To CEO’s: Why U.S. Firms are Losing the Health Care Battle, And What It’s Going to Take to Win It – Health-Care Reform OR NOT

THIS ARTICLE WAS FEATURED ON BUSINESS WEEK, GOOGLE NEWS TOP STORIES OF THE DAY, AND NUMEROUS OTHER ONLINE NEWS SITES ON AUGUST 28, 2009 AS - “70% CERTAIN CANCERS, 80%  HEART ATTACKS PREVENTABLE, WOULD DECREASE HEALTH CARE COSTS.”

Over the last few years, hundreds, perhaps thousands (or even more) articles, papers, and opinion-pieces have been written by a multitude of writers and experts on the health-care crisis facing American businesses and corporations.  Having read many of these articles, I have been greatly bewildered by the conspicuous absence of the discussion of some facts that are so fundamentally germane to this issue, that eventually, I felt driven to write this article.  But, surely we don’t need another opinion-piece on the health-care crisis, or do we?  We do.  And, if you are a CEO – whether of a Fortune 500 or a small to mid-size business with 20 or more employees, this article is for you.

I do not wish to reiterate the lengthy facts and figures on health-care costs that have threatened virtually to shut down numerous American businesses; those numbers can be accessed at numerous quality websites on health-care and health-policy.  But, I will summarize what appears to be the heart of the problem that is presently causing an unprecedented crisis for U.S. firms.  The crisis – in a nutshell – is this:  Over the last couple of decades, American manufacturers and businesses have steadily been losing their ability to compete in the global marketplace due to the crushing burden of astronomically high health-care costs.  In 2008, for the first time ever, the health-care costs of some Fortune 500 companies nearly equaled or even exceeded their profits.  In light of the double-digit inflation in health-care costs, companies – big and small – appear to be faced with four major problems:

• Skyrocketing health-care costs make American companies uncompetitive in the global marketplace.  As an example, prior to the recent bankruptcy of General Motors, this company was adding $1,500 to the price of each GM vehicle to cover its health-care costs.  Such costs greatly threaten the viability of U.S. firms in the global market.  
• As employees deeply value health-benefits (that U.S. companies are often unable to pay), foreign companies become more attractive to American workers resulting in the loss of American employees to foreign firms.  
• If American firms, especially the large ones (especially auto, steel, and airline companies) try to institute sharp reductions in health-benefits, or shift health-care costs onto employees in the form of higher co-payments or deductibles, they often have to confront powerful worker unions that can drive a company to Chapter 11 bankruptcy protection. 
• Small to mid-size companies are faced with an even worse crisis.  On average, they pay 18% more per worker than large firms for the same health-insurance policies.  This is because they have a smaller risk pool and have to absorb higher fees and administrative costs per worker.

Given the above scenario, everyone has been crying, “Reform!” and perhaps, justifiably so, keeping in mind the plight not only of American business owners big and small, but also of the millions who remain uninsured. 

BUT, WHAT HAVE WE MISSED HERE?

We want “Reform,” but what kind of “Reform” are we really asking for?  And, what assurance do we have that the type of Reform that is currently being proposed will actually deliver?  What have history and economics taught us about what works and what doesn’t in a matter such as this?  I wish to surface two points here that appear to have been universally overlooked in most papers on this topic, and that are the very reason for this post.

1.  Every introductory course in Economics (particularly Micro- Economics) teaches us that when individuals are shielded from the true costs of the benefits they receive, the demand for those benefits (whether real or only perceived) skyrockets.  It’s the old law of “Supply and Demand;” it hasn’t been repealed yet, neither is it likely ever to be.  The reality is that both in our current dysfunctional health-care system, and in the proposed “reformed” system, individuals are “shielded” from the true costs of the benefits they receive, so the demand for “benefits” remains, and will remain, sky-high. 

In a true free-market, individuals directly bear the real costs of benefits received; thus demand for services is not exaggerated but represents real needs and thus generates an optimal and efficient use of resources.  Furthermore, in a true free-market, genuine competition between service providers brings costs of services close to true costs, rather than inflated or exaggerated costs that are the result of an artificially exaggerated demand and/or an artificially restricted supply.  It is a close to optimal scenario, but of course, we do not today have a true free-market situation with our health-care. 

2.  The alternative scenario currently under discussion is “Universalized” Medicine.  However, the problem that remains with this approach is that the connection between true costs and true benefits is further broken.  In fact, people under such as system erroneously believe that medical care is now “free.”  But, of course, nothing is ever “free.”  When we break the connection between costs incurred and benefits received in this fashion, we create tremendous personal and social dislocation of resources.  How? 

i) At the personal level, people’s fears are artificially mollified as they start to believe that “they will be taken care of should a health crisis occur.”  This leads to complacency and a greatly reduced motivation to really take care of one’s health with responsible habits, and

ii) At the social level, this results in a great waste of national resources to address problems that would not exist if people were motivated to take care of themselves and had to pay “out of their own pocket” for care received.  The examples of Universalized Medicine in Canada and England have taught us that when people believe that medication or doctor’s visits are “free,” they find ways to see the doctor more often than they would have otherwise.

GETTING TO PRIMARY CAUSES OF HIGH RATES OF CHRONIC DISEASES IN THE WEST

Notwithstanding the above, what I wish really to address in this post is something even more important than Free-Market or Universalized Medicine.  We can discuss the pros and cons of one or the other “System” of health-care ad nauseam, but the main issue that I as a research scientist find especially troublesome is this:  We seem to be obsessed with finding new and novel ways to pay for “treatments” and “procedures” for a sick population, rather than with addressing the root causes of why the population is sick in the first place.  Please bear with me momentarily as I explain this further.

As an epidemiologist, I study large-scale data and evaluate overall trends in health or illness.  At the present time, the U.S. is mired in an epidemic of chronic diseases such as heart disease, cancer, diabetes, obesity, as well as many others.  On the surface, it looks like people are getting sick and dying from one or more of these chronic conditions, but these conditions are for the most part the “Secondary Causes” in the process of disease  or death.  When you study research closely, you learn that the Primary Causes of high rates of chronic disease in the U.S. and other Western nations are largely nutrition and/or lifestyle related.  So, why are we more obsessed with finding ways to pay for medication and treatments than we are with addressing the Primary or Source Causes of disease?  And, what would happen if we really got serious about addressing these Primary Causes?  Here is what would happen:  In the words of Dr. Walter Willett, Professor of Nutrition at The Harvard School of Public Health, “With careful attention to the foods we eat, combined with not smoking and regular physical activity, we find that over 80% of heart attacks and greater than 70% of certain cancers can be avoided.¹” So, while we may not be able to wipe out all of cancer with the strategy of addressing Primary Causes, we should wipe out the 70% or more of cancer that we can, and should also eliminate the 80% of heart attacks that are preventable.  And, I might add that research indicates unequivocally that by addressing the Primary Causes of disease, similar gains are possible with respect to controlling rates of numerous other common chronic conditions that afflict the American population.

YOUR COMPANY AND EMPLOYEES CAN THRIVE REGARDLESS OF HEALTH CARE “REFORM” – OR NOT

If you are a CEO bearing the weight of what appears to be a no-win situation with health-care, the bottom-line to take home is simply this: Today, we have sufficient knowledge to understand and address the Primary Causes of numerous modern-day chronic diseases. The true solution to our health-care crisis does not lie in finding new ways to pay for “treatments.”  That may be necessary occasionally, but the real answer for you lies in addressing the Primary Causes of high rates of chronic disease in your work force.  With comparatively inexpensive education that addresses what the fundamental or key causes of disease and wellness are, you can eliminate a massive percentage of sickness in your workforce.

In the final analysis, the real costs of having a workforce that is far from well are in terms of various forms of employee downtime such as employees’ calling in sick, employees’ taking time off for doctor’s visits, and other interruptions that reduce productivity.  With the introduction of Universalized Medicine, I expect costs of this nature to increase dramatically for the reasons given above.

The moral of the story is this: Invest in teaching your people how to be well, and give them the cutting-edge resources and knowledge necessary to learn how to be well and avoid sickness.  Use their own motivation to be well.  There is one cost that we all want to be shielded from more than even any monetary cost – and that is the pain and suffering of being ill.  A work force that is healthy and strong is not only a cost-effective workforce; it is a more productive workforce.  It will be a “happy ending” for all concerned.

Notes

¹ Third Annual Great Issues in Medicine and Global Health Symposium, 2006.  Linking our Food Choices to Cancer Risk, Dartmouth Hitchcock Medical Center.

See Also:  Dr. James Geiger’s perspective in his post on Health Care Reform at his blog site.