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CEOs: Health Costs Disadvantage U.S. In Global Economy



March 13th, 2009

Releasing a study yesterday, the powerful Business Roundtable added fuel to the argument pressed by President Barack Obama—that rapidly growing medical expenditures pose a major threat to the long-term economic health of the United States. Adding a new international dimension to the estimated impact of rising health expenditures, the Business Roundtable report found that the United States consumes a much larger share of national income to achieve health and quality of care that are no better, and are in some cases worse, than other countries.

The Business Roundtable (BT), whose members are CEOs of America’s largest corporations, is a prestigious body that wields considerable weight in public policy circles. Its new report—entitled “The Business Roundtable Health Care Value Comparability Study”—is authored by two consultants of the Mercer Health and Benefits Company, Arnold Milstein and Carrie Hoverman Colla. A national expert advisory panel helped to design the study.

The BT study supplements another recent report that arrived at similar conclusions and—more importantly—has had profound influence on the thinking of Obama’s White House staff of economists and analysts. This earlier study, conducted by the McKinsey Global Institute, estimated that the United States spends $643 billion more every year on health care than its peer industrialized countries, after adjustment for wealth. Two former McKinsey principals who worked on the study—Diana Farrell and Robert Kocher—recently joined the staff of the National Economic Council in the White House.

In commissioning the researchers to conduct the study, the Business Roundtable sought to develop a systematic and ongoing method for measuring the impact of health care spending—and the return on that investment—on U.S. global economic competitiveness. After gathering a large amount of data on various measures, the researchers and their panel of national experts developed a measure of the “value” (cost and performance) of the U.S. health care system relative to those systems of other countries, and the resulting impact on U.S. global economic competitiveness.

The BR report concludes that, after combining 19 internationally reported measures in a weighted scale that takes into account both the spending on, and performance of, our health care system, “the United States stands at a 23% disadvantage relative to five leading economic competitors: Canada, France, Japan, Germany, and the United Kingdom (the so-called G-5 group); and a 46% disadvantage relative to the emerging competitors of Brazil, India and China (BIC).”

The report adds: “As a group, workers and employers in G-5 countries spend approximately 63 cents for every dollar we (U.S.) spend on health care. The gap is even wider when we look at the BIC (Brazil, India, China) group; they spend just 15 cents for every dollar we spend on health care. These health spending gaps persist after adjustment for our higher per capita GDP (Gross Domestic Product).”

The 19 measures upon which the findings were based included two spending measures: (1) employer-paid health benefits per hour in manufacturing (the U.S. industry most exposed to exports); and (2) a broader measure of GDP-adjusted per capital health spending. The 17 other measures included indicators of national health in the participant countries, including adult mortality rates; healthy life expectancy after birth; tobacco consumption; mean blood pressure; mean cholesterol; medical errors and adverse effects from medicines.

The Business Roundtable plans to conduct future studies using the same measures to determine whether the competitiveness of the U.S. has improved or declined over previous findings.

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3 Trackbacks for “CEOs: Health Costs Disadvantage U.S. In Global Economy”

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6 Responses to “CEOs: Health Costs Disadvantage U.S. In Global Economy”

  1. johnrgraham Says:

    Nor does the BR study address the deadweight cost of taxation, which Goodman and colleagues to in neighboring entry.

  2. acavale Says:

    Why is it not surprising that the big wigs of the corporate world are the loudest whiners all the time. Did any if the CEOs ever mention that they get to write off every cent they spend on health coverage for their employees? Or that they spend much more on their executive travel budgets and bonuses than on their employees medical benefits? And I bet there was nobody in this “Business Roundtable” to offer any counter-arguments.

    While I agree with the previous comments, I am still struck by how even educated individuals keep mixing up “health care costs” with “health insurance costs”; and similarly “universal coverage” with “universal health care”. It is abundantly clear for even the casual observer that “coverage” does not translate to “care” and while insurance costs have skyrocketed, the costs of care has actually stayed flat over the past 10 years or so. So, a medical procedure is actually cheaper in 2008 as compared to a similar procedure in 1998, with actually improved quality and safety features.

    For this cost structure to change radically, a significant shift must occur in the mechanism of buying and selling of medical services, with the elimination of a thirsty, hungry, unscrupulous middleman. Buyers of health care (individuals or companies) must be willing to negotiate directly with providers of such services and simplify transactions to a level whereby the convoluted machinations of current “coding/billing/revenue cycle management” become unnecessary and obsolete. Everybody will save a ton of money and effort if this were made possible.

    But alas, I have to wake up now to face reality….by the way, do we really think that these CEOs will stop whining if the government miraculously took over their entire health care expenditure? And will that suddenly make companies like GM more competitive in the global markets? I doubt it very much. Let’s ask them to find something other than “health care” to beat up or better still, try making higher quality products or services that they can sell to the rest of the world!

  3. Brad Flansbaum Says:

    Thanks Chris–my hunch as well.

    This study has been widely disseminated and quoted without any mention of labor and salary effects. The implications of competitiveness needs further clarification given this context. Hopefully, reader or HA all-star can comment further.

  4. Christopher Hughes Says:

    Brad, I think the economists will tell you that, in the long run, this expense all comes out of wages.

    Len Nichols of New America makes the point that, back in the good old days when we were the manufacturing center of the world, our effective oligopolies allowed us to pass on these costs in price to the purchasers. Now that we have real, vital competetion all around us, we can no longer simply increase prices [and it certainly won't come out of management's portion- my 2 cents], so it comes out of the wages of labor.

    Cheers,

  5. Brad Flansbaum Says:

    John
    Could you comment on whether this value gap is really a hit on business competitiveness for US companies, or in the end, an invisible but very hefty chunk of effective lost wage from our workers, ie, cost passed on “to the little guy?” This is always bantered about, and it is unclear where the lost value occurs in the chain.
    Thanks
    Brad

  6. Donald Strombeck Says:

    Yes, currently healthcare costs (close to 20 percent of the nation’s gross domestic product) are on a path to fracture and cripple our economy. Healthcare in America is far costlier and less effective than any other developed countries. Our life expectancy ranks about 37th in the world (about the same as Costa Rica where health care costs are about 10% of what they are in the USA). America cannot be a healthy nation when more than 40 million people have inadequate access to health care. Universal health care is essential for America’s healthcare solution.
    Numerous research studies report that 8 of the 9 leading contributors to disease and death are life styles that can be prevented. Unfortunately, people have few incentives to change their living behaviors that would minimize medical problems. Essential behavioral changes will not become important until individuals pay for their unhealthful behavior. There are ways that this can be done with a program that provides health care for everyone and with a cost that is based on each individual’s lifestyle. Few suggestions offer ways to reduce healthcare costs by changing unhealthy lifestyles.
    The healthcare industry must change in many ways to reduce costs (such as ways to reduce medical costs in the Boston area that are twice those of costs in Minneapolis with no difference in effectiveness or in reducing mortality). The needed changes would be fought by this industry as well as by the medical insurance industry which would relish being the providers of mandated insurance coverage. There are many other changes that must be made. A plan to make this all happen and help prevent the crippling of the economy by our current system can be found at the website “Responsible and Fair Healthcare For All” at http://www.healthcareforall.us
    Donald R. Strombeck PhD DVM Professor emeritus University of California Davis

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