" in this country; we have a big problem with rising health care costs.
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As both our national debt and health care costs continue to swell, America's CEOs and other "influentials" have targeted Medicare as a key culprit and insist that Congress cut Medicare spending in the current deficit discussions. In truth, we do not have a "Medicare problem" in this country; we have a big problem with rising health care costs.

To rein in escalating deficits over the long-term, Congress must address the lack of competition in the health care marketplace, which is driving up overall health care costs, including Medicare's. If we are to control health care spending, we need to restructure the private health care market to bring down prices. Cutting Medicare spending, without addressing this systemic issue, will simply shift the burden of rising health care costs to vulnerable older adults and people with disabilities. It is not a long-term solution for either Medicare or the deficit.

The private health care market is not competitive, despite the claims of prominent true believers. Anyone who has taken Economics 101 knows that a competitive market that reins in costs is incompatible with providers holding monopoly power, as they currently do. Conservative and liberal health policy experts agree that competition is notably absent from our health care market.

Large hospital networks tend to dominate most local health care markets, enabling them to set prices with insurers. Insurers profit from this arrangement since higher rates mean greater cash flow, more working capital and higher earnings. And since the largest insurers are generally able to secure most favored nation clause agreements from these hospitals (meaning the hospitals can't charge lower rates to smaller insurers), market-dominating insurers create a barrier to entry that impedes competition from other insurers and ensures that provider rates continue rising.

Because private health insurers are unable to control the cost of health care, costs in the commercial market are rising faster than the rate of general inflation and two percentage points faster than Medicare. Ballooning private insurance costs in turn drive up Medicare's costs more than they would otherwise rise. Over the last 10 years, California inpatient hospital rates paid by commercial insurers have risen 150 percent compared with 78 percent for Medicare.

Commercial health insurance price increases are unsustainable - and they make no sense. In the tiny state of New Jersey, the cost of a colonoscopy can be four times higher in one place than another. Oregon is seeing a roughly 10 percent annual increase in the cost of many medical services. If there were competition, you'd expect to see efficiencies in the market and market-based constraints on growing insurance and health care costs.

But there is no meaningful competition in the insurance market and, health insurance costs have more than offset wage increases for working people over the last two decades. In the next decade, an increasing number of people likely will see health care costs rise much faster than their wages, meaning that a large number of Americans with serious health care needs are likely to go bankrupt.

Without the discipline of an active market in health insurance, rising health care prices have become a huge piece of the health-care cost problem. The Health Care Cost Institute recently managed to get privileged access to health insurance company information about rising health spending. Their report revealed that increasing unit prices -- that is fees paid to hospitals, doctors, and other providers -- is the main reason spending is rising from year to year.

Of course, Wall Street profits handsomely from this broken health care marketplace, which delivers ever-higher returns to investors, insurance companies and health care providers. That's why you hear nothing from the CEOs about addressing the real health care crisis for working Americans. Their shareholders have nothing to gain from raising concerns about the looming working-class health care cliff or promoting Medicare's relative success at reining in provider costs while delivering better access for enrollees. (On average, private insurers pay 25 percent more than Medicare for physician services and 30 percent more for hospital care.)

Many members of Congress are equally fixated on jeopardizing Medicare's guarantee of health security at the expense of meaningful reductions in real health care costs. Amid all this talk of "prudent" spending on social programs, the House Republicans refuse to let Medicare negotiate prices with drug companies. They would rather have Americans continue to subsidize the drugs of the French and the Germans -- whose governments negotiate prices to protect their citizens -- than concede that the U.S. government should negotiate rates to help address our nation's health care cost crisis. How does that make any sense in the season of the "fiscal cliff?"

On both the health care and deficit fronts, Americans would be better off if Congress did not take direction from CEOs who are legally required to put their shareholders' interests above those of the American people. Lawmakers need to build on the Affordable Care Act and have Medicare lead the way in reforming and strengthening our health care system through innovations that will improve our payment and delivery systems. They need to support reforms that promote better care, eliminate waste and inefficiencies and enhance accountability and fair pricing.

Across-the-board solutions, such as rationalizing health care prices and setting reasonable rates for all health care products and services throughout our health care system would actually rein in overall costs. Offering working people a public insurance option like Medicare to drive competition in the commercial market, as lawmakers considered during the health care reform debates, would also bring down costs. These are the issues we should be debating when we focus on the cost and value of Medicare.

These reforms could mean health industry losses on Wall Street in the short term. But, they would also mean a stronger long-term economy and put us on a path to a sustainable health care system. We should be pressuring Congress to focus on them. Our lives depend on it.

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