On Thursday, at an event hosted by the Center for American Progress Action Fund, Al Hubbard, an architect of Sen. John McCain’s (R-AZ) health care plan, compared “Americans’ use of the health care system to shoppers who indiscriminately buy caviar while someone else foots the bill”:
When a third-party pays for a service or product—we consume it as if it was free…It’s interesting, if you would think about, the employers rather than providing health care insurance they provided food insurance. So every time you go to the grocery store you just take out your food insurance card, you give it to the cashier, she scans it, and you’re outta there. Pretty soon, you would start buying caviar, expensive steak, and you start buying more than you need, and also pretty soon the supermarket would discover that you really didn’t care about price, so the supermarket would remove price, because it doesn’t affect your decisions about what to buy and what not to buy.
It’s possible that families get less value from the health care system because its costs are opaque, but this is not the whole story with rising health care costs.
The rising costs of health care are a troubling trend. Americans spent $2.3 trillion on health care in 2007, “almost three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980.” According to a recent report by PriceWaterhouseCoopers, “health care costs for employers will increase almost 10 percent next year, double the rate of inflation.”But Hubbard’s insistence that health insurance costs too much because Americans over-use it or because they buy “caviar” health care, represents a fundamental misunderstanding of the current health care crisis. Eighty percent of the health care costs “are incurred by the sickest twenty percent of Americans, those whose doctors order expensive treatments for difficult diseases such as cancer.”
Moreover, the Kaiser Family foundation concludes that four major factors are responsible for driving up cost. Over-use is not one of them:
- Intensity of services: The increasing costs of treating “ongoing illness and long-term care services such as nursing homes.”
- Prescription drugs and technology: “Spending on prescription drugs and the major advancements in health care technology have been cited as major contributors to the increase in overall health spending.”
- Aging of the population: “Health expenses rise with age and as the baby boomers are now in their middle years, some say that caring for this growing population has raised costs.”
- Administrative costs: 7% of health care expenditures are for administrative costs (e.g. marketing, billing) .
The insured are also “paying a greater cost to cover the uninsured because the federal government is under-funding public programs while the number of uninsured is rising.” The United States spends “nearly $100 billion per year to provide uninsured residents with health services.” Similarly, “another $37 billion is paid by private and public payers for health services for the uninsured and $26 billion is paid out-of-pocket by those who lack coverage.”
As Lester Feder points out, Hubbard’s attempts to blame Americans for the rising costs of health care “comes at a poor time for Senator McCain, who was forced to jettison co-chairman Phil Gramm” after he called Americans “a nation of whiners.” But Hubbard’s remarks also raise another important question: Does McCain consider health care a luxury like caviar?
UPDATE: Read more about the cost containment approaches articulated by Senators Obama and McCain here.