A little (honest) health care reflection

October 2, 2013 — By Michael Hicks

This week marks an important milestone in the Affordable Care Act’s implementation. It also marks the start of Fiscal Year 2014, most likely without a budget. This is largely due to disagreement over the new health care law. It is hardly too much to say that much of the wrangling and frustration over domestic policy we see today is due to the ACA. There is little in the wind to suggest that is going to change in the coming months, or even years, so a bit of honest reflection is warranted.
Like most Americans, I am dismayed at our combination market and system for the delivery of healthcare. I am only glad that insurance companies, regional hospitals, 30 federal agencies, hundreds of state agencies, the AMA and my employer are not responsible for insuring dinner arrives at my table tonight. It would certainly be cold, late and expensive.
Like most Americans, I am confused by the ACA. I don’t have a spare couple of months to read it in entirety, but am certain there are things about it I will like and some I will detest. On balance though, it is increasingly clear that it will require herculean fixes. I say this because the ACA increasingly appears to have adverse short-term labor market effects. Had the economy more fully recovered by now, it would not be so severe. However, should the ACA be repealed, I do not believe we would see a resurgent economy. To be sure, the blame for the shocking growth of part-time work over the last year falls squarely upon the ACA, but there are many other policy choices that hold back the economy. Moreover, as bad as the ACA is in limiting employment growth in the short run, it is not at all clear to me that this problem will persist. In fact, if we could just get away from employer-based health insurance, it seems likely labor markets would improve. Moreover, much of what is driving the healthcare cost debate is mistaken. Healthcare costs are not really rising.
As we become richer, we spend a greater share of our earnings on healthcare. Today, it sits at 18 percent, but could well grow to 50 percent by the end of the century. At the same time, a heart bypass is cheaper than it was 30 years ago and far more expensive now than it will be in 2050. The cost of providing a specific healthcare service is declining, but we are spending more and more money on new tests and procedures. Health care behaves exactly like our entertainment budget, except that our employers pay a big part of the tab. To a business it is a cost, pure and simple.
When we again re-examine health care in a comprehensive way, we must face the fact that the ACA did nothing to cut healthcare spending. It couldn’t possibly have done so against the ever growing desire to live longer and better. That was its problem all along.
Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and a professor of economics in the Miller College of Business at Ball State University.

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