Is Health Care really a growth industry?

Tuesday, November 3, 2009

Is Health Care really a growth industry?

The most recent data (2007) regarding US Industrial sectors is from Fortune Magazine. Although you can sort the list in various ways, the two most interesting sort orders are by a) profit and b) 5 year (2002-2007) growth in profit. Here's the ranking of various health care-related sectors, first, by profit:

Pharmaceuticals 15.8% (3rd overall)
Medical Products & Equipment 15.2% (4th)
Insurance, Life and Health (stock) 10.6% (9th)
Health Care: Insurance and Managed Care 6.2% (28th)
Health Care: Medical Facilities 3.3% (40th)
Health Care: Pharmacy and Other Services 2.6% (43rd)
Wholesalers: Health Care 1.1% (47th)

Note, limiting Insurance company profits to 3%, as I have suggested, would save some serious cash. But the more interesting list is by growth of profits over a 5 year time frame:

Insurance, Life and Health (stock) +43.3% (5th)
Health Care: Insurance and Managed Care +33.9% (9th)
Medical Products & Equipment +17.2% (18th)
Wholesalers: Health Care +12.6% (22nd)
Pharmaceuticals +0.8% (34th)
Health Care: Medical Facilities -0.6% (35th)

From 2002 to 2007, profits from insurance company stocks increased over 43% and the profits made by health insurance companies increased almost 34%. Even though the 5 year growth in pharmaceutical company profits was modest, the actual profit level in 2007 was quite high. In any case, every dollar spent on health care is a dollar that can't be spent on consumer electronics, real estate, food and other sectors.

Conclusion? Health care in the US is a growth industry. Although some pundits will point to the recent downturn in health care profit margins, this drop is primarily dues to the weak global economy.

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Health care should't be a growth Industry

As an obstetrician-gynecologist practicing in Upstate New York, I’d like to suggest an alternate path for reforming health care in this country. As a hands-on clinician, I practice in Troy along with five other OB-GYNs, two nurse-midwives and a nurse practitioner. We care for a wide range of patients, from those on Medicaid or less, to the elderly served by Medicare, to state employees, who are blessed with outstanding private health insurance. We have delivered thousands of babies at our local hospitals and have tried our best to stay ahead of the ever-increasing patient load, demanding new technologies, declining reimbursements and the ever-lurking trial lawyers.

The main concern in reform issues has been to contain costs while providing better health care for all Americans. The major argument regarding reform is whether some modest variant of the present health insurance system should be instituted or whether a single-payer system should be imposed by the federal government. In May of this year, Senator Charles Schumer, offered a “middle ground.”

Schumer has laid down some good ground rules, saying that any public plan should be voluntary, fairly funded and self-sustaining, as well as administered by separate managers and regulators, but the debate about alternatives has become protracted.

One day, when sitting with my checkbook and looking at my ever-increasing electric utility bill, I got an idea. It wasn’t a grand, elaborate idea, but rather a simple one: Years ago the power industry in the U.S. was heavily regulated. Those days are gone, of course, swept away in a fury of deregulation. But back then, a state like New York was divided into geographic regions and each electric utility had a regional monopoly, such as Niagara-Mohawk upstate, Consolidated Edison in the New York City and LILCO on Long Island.

These companies couldn’t just raise electric rates on a whim. They spent years, justifying to regulators even a modest increase in the rates that they could charge to the consumer. Every aspect of their business model was thoroughly inspected and restricted. They couldn’t build too many power plants or invest in risky or unrelated capital projects. As a result electric rates remained stable for years. In addition, everyone who invested in the stock market always kept some low risk, utility stocks in their portfolio, to cushion the blow when there was a recession. But the utility company CEOs complained loudly to the politicians. In a matter of years, that stable system, designed for the public benefit and run by private entrepreneurs, was dismantled.

Now what does this have to do with health care? It has lot to do with it. The debate over health care reform has degenerated into sloganeering and as Schumer suggested, someone has to propose a middle ground. Lest we continue to only hear that a single payer system is “irresponsible, heavy-handed socialism” and the present system is “rampant, self-serving capitalism.”

I have another proposal.

Under my proposal, private health insurance companies would bid to the federal government on obtaining a regional monopoly for a specific geographic area. Within that area, there would be no other purveyors of health insurance; no Medicare, no Medicaid and no other private insurers. For those patients who are employed, the employer would pay the geographic insurer. For those patients without employment, the federal government would reimburse the insurance company on a capitation basis at the private employee rate. In exchange for their geographic monopoly, the government would heavily regulate health insurers’ profits and limit the annual increase in profit to either some small percentage or the rate of inflation, whichever was greater. It would be up to each “monopolist” to set insurance costs and provider reimbursement rates within its geographic region, within some guidelines established by the federal government.

In addition, these private insurers would pay no federal, state or local income tax. The private insurance company would also bear the burden of paying out any malpractice claims, as both legal liability and malpractice insurance would be eliminated for individual physicians, hospitals and other health care providers. The federal government would monitor various health care metrics within each geographic region, to assure some measure of consistency in the quality of care throughout the country. If no private insurance company wished to bid on a particularly "risky" geographic area, the federal government could step in with a subsidized public insurance entity.

The health care sector is referred to as “a growth industry.” Investment advisers and economists proudly point to its continued vigor during our present recession. The problem is that it shouldn’t be a growth industry. It should be a stable system, designed for the public benefit and run by private entrepreneurs.

Naomi's Idea - Health Care Reform

Tuesday, November 3, 2009