Sick Economics

Searching For Healthy Profits In The Stock Market

IN THE BEGINNING…

american healthcare system

Even if you haven’t traveled extensively around the world, you are probably aware that our health insurance system is different from every other developed country on the map. With ten years of strenuous debate about healthcare under our national belt, the media never lets us forget that every other country has socialized healthcare. While we seem to be slowly, reluctantly stumbling in that direction, we need to understand that our system is different, because we are different. I can’t emphasize that enough. For most Americans, capitalism and free market ideals are embedded deeply in our psyche, even if our daily realities stray far from those dreams. Most Americans do not like the word “socialism” and do not trust the government. We are not necessarily discussing rational, well thought out theorems that average Americans can explain. We are talking about those murky, hard to define thoughts that exist in the shadow of the American consciousness. Those crazy things called feelings. In my opinion, these cultural idiosyncrasies, these deep seated feelings, are why we confront such a jumbled and confused situation today.

Our story really begins in the 1940’s. Remember, prior to this time, science as we know it today was just in its infancy. Penicillin, the first man made antibiotic, wasn’t discovered until 1928, and wasn’t widely available to the public until the 1940’s. As late as 1940, a simple scratch from a football game could kill you!

The crucible of World War II caused a lot of unusual things to happen in America. One of those things was price controls on wages; since most working age men were shipped off to various battle fields, Uncle Sam took the rare step of limiting what employers could pay employees in an attempt to combat inflation. Limits or no, industrial output for the war effort was sky high, and supply of labor was low, so factory owners felt the need to compete for labor somehow, even with wages fixed. They hit on a low cost, family friendly benefit that worked around the wage restrictions; free health insurance for employees.

The idea worked. In fact, the benefit became so popular, that what started out as a novel idea became a de facto requirement to attract good workers. As early as 1946, most large American employers had to offer health insurance to compete on the market place. It’s worth remembering that this benefit was not too costly for employers at the time; there just wasn’t much medicine to provide at any cost. As usual, Uncle Sam and big corporations had a cozy relationship, so Uncle Sam even made some moves to make sure that corporations could receive big tax breaks in exchange for covering employees with health insurance. After all, if private industry could cover health insurance, that was one less cost for the Federal Government.

When we look back on 1950’s America, we probably think of small towns, tight knit communities, and a lot of small businesses. Obviously these small businesses and entrepreneurs were always marginalized by the corporate health insurance system. In a country that worships entrepreneurs, you might think of this exclusion as an obvious flaw. One clear solution to the problem of coverage gaps was the rapidly expanding socialistic health care systems that came into being across the European continent in the late 1940’s and 1950’s.

But in America, in a lot of ways, the Great War never really ended. World War II simply morphed into the Cold War. Nearly two decades into the twenty first century, it might seem silly to equate global military and diplomatic tensions with health insurance, but with the Iron Curtain rapidly descending over formerly “liberated” Europe, and Communist ideology gobbling up ever larger chunks of Asia, a global ideological struggle affected every aspect of American culture.

The epic ideological battle between Communism and Capitalism bogged down into a kind of intellectual, emotional, and even physical trench warefare, year after year, decade after decade. As science advanced through time, and more available medicine meant greater potential medical costs for the millions of Americans left without insurance coverage, a range of political efforts were made to shift health insurance from a private privilege to a public right. However, the ideological battle about government intervention was intense. Today it seems hard to identify creeping Communism in the simple desire to make sure that all Americans have access to healthcare; however, if your cousin had just had his legs blown off while trying to beat back a real Communist invasion in Asia, while big celebrities like Ronald Reagan were on TV warning you of the very same Red Menace infiltrating America through the doctor’s office, you might have had misgiving about Socialism as well.

While staunch American pro-capitalist ideas typically carried the day, there were victories for the socialist approach over the decades. In 1965 President Lyndon B. Johnson pushed through Medicare and Medicaid to protect the nation’s most elderly and vulnerable populations. These evolved into popular, bedrock social programs, ideology be damned. However other efforts at further socialization were stymied, with most Americans firmly believing that those who could take care of themselves, should take care of themselves.

As the Cold War receded in the 90’s and early 00’s, two big elements began to change. First, the formerly young, rambunctious rascals known as the Baby Boom Generation finally started to grow old. Formerly free lovin’ hippies with invincible health slowly became middle aged executives with chronic health problems and rapidly increasing grey hair. The inevitable ageing of the largest demographic cohort in American History meant that those coverage gaps that had always existed in American Society widened into yawning gulches that derailed countless retirement plans and upended millions of cushy lifestyles.

The second big thing that happened is that the cost of care itself exploded like some kind of healthcare A-bomb. In 1960 the annual PER CAPITA health care cost in the United States was $146 per person. By 2015, that annual PER CAPITA cost was a monstrous $9,990 for every man, woman and child in the United States. (1)

The first reason for this exponential increase in cost is obvious, and actually great news. There is just so much more that can be done to heal the sick today! In 1962, when my grandfather had a heart attack, his treatment consisted of “Lay down, go easy on the meat, the booze and the cigarettes, don’t stress out so much.” Needles to say, that treatment regimen didn’t cost too much. Today, there would be batteries of tests from multimillion dollar machines, there might be a surgical intervention with almost microscopic surgical tools, there could be a range of medications that cost billions to develop. Thus, the share of our national wealth that goes to healthcare spending increased from 5% in 1960 to 17.4% in 2013 (2)

The other reasons for this massive increase are more murky. Many have suggested that private health insurers themselves are “the original sin” that has worsened health inflation. This handbook is not a work of sociological investigation, but suffice it to say that many academics and common folk feel that logical blame could be traced to the links on the healthcare chain that do not produce direct value. After all, health insurers do not provide care directly, or create new drugs, or pioneer new surgeries. They are a kind of middleman. Thus, to many would be reformers, the private health insurers of America would be the first target to go after if we were trying to cut costs and to make sure that healthcare is a public benefit, rather than a business.

Plus, no one likes to crack down on doctors, nurses, or hospitals. Despite everything, we mostly still think of healers as helpers, human beings compelled to act from a sense of goodness. But insurance companies, well, they just seem indifferent to the patient’s plight, run by anonymous crews of amoral goons. Everyone has a horror story to tell about callous treatment from an insurance company. Even regular American Joe’s understand that health insurers don’t make money by paying out claims.

WIth the dawn of Obamacare, Health Insurers and their shareholders seemed vulnerable.

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