INDEXED ACCOUNT:

The State of Health Care, in One Easy Number (Rexford Santerre, December 1, 2003, NY Times)

I have compiled a misery index for health care, going back to 1960. As the measure, I took the percentage of Americans without health insurance and added to it the "excess" health care inflation rate — that is, the percentage by which annual increases in medical costs have exceeded general price inflation. As with combined inflation and unemployment, when both of these health care evils simultaneously increase, people are collectively made worse off. [...]

The resulting chart shows the fluctuations in health care misery over the last 43 years, and helps us put today's figures in historical perspective. Clearly, in the early 1960's the index was excessively high. While costs of medical care were largely contained in those days, the problem was that many poor and elderly Americans lacked health insurance (Medicaid and Medicare had yet to be enacted).

From the mid-60's through the 70's the index consistently declined, and for several reasons. In addition to the new government entitlement programs, the percentage of Americans with private insurance rose. This was largely because, as personal income tax rates increased, tax-exempt, employer-sponsored health insurance became more attractive to workers. Also, many commercial insurers that had shunned health insurance markets entered them. They were enticed by a relatively new innovation called "experience rating" — which allowed them to calculate an individualized per-person rate for a company or a small group rather than basing each person's rates on society as a whole. Experience rating allowed these companies to offer consumers lower premiums than the historically dominant carrier, Blue Cross.

The health care misery index bottomed out in 1979 at 5.6 percent. Stagflation may have cost Jimmy Carter the presidency, but it did have one useful byproduct: declining real prices for medical care at a time when a relatively small number of people lacked insurance.

Throughout the Reagan boom, however, the health care misery index rose continually. First, the costs of medical care were rising more rapidly than general price inflation. Second, private enrollment in health insurance plans declined relative to population, in part because President Ronald Reagan slashed marginal tax rates, giving employees and employers less incentive to participate in tax-exempt, employer-sponsored insurance. People began to take on themselves the risks of high medical costs. By 1986, the misery index stood at its highest level since 1969.

Since 1988 the index has become less volatile, ranging from 15 percent to 19 percent annually. The number of Americans lacking insurance has stayed at 13 percent to 16 percent, and the "excess" costs of medical care, while high in most people's estimation, have stayed stable. [...]

Still, I think most people would agree that today's misery index is still too high, especially when compared to the late 1970's. How do we make health insurance more accessible without significantly fueling medical price inflation? I think the Bush administration proposal to offer people and families a tax credit for purchasing private health insurance appears to be a step in the right direction, as it would give a fairer shake to those without employer-sponsored insurance.

Even better than tax credits, alllow every American to open a Medical Savings Account--makling them mandatory for anyone who gets their health coverage via the federal government. This would not only provide universal coverage but return market forces to medicine.

Posted by Orrin Judd at December 1, 2003 11:06 AM