Health Care Reform in My Pocketbook

2009-07-18 | |
Last updated: 2009-07-18

With this week’s announcement of the hefty 1 trillion dollar price tag associated with reforming the US health care system, it is no wonder that many people in the US are very concerned about these costs and how the costs will affect them personally. With the ongoing debate between Republicans and Democrats, not to mention squabbling within the ranks of the Democrats over the costs, it becomes hard to develop an informed opinion with all the information and misinformation being distributed. However, regardless of whether one believes in the plan itself, polls do show that most Americans, 80%, think that the health care system must be reformed.

While 1 trillion dollars spent over ten years is an amount of money that most of us cannot visualize and does seem ridiculous, there are ways to make this number meaningful at an individual level. The number represents an average tax increase of $329 per person annually or $1316 annually per family of four. This number, while definitely unpleasant, is not unmanageable for most people if it leads to savings over time. The next question that should follow is how much can be saved per person?

When we consider what savings that reform might achieve, a good place to start is by looking at the percentage of Gross Domestic Product (GDP) that is spent in the US as compared to what is spent in other countries with equivalent or better health care systems. With 17% of the US GDP spent on health care as compared to 10% in other developed countries like Germany, France, and Canada, the US has a realistic chance of reclaiming 7% of its GDP if reforms are successful. Since the health care system is so massive, we must expect that it will take some time to change, but we would expect to see some cost reductions as the reforms were introduced.

So what does 7% of US GDP equate to in personal dollar figures? Based on 2008 numbers, the 7% is itself equivalent to 1 trillion dollars that is spent annually or $3291 per person and $13167 per family of four. While it is very difficult to predict how quickly any successful reform efforts might achieve savings, if we assume that an additional 10% of this 1 trillion dollars in health care costs are saved annually, then over 10 years we would see that our additional $329 in additional taxes per year will save us $14,808 dollars for the $3290 paid. That is equivalent to an annual interest rate of 31%! You are not likely to get that in any investment you might make.

The following table shows the calculation:

Year  Taxes Spent  Savings
  1        $329          $329
  2        $658          $760
  3        $987        $1,326
  4      $1,316       $2,067
  5      $1,645       $3,039
  6      $1,974       $4,313
  7      $2,303       $5,983
  8      $2,632       $8,173
  9      $2,961      $11,044
 10     $3,290      $14,808

Now, the first obviously glaring hole in this whole assumption is that you personally would save the $14,808 over the ten years. This number is obviously the average saved by every American if reform is largely successful. If you are lucky enough to be healthy for the whole ten years, then you will be out $3290. However without reforms that ensure that everyone has coverage and ensure that insurance companies cannot dump patients once they have cost the insurance companies too much money, bankruptcy is very real possibility for many who fall ill. Research has found that 50% of bankruptcies in the US are due to unforeseen medical costs and 3 out of 4 who went bankrupt for medical reasons started with health insurance.

Now, you may love Obama or hate all that he represents, but the real question you should be asking yourself is whether you think he and the Democrats can accomplish reform with your tax dollars and if he cannot, who should. With the health insurance lobby fighting hard to avoid the considerable revenue loss that will occur if reform is introduced and Obama trying to build and maintain consensus, achieving reform may be very difficult.

However, personal decisions should really not be about whether reform is necessary or whether it is worth the value based on the current price tag since the numbers speak for themselves. The American population is paying too much for health care and regularly risking personal bankruptcy with the current system and its current cost increases of 6-7% per year. At the same time, this system is hurting the productivity of the whole country in a time of global competition where higher costs can mean lost jobs.

What do you think about the costs of reform or the numbers presented here? Has the current system affected you financially? Tell us about it.

Related Links

http://www.rttnews.com/Content/TopStories.aspx?Node=B1
http://www.politico.com/news/stories/0709/24924.html
http://www.zogby.com/templates/printnews.cfm?id=1722
http://www.usatoday.com/news/washington/2009-07-14-trillion-dollars-for-health-care_N.htm
http://www.reuters.com/article/topNews/idUSN1017928320090718
http://www.cmanet.org/publicdoc.cfm/2/1/presssection2/469
http://www.medicalnewstoday.com/articles/123904.php
http://wellescent.com//health_blog/the-great-annual-economic-stimulus-package
http://www.reuters.com/article/pressRelease/idUS132937+24-Feb-2009+BW20090224

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