If This Were a Division, You'd Shut It Down Tomorrow - The Cost of Health Care to Double By 2017...

Hey dude... The light at the end of the tunnel?  It's a freaking train, and it's coming to run you over....

Seriously, can there be a more desperate situation than the state of US Healthcare?  The population is aging, the mostly good capitalist society creates drug companies that create billion dollar markets out of vapor, and you are in the middle of the fray, trying to be the Daddy Warbucks of healthcare by providing medical and Rx to your workforce.  That's what you're supposed to do as an employer, right?

Sure, that's been part of the employer role.  But, it's getting ready to be very painful.  From the Associated Press:

"By 2017, total health care spending will double to more than $4 trillion a year, accounting for one of every $5 the nation spends, the federal government projects.

The 6.7 percent annual increase in spending — nearly three times the rate of inflation_ will be largely driven by higher prices and an increased demand for care, the Centers for Medicare and Medicaid Services said Monday. Other factors in the mix include a growing and aging population. The first wave of baby boomers become eligible for Medicare beginning in 2011."

That means total health-care spending in the year 2017 will average out to $13,101 per person.  By contrast, that spending in 2006 worked out to an average of $7,026 per person. 

WOW... 6.7% actually sounded OK to me, until I realized that compounding, which is good for my 401k, really hurts when it impacts the expense side of the P&L.

If it were a division, you'd shut it down tomorrow.  But it's not...

Comments

[Chris]

I'm not up to date on the laws and regulations, but I believe employers do not have to offer health insurance. One of the main reasons they do so now is because employees want it. The reason employees want it from the employer is because the government taxes the individual's purchase of health insurance, but not the employer's purchase (or at least not as much). This means that as an employee, you can give up, say, $50 per week in wages to get health insurance, whereas it would cost you $75 per week to buy health insurance on the open market.

The employer is "taking" this $50 per week from the employee to cover the costs of the health insurance. As these costs rise, the employer will have to "take" more from the employee's wage. BUT, and here's they key, as long as the tax laws treat employer-provided insurance favorably, and as long as employers face the same insurance markets as employees, the employees who want health insurance will continue to give up higher wages in exchange for the employer to provide the health insurance.

That is, the employees will continue to pay for the higher insurance costs through reduced wages. As an entity, the firm is not bearing these costs, except for in a purely accounting sense (i.e. it shows up on their books, but the employee is actually paying the costs in the form of lower wages).

So, from a firm's perspective, why are rising insurance costs such a big deal? What is missing from this story?

[Alan]

You don't have to worry about healthcare spending taking on such an increase by the year 2017; by that time, someone with a common sense mind will discover a solution to our out-of-control healthcare industry. It may be one of our future Presidents or someone from the political arena or it may be someone from the business or educational arena.

The main point is that as long as we as a nation allow the insurance companies to dictate healthcare in this country by paying off politicians, telling us that our healthcare is superior to that of other nations and feeding us more lies and promises, nothing will ever change. We have to rise up against the machine and defeat it before it defeats us. We will get there - the ideas are already beginning to form. We'll have a solution by 2017 just as we will have a cure for diseases such as Alzheimers and AIDS.

[SmartCFO]

The reason it's important today is that no silver bullet exist. 83% of every dollar discussed above is a claim dollar and poor diet and excercise choices drive 75% if that number.
BTW Chris, the average employer in the US will pay over $8,000 per employee for health care.
Why should you care? Becasue if you're healthy and working to stay that way, you're subsidizing those who aren't.
If you really want the truth, the ugly truth about health care and what it take s to stop the madness, read:
You Have an Ugly Baby'. It'll rock your world.
www.youhaveanuglybaby.com