Health-Care Reform and the Next Recession

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The greatest risk to the health-care industry, in its current form, may not come from a partial or complete repeal of Obamacare, but from the possibility that the law is entirely legal. The Affordable Care Act, as it's also known, is hardly perfect, but it contains many provisions designed to bring the runaway train of American health-care spending under control. That would be a victory for the American people -- or so you might think.

One risk lurks just behind this discussion, rarely mentioned but critically important. Skyrocketing spending has helped boost the health-care industry's payrolls to all-time highs. Sector employment seems impervious to any sort of market forces, and has thus far been immune to any creative destruction. Real cost controls and technological innovation might finally slow or even reverse the rapid growth in the sector's employment rolls, but as we've seen in prior busts, the fall of a once-hot sector can cause years of pain for the entire country.

Lifting the curtain
I don't want to get bogged down in the specifics of Obamacare's shortcomings today. It's more useful (for the purposes of this article) as a symbol -- the first real effort to control health-care spending in America. Few would argue that cost controls are unnecessary, not when the United States so far outpaces other countries in health-care spending as a percentage of its total output. Over time, that excessive spending has given rise to a similarly massive health-care sector, one that directly employs nearly one out of every nine workers in the United States.

Source: Federal Reserve Bank of St. Louis and author's calculations.

There were occasional stretches of time when health care didn't significantly increase its share of the total jobs pie, but health-care jobs have not suffered any real decline since tracking began in 1990. As you can see, every economic downturn enabled health care to claim more of the pie, and the sector now commands just under 11% of total U.S. non-farm employment, including both public and private employers.

Health care is still projected to make rapid gains in the years to come. The Bureau of Labor Statistics, or BLS, recently published a list of the 30 occupations expected to see the most gains from now until 2020, and 14 are in health care. There's no shortage of commentary on the bright future of the health-care employee.

Irrational exuberance
Rosy growth projections have thus far held true, but optimistic predictions have a way of falling short. Remember when construction was one of the hottest sectors? The BLS released an employment outlook in 2004, in which it projected that construction-related employment (including extractive jobs such as mining) would increase from a 2004 total of 7.7 million jobs to 8.7 million by 2014. With two years to go, there's virtually no chance that this prediction will come true. The latest BLS statistics show only about 5 million employees in the sector.

Source: Federal Reserve Bank of St. Louis and author's calculations.
Note: Federal Reserve statistics differ slightly from BLS numbers.

Even the high-tech industry, which has also posted consistent gains over the years, has never quite met its promise. In 1999, BLS estimated that there were 2.6 million people employed in computer-related occupations. Its most recent figure, 3.4 million, is a 30% gain, but the rest of America hasn't stood still. The tech industry never regained the share of American employment it held at the height of the boom.

Source: Federal Reserve Bank of St. Louis and author's calculations.
Note: Federal Reserve statistics differ slightly from BLS numbers.

It's important to note that each sector has a different right-axis scale, to better depict the change in its share of American employment. But even if we put all these statistics together, and include other major sectors like retail, finance, and the government, none have seen their employment figures grow in the same sustained way. I've indexed some important sectors to their 1990 jobs numbers, so you can better see the change in employment by sector over time.

Source: Federal Reserve Bank of St. Louis and author's calculations.

Fat, sick, and lazy
The tech sector had its boom and bust at the turn of the century, and you can see the Great Recession's impact on most other fields, but health care has not slowed down at all. If we look far enough using the same straight-line projection, health care could one day be a larger sector, employment-wise, than the government. The rise in spending is only slightly ahead of this employment growth, with total real health-care expenditures approximately doubling between 1990 and 2009.

Many of these new jobs haven't been created in the professions Americans actually need. The United States has fewer physicians per capita than Uzbekistan, Qatar, Moldova, and Cuba, among many others. Canada, the United Kingdom, and Sweden, all hideouts of the socialist-care boogeyman, have more nurses per capita than the United States.

But there's one kind of health-care worker that America has far more of per capita than any other country -- administrators. Administrative overhead eats up a fifth of all excess health-care spending, and Americans pay twice as much for administrative costs as the citizens of the next most-expensive country.

The Affordable Care Act attempts to rein in this bloat. It's an imperfect attempt, but it's better than nothing. If the Act is upheld, that straight line of health-care job growth, buoyed by a huge mass of redundant paper-pushers, might finally turn downward. If it's overturned, long-overdue efforts to make health care more efficient might ultimately have the same effect.

Nothing grows forever
Health care can't keep growing at this rate forever. Over the past decade, gains in American health-care employment have been more than double the rate of elderly population growth, and have outpaced total population growth by an even wider margin. Blaming lifestyle choices or a graying population for the unceasing growth in health-care costs might make sense, but neither captures the full scope of the problem, which is born largely out of a medical culture of for-profit waste and inefficiency.

There are many ways to clean up waste and clamp down on inefficient systems. Electronic medical records championed by Cerner (Nasdaq: CERN  ) and Quality Systems (Nasdaq: QSII  ) could go a long way toward streamlining an unnecessarily low-tech recordkeeping process. But that would just be a start.

The five largest health insurers in the United States -- UnitedHealth (NYSE: UNH  ) , WellPoint (NYSE: WLP  ) , Aetna (NYSE: AET  ) , Humana, and Cigna -- collectively employ 224,000 people and serve (assuming there's no overlap) 151 million. The Department of Health and Human Services serves 108 million Medicare and Medicaid recipients with 65,000 employees. When the numbers show that government employees are nearly three times as efficient at managing an insurance program as private enterprise, it tends to undercut any claims to the free market's superiority.

The problem goes deeper than insurers. If all American health-care providers could make do with half the administrators they employ today, such streamlining might put nearly 4 million people out of work. That's just under half of all the jobs lost during the last recession. Streamlining health care would save the country billions, but would also cost many billions in lost wages and safety net payouts to unemployed administrators. Once those jobs are automated away, there's little chance they'll ever return.

I've written extensively about why automation is inevitable for many repetitive jobs, and administrative paper-pushing is an easy target. When those jobs become expendable, those let go have to go elsewhere. As we've seen in the recession's aftermath, many wind up with nowhere to go but to the unemployment office.

Call it an economic Sophie's Choice. On one hand, we streamline our health-care system and lower costs, but at the price of putting millions of health-care employees out of work. On the other hand, costs keep rising, but a vast swath of the populace gets to keep their jobs. No industry has been immune to the forces of automation before, but no other industry is quite like our modern health-care system. Is there a third way forward, or will health care break our economy no matter what we do to fix it?

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of WellPoint. Motley Fool newsletter services have recommended buying shares of WellPoint, Quality Systems, and UnitedHealth Group. Motley Fool newsletter services have recommended creating a diagonal call position in UnitedHealth Group. The Motley Fool has a disclosure policy.

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Read/Post Comments (68) | Recommend This Article (89)

Comments from our Foolish Readers

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  • Report this Comment On June 25, 2012, at 4:05 PM, lee1948 wrote:

    Not sure how this obamacare will make health care more affordable? The OMB says the the average premium for a family of four will cost $15,800 a year. Not seeing a lot of savings in this.

  • Report this Comment On June 25, 2012, at 4:52 PM, mtf00l wrote:

    Not sure what your thesis is here. Is it the cost of health care or the cost of insurance for health care?

    First, the insurance lobby takes a portion of the largesse and gives it to politicians to support the insurance price fixing structure.

    Second, Obamacare enforces the price fixing structure by mandating everone must have insurance or face severe penalties.

    No matter who wins or who loses the insurance companies are phat on both sides of the health care equation. The medical profession pays for malpractice and liability insurance.

    Lastly, insurance companies are in business to make money, not pay out on policies.

    The $15,800 referenced above is close to accurate and that is with an out-of-pocket of $8,000 or more before the insurance pays anything. This equates to paying a high premium to get the 'contract' rate for 'covered' services that you then pay 100% for. Unless you have a catastrophic condition, you'll never receive a health care benefit. Unless you have a 'Cadillac' plan in which case the cost doesn't matter because you can afford to pay the bill without insurance or you're a politician and it's a perk of your position.

  • Report this Comment On June 25, 2012, at 5:24 PM, BentMike wrote:

    I get the thesis, and I agree - there is a bubble in employment in health care in this country.

    Good estimate are that we spend about 60% more than we should (jibes with results from functional healthcare systems elsewhere that can boast better outcomes for more people). About 25% more tha is need get spent on paperwork, about 24% is for unnecessary care (sometimes referred to as Type 2 malpractice - very good care that should never have been performed), and 10% fraudulent claims.

    There are a lot of jobs producing nothing useful in our economy but burning through that humongous 60%.

    So to the extent that the health care bill reduces cost, it will also reduce employment.

    Bubble are noxious. There is a long lasting stench when they pop and they always do. One of the odors the hangs about is the idea that the bubble levels of stock price, spending, employment, etc are normal and every other level indicates something is wrong.

    Case in point, the view that the stock market needs to get back to 2007 levels, or something is wrong. that would be getting back to an unsustainable bubble in housing among other things.

  • Report this Comment On June 25, 2012, at 5:31 PM, DoctorLewis4 wrote:

    One quick fix - make Congress pay for their own health coverage. You'd see some action then!

  • Report this Comment On June 25, 2012, at 5:32 PM, truth4u wrote:

    . . . and, to think we could have had a Single Payer, National Health Care Plan that would have provided quality care for all; and, saved over $400 Billion Dollars a year.

    The Infrastructure was already in place. Put everyone under Medicare. Ask Seniors - - it works!

    Let the Fat Cats keep their Golden Health Care Plans; but they will have to pay the same Medicare Tax that the rest of us Minions do.

    Why don't we have a National Health Care Plan?

    Can't take Billions away from the Filthy Rich Health Insurers, who hire Collge Graduates; put them in a cubicle; and instruct them to find loopholes to deny claims.

    Somebody explain to me why the People in this Country have a, "death wish," on so many levels?


  • Report this Comment On June 25, 2012, at 5:43 PM, toddsw wrote:

    Ironic that health insurance premiums are considered health care costs. If healthcare costs were transparent, and people actually paid for the service themselves without middlemen (government, insurers) the costs would drop at least 70% overnight. Suddenly we would have a free market (gasp) driving costs, not insurers and those who profit from the current system. How come general health care has skyrockets, but health services that aren't covered by insurance have gone down in price, while going up in quality? Why do we accept the falacy that healthcare costs should only rise? Only if we accept the falacy that insurance is the only way to pay for healthcare. It is an evil little self winding machine. Gov't wants you force you to have insurance, gov't employs thousands to enforce said rules, insurer requires copious paperwork, employs thousands engaged in denying claims, doctor has to employ multiple people to manage claims process...yeesh, what a crock. And the saviors all want to rearrange the desk chairs on this sinking ship and call it a solution. Solution: everyone drop insurance coverages, save catastrophic coverage, and start paying out of your own pocket for healthcare, making wise choices along the way.

  • Report this Comment On June 25, 2012, at 5:44 PM, clydejazz wrote:

    I like the idea of Congress paying their own premiums. Notice that no tea party congressperson except Rand Paul has turned down the Federal Employee Health Plan. Even Scott Brown, who promised to be the 41st vote to overturn ObamaCare, has his 23-year old daughter on Obama's plan!

    We almost had ObamaCare under Dick Nixon--Nixon was all set to ram it through Congress (Supreme Court would never have challenged it back then), but Ted Kennedy temporarily held out for single payer. By the time he changed his mind, Nixon had resigned.

    ObamaCare is not a government takeover of health care--it is an idea promoted originally by the right-wing think tank The Heritage Foundation, and put into place by Mitt Romney in Massachusetts.

    If we get rid of ObamaCare, we WILL get some form of single payer such as Medicare, eventually, because as in any other bubble, prices can't increase exponentially forever.

  • Report this Comment On June 25, 2012, at 5:50 PM, valmach wrote:

    Once Again this blog and it's leaders prove that 1 per-center politics trumps sound investment advice - too many right wing dunces getting lucky at gaming the mark, drink too much of their own juice and think they are clever enough to put finger to keyboard and spit right wing BS . Universal health care is good - America is the only civilized western nation w/o Universal healthcare - Those Americans opposed to healthy care are ignorant - under educated white, poor to middle class, assault rifle owning Republican males and they are not likely to invest in anything but another gun or gas guzzling F-150. Best Bet.. Leave Politics out of Investing -

  • Report this Comment On June 25, 2012, at 5:50 PM, Observer310 wrote:

    Health care employs people so screwing the rest of the citizens is OK?? Sounds weak to me..

  • Report this Comment On June 25, 2012, at 5:53 PM, jc09058 wrote:

    I'm still trying to figure out why those people that support Affordable Care Act (ACA) believe the corporations will keep their existing health plans over the short-term. After looking the act over, it looks to me that it will be cheaper for corporations to pay the fine for no health insurance rather than paying for their employee's health insurance. The only wins here are insurance companies and corporations reducing employee costs.

    The British have this this little thing called National Health Program just like the ACA. My brother-in-law and sister have experienced this "wonderful" system for the last 15/20 odd years and their expressed opinion of this program is best left unstated other than it a good way to come out worse than you went in.

    I'm not sure why the Democrats think the European system of doing things is such a good idea. I can't help but wonder if the Democrats have bothered to look at what is going on over there lately with than state sponsored health care system and have seen just what a disaster it is becoming. I expect a big lack of health care over there in the next 10 years because of a lack of money now and in the future.

  • Report this Comment On June 25, 2012, at 5:57 PM, cactuspony wrote:

    As a healthcare provider I can't afford my own services. Health Insurance for profit DOES NOT WORK. Our current system of health insurance is set up to penalize those who practice routine screening and reward those who stick their heads in the sand and avoid taking responsibility for themselves. Whats wrong with this picture?

    As a perfectly healthy individual with no health issues, why was my insurance canceled after elective surgery for a sports injury? Because I reached my $6000 deductible. The insurance company's explanation...because they don't insure people in NY. That's interesting after I paid $1200/mo for 3 years from my NY address.

    ObamaCare isn't perfect, but our current system in deeply, deeply flawed....take it from an "insider".

  • Report this Comment On June 25, 2012, at 5:59 PM, XMFBiggles wrote:

    @ mtf00l -

    Health care, generally. The problem of health care spending goes deeper than just the insurance companies, but the issue of insurance company employees vs. HHS employees was just an easy comparison to make, but I did say "the problem goes deeper than insurers" for a reason.

    Bloated costs can be found all through the system, from the cost of drugs to the cost of unnecessary procedures ordered to justify expensive new diagnostic machines. Obamacare won't fix everything, but the point is that it does try to fix some of the problems.

    Sorry if the point of the article wasn't clear. It's a difficult topic to express in a short space.


    - Alex

  • Report this Comment On June 25, 2012, at 6:00 PM, viabletx wrote:

    I agree with truth4u. Just expand Medicare. Simple!

  • Report this Comment On June 25, 2012, at 6:00 PM, dblatt17 wrote:

    Congress members pay a similar portion of their health insurance premiums as all other non-military federal employees do.

    The article talks about how the Affordable Health Care Act will decrease the number of health care jobs. That is false. Since nearly everyone will have health care insurance coverage, it should mean that health care facilities employing health care workers will be paid for more of their services...with fewer people deadbeats (those not paying). Even insurance companies will have 10's of millions more paying customers (remember the individual mandate), which means more revenue.

    Some employers may claim that they have to fire or not be able to hire employees because of increased costs, but since every employer (except for small ones) will be in the same boat, they can pass on their increased costs to their customers without fear of their competition not having the same extra costs.

  • Report this Comment On June 25, 2012, at 6:04 PM, kevcl747 wrote:

    Don't feel like looking up the exact figures ,but didn't the guy who just left his job running Medicare say that Medicare was losing 30 billion a year from waste and fraud ? All an insurance company does is pay the bills ! The for profit health insurance companies work on a single digit profit margin, some as low as 2 or 3 % . Pretty simple business really. Collect premiums, administer claims, pay bills and pocket the difference. 2 or 3 percent does not work for me, there fore will NEVER invest in that biz! one of the Big Six accounting firms , if there still are that many,did a study. Results as follows: At the time of the study the US bill for health care was $2.5 trillion a year ! 50% of the bill or about $1.25 trillion is due to smoking, obesity, medical mistakes, and defensive medicine. The ONLY way to get the cost of insurance down whether its for profit, non-profit or single payer government insurance is to reduce the bill ! The reason I do not like Obamacare is because it does nothing as far as I know to solve the core problem of reducing the cost of healthcare. Hospitals are now using checklists to dramatically reduce errors in the operating room which in turn should help to reduce the cost of mal practice insurance and defensive medicine as well. If you smoke , let the tobacco companies pay for your insurance and if you are obese get some exercise and quit putting junk food in your pie hole ! The FDA should seriously do something about the food supply in the US ! Start by declaring sugar a poison !

  • Report this Comment On June 25, 2012, at 6:05 PM, dblatt17 wrote:

    @jc09058 - Every Canadian, or European person I have talked to absolutely love the idea of single payer health care coverage. They all wonder why we haven't changed to that type of system. They go to the doctor and don't pay a dime. Yes their taxes are higher, but everyone is healthier because of it.

    The ACA is nothing like the European systems. They aren't required to purchase health care from a private company that profits from our premiums and profits more if we don't go to the doctor, or for denying procedures that would help us be healthier. No one is between the patient and their doctor trying to make a profit.

  • Report this Comment On June 25, 2012, at 6:08 PM, EBerg13 wrote:

    Insurance premiums are at an all-time high and getting higher. I cannot understand why businesses who want to employ American workers here are not screaming for some sort of national health insurance. After all, big business (and smaller ones) are footing most of the bill for well care while workers go bankrupt when they get really ill. We need reform, sadly it has only gone halfway. My daughter works for an insurance provider. They had a wonderful year and expect to have another whether or not the law is upheld.

  • Report this Comment On June 25, 2012, at 6:08 PM, dblatt17 wrote:

    I don't understand conservatives who want to allow insurance companies to sell insurance across state lines. The individual states regulate who can sell what insurance products in their state as well as who can practice medicine within their state. Doesn't allowing them to sell insurance across state lines go against the whole idea of states' rights?

    Maybe if they had allowed for that, the inter-state commerce clause would have been a sufficient argument to make the individual mandate acceptable to the court.

  • Report this Comment On June 25, 2012, at 6:26 PM, xetn wrote:

    It is completely foolish to believe a piece of legislation can fix a huge health care problem when it is largely due to government's intervention and regulations that is the primary cause of the problem in the first place, coupled with the actions of the Fed in inflating the currency to the point that since 2000, has caused price inflation across the board of over 33 percent and almost 600 percent since 1970 according to the CPI's own inflation calculator.

  • Report this Comment On June 25, 2012, at 6:40 PM, solomon wrote:

    Let me get this straight: A government single payer will reduce costs involved, making it more affordable for everyone. If that works, why don't we apply this to vehicles and drive down the cost of accident repairs by forcing everyone who owns a car to get car insurance from Uncle Sam? And we could drive down the cost of home repairs by having federal government sponsored homeowners insurance.

    Oh wait, here in Florida, we have a state sponsored home owners insurance. Those who are forced to have it, complain about the high costs and poor service. And of course, car insurance is required by some states, but only liability, not collision. And no one insures for regular oil changes or tire rotation that I know of.

    The difference (other than car and homeowner's insurnce are not driven by the federal government) is that health insurance has a certain emotional weight that car insurance doesn't. No one loses their home because their car is a lemon. However, people do lose their home because they have cancer, or some other dread disease. Often they are insured, but the insurance company does not pay for whatever reason. So the problem is to find a way to help those unfortunate few. Some how, enforcing a system upon many to help a few does not seem wise or cost efficient.


  • Report this Comment On June 25, 2012, at 6:51 PM, maccdw wrote:

    The US private health-care insurance market has had, since its start in the 1850s, every chance to develop a model for providing coverage (health care access) to all Americans. To date, that wonderful private market has failed to even come close. The market history includes prohibitions, UCR restrictions, daily benefit caps, cost-benefit risk models which play patient needs against potential liability costs.

    Suddenly, the GOP wants us all to trust that this same market will magically re-invent itself so that all citizens have access at a reasonable cost. Only fools (not Fools) believe that.

    Every published survey shows that, when asked about individual provisions of AHCA, a majority of Americans want nearly all of the AHCA provisions (no pre-existing penalties/prohibition, relaxing of the dependent age limits, etc.) yet, they hate ACHA itself, mostly due to the mandate. Guess what, folks? That’s the ONLY way this will ever work. At states’ level, car insurance is required for ALL car owners, not just those who have poor driving habits. If you could wait to buy car insurance until after you crashed your car, guess what would happen?

  • Report this Comment On June 25, 2012, at 7:01 PM, chrisheck wrote:


    One quick fix - make Congress pay for their own health coverage. You'd see some action then!

    Congress does pay a portion of their own health insurance, at about the same portion as the union workers do.


  • Report this Comment On June 25, 2012, at 7:21 PM, Emdruymd wrote:

    Health insurance and health care are two separate issues. Obamacare, with the blessings of the insurance industry and big pharma, expands the pool of those paying premiums and attempts to reduce the cost to the federal treasury. Obviously, with more dollars in the premium pool,the more the insurance companies stand to realize in potential profit. What is overlooked by most of the pundits who rale against the mandate are the provisions in the ACA that have the potential over the next ten years or so to bring down the per capita cost of medical care. While they don't use the term, many of the provisions described in the ACA amount to rationing in one form or another, meaning the consumer of health care will not be able to get all the care he wants when he wants it and expect someone else to pay for it. that is not necessarily a bad thing. Canadians, Germans, Australians, French etc. get good and necessary care when they need it, but not frivolous care because they want it unless they pay out of pocket.

    It is hard to understand those who criticize the healthcare systems of those countries when the percentage of GDP devoted to health care in those countries is significantly less tthan in the US, but health outcomes, by almost any metric you choose, are far better than ours.

    Whether or not the Supremes overturn the individual mandate, rationing is here to stay. You just won't here any politician use that term. Anyone schooled in health care economics understands this and realizes that it is the only way for this country to save itself from a populace who wants "everything done" until their last dying breath. As a medical professional with over 35 years of experience taking care of very sick people, I have come to understand and to compassionately explain to my patients, that there is no "everything".

  • Report this Comment On June 25, 2012, at 7:26 PM, mgallaway wrote:

    Personally I believe Alex Planes has been drinking his own bath water. The same results are seen in Texas when Horses eat locoweed. As mentioned in previous post; Government interference in Private Industry is always a disaster.


    Houston, Texas

  • Report this Comment On June 25, 2012, at 7:33 PM, TMFDarwood11 wrote:

    I agree about the health care bubble. It was created, as were most recent bubbles, by the federal government. It too will burst.

    In a country which runs on "instant gratification" and "just do it" mentality coupled with no personal responsibility, it would seem that this is another disaster in the making for the country.

    Medicare and Medicaid are powerful forces in American Health Care, but we can only print so much money.

    The construction industry bubble was created by the government and crashed when the support, which is "free money for homes" was withdrawn.

    I expect that the health care industry will crater when government money for that sector runs out.

    When seniors are squeezed with low COLA entitlement increases, there will come a day when they have to choose between food and medical care. I suspect their stomachs will win. Starvation is immediate. Comfort is perceived.

    However, as is usual in America, a lot of people with dance until that day comes. When it does, they'll join the "Occupy" movement and curse the system that convinced them to borrow all of that money on specialized degrees in the "health care" field. Or, as is Greece, they'll throw Molotov cocktails.

  • Report this Comment On June 25, 2012, at 7:37 PM, maccdw wrote:


    A point for you to consider when comparing medical coverage to car coverage--> You (someone) crash your car but can't afford to pay for uninsured repairs, but I don't have to pay for your uninsured services. You go to the ER for uninsured medical services, I have to pay for that thru higher premiums and higher provider costs to recover the service you can't afford.

  • Report this Comment On June 25, 2012, at 7:53 PM, sk8shrink wrote:

    The statement, "The five largest health insurers in the United States -- UnitedHealth (NYSE: UNH ) , WellPoint (NYSE: WLP ) , Aetna (NYSE: AET ) , Humana, and Cigna -- collectively employ 224,000 people and serve (assuming there's no overlap) 151 million. The Department of Health and Human Services serves 108 million Medicare and Medicaid recipients with 65,000 employees." is woefully misleading. For most Medicaid and Medicare Advantage plans, the health insurers listed above administrer the benefits, manage the care and in most cases, assume the risk. The private sector growth in healthcare in intertwined with the public sector.

  • Report this Comment On June 25, 2012, at 7:54 PM, chris293 wrote:

    just to think about auto insurance, do we make people who do not own a car pay auto insurance? and in the 1800s', people were responsible for themselves and knew it. Obama's plan is now filled with what do we call them, many layers of the burercrats that make government so inefficient.

    Insurance companies because they are for profit (however small) do force costs down because they in the majority of cases- honest, otherwise the claim makers wouod be blowing smoke up our - much like some of our more out spoken misguided leaders.

    Anyone who is smart enough to live a long time should be smart enough to know first aid, and be able to read basic medical books to save themselves the fear and worry or costs of getting unnesessary help in the emeregyroom. Young people might do that too, especially if they are not into booze or drugs.

  • Report this Comment On June 25, 2012, at 7:58 PM, Oldfashioned1 wrote:

    The author has made a case. Whether it's a good one or not is a matter of debate, as these comments show. I believe that may have made one major mistake in his commentary, however. He says, "The Department of Health and Human Services serves 108 million Medicare and Medicaid recipients with 65,000 employees. When the numbers show that government employees are nearly three times as efficient at managing an insurance program as private enterprise, it tends to undercut any claims to the free market's superiority."

    He contends that Uncle Sam is more efficient at running Medicare and Medicaid than private insurors. Unless he has data which proves otherwise, he fails to take into account that the overwhelming majority of Medicare activities is done by government contractors and not, as he apparently contends, by government staff. Similarly, the Medicaid program, while partially run by State governments (and with associated costs for those State employees), is also carried out, in the majority of States, by contractors.

    Unless he has somehow included all those costs in his computations, there is no reasonable way to posit that the government is more efficient than insurance firms and other government contractors who actually do the work.

    Additionally, making direct comparisons between the cost of administering a government program and private insurance is inherently flawed unless one takes into account the differences in the costs. For example, private insurors have major costs associated with the marketing of their products. Government has to determine eligibility for its programs and those costs are spread among many different agencies. In the case of Medicare, SSA is the major eligibility decision maker and I've never seen SSA costs included in Medicare adminstrative cost schedules. There are many other factors which go into making the cost for administration for both private firms and the government. It's not even close to being an apple to apple comparison unless one makes many significant adjustments before trying to draw conclusions.

    None of this obviates the need for a comprehensive overhaul of our health insurance system not does it cast aspersions on the author's basic premise: we have a big problem and it isn't going to go away without major changes.

  • Report this Comment On June 25, 2012, at 8:24 PM, XMFBiggles wrote:

    @ sk8shrink and Oldfashioned1 -

    That part may have been poorly worded. It is not what I consider an essential part of the article. The argument that there's too much waste and inefficiency is still valid without it, I believe.

    - Alex

  • Report this Comment On June 25, 2012, at 8:26 PM, showmethemonet wrote:

    Compare the growth of "healthcare jobs" vs the growth in doctors... you'll soon see the problem.

    Most of these people are middlemen who don't set one fracture or give one tetanus shot. It's pure waste that's growing.

  • Report this Comment On June 25, 2012, at 9:05 PM, jm7700229 wrote:

    This is probably the most uninformed article I've seen, either on Obamacare or from Motley Fool. Here's a single but great example: medicare serves 108 million people with 65,000 employees; the majors in the private sector serve 151 million with 224,000 employees. What's wrong with this? HHS does not write a single check, they do not adjudicate a single claim, the do not do any of the processing -- all of that is done by private sector contractors (mainly, the biggies you mention). And guess where most of the large scale health care fraud occurs? You're right; it's Medicare followed by Medicaid, primarily because HHS certifies providers, and does not permit anyone else to provide input until an indictment is handed down.

    There is NOTHING in Obamacare to limit the increase in cost, but lots to increase the cost. We now cover four more years of a kid's insurance with no additional premium -- oops, we all pay. Most of these people had paid coverage of one kind or another, so that's all money lost to the system. Pre-existing conditions? There's a reason the insurers don't want them -- they are massively expensive, besides which, providing coverage for something that's already happened isn't even insurance.

    I could go on and on, but perhaps you can name an actual cost saving in Obamacare. No, not one of the fluffy claims advocates are making; I mean a real reduction in payments.

    Wasted print.

  • Report this Comment On June 25, 2012, at 9:30 PM, Realexpectations wrote:

    either way, invest in healthcare

    these guys are the ones that wrote the law and probably the ones that are taking it to court.

    Congress is an employee of wallstreet and big corporations.

    Only reason it went to court is to probably take out the things they could do without

    Until they get the money fully out of politics

    The American worker is straight up


  • Report this Comment On June 25, 2012, at 10:50 PM, ctmaryland wrote:

    I would have to ask how much of of the overhead in health care is caused by goverment regulation and attorney costs/lawsuits. I am not ivolved in any of these industries/groups, so I am just asking.

  • Report this Comment On June 25, 2012, at 11:19 PM, Davesparkman wrote:

    If the people at motley fool are promoting obumer care, they need to say so. If this is a political move on motley fools part, I need a refund. I can spend my money better some where else.

  • Report this Comment On June 25, 2012, at 11:38 PM, eeechooo wrote:

    This is a private doctors web site.

    This is a man not happy with the high cost of care and gives examples of costs and how to save,. This is a man who says if he was sick he couldn't afford to go to himself for care.

    I was absolutely astonished that you can get some perscriptions cheaper if you DON'T use your insurance.

    So why do we pay for insurance?

  • Report this Comment On June 25, 2012, at 11:44 PM, whereaminow wrote:

    I don't know if there is a more emotionally charged discussion than Health Care Reform. It's replaced religion, abortion, and all the other phony Left/Right issues that have come before it.

    Just perusing these comments, it seems, anyone wishing to debate the merits or limitations of government mandated care will be overwhelmed by the partisanship and dogmatism of those who have chosen a "political" side.

    I'd love to discuss the real ways that costs of health care can be reduced. I'd like to talk about freedom in health care, actual real stories of physicians in America providing direct-to-patient for-profit care at lower prices and higher satisfaction. (Yes, right now, there are free market options in health care in America that are working under the government's nose.)

    But I can't have that discussion here. It's just a little too phony Left/Right paradigm for a non-voter such as myself.

    David in Liberty

  • Report this Comment On June 26, 2012, at 12:00 AM, oldguy1950 wrote:

    Two points:

    1. Yes there is a healthcare bubble and it is caused by overutilization of services as well as administrative overhead. Providers have been having a field day on unit pricing and overprescribing because, with fee for service, they get paid more to drive volume. Also, medicare advantage pays them more if their geographic area historically charged more. Go figure.

    2. Medicare employees are not more efficient. The numbers in this article ignore the fact that most of medicare is administered by private insurance companies who service the members through medicare advantage and other supplemental policies. They bear almost all of the administrative burden of processing claims, paying providers, taking calls from members, enrolling members in their plan, etc., etc. What is really surprising is that it takes so many government employees to do very little of this work since many providers won't even see patients who don't have an advantage or supplemental plan administered by a private insurer. You have to be downright foolish to think that government is more efficient at anything. If it appears that way from the statistics, then you need only to dig into the business model to find the error.

  • Report this Comment On June 26, 2012, at 12:09 AM, drjohn432 wrote:

    WE need to eliminate protectionism and monopolistic practices. Crony capitalism and National Socialism in the big Pharma and Insurance and drug distribution industry; buying legislation and price fixing is a big part of the ineficiencies you document. Outlaw all but catastrophic insurance policies, stop businessess from getting insurance tax deductions and give them to the consumer. Allow us to have a true free market for drugs and devices, allow doctors to charge as much, or as little, as they want, get rid of "certificates of need" and allow all the hospitals the market will bear. Cap malpractice. reduce the power of the FDA.

    Thes are just the tip of the ceberg. We can deliver efficent andworld class care, but we can't do it inexpensively in the current system. If you continue to shackle the physicians, you will start to see lots of administrators and lots of PQ's, but few "real" doctors. this will be the true disaster for most people.

  • Report this Comment On June 26, 2012, at 1:44 AM, johnadams620 wrote:

    Sir,your article is one of the finest I have ever read. It takes remarkable clarity of perception to render this intensly complex issue down to basics,and loose almost nothing in the filtering.I agree with your conclusion completely.We are damned weather we do or don't.Does our modest wisdom always have to be cloaked in greed?Is there no one capable of picking a less painfull path instead of the vortex of least resistence?Perhaps not.For me,I would choose quick.I have never been a fan of pull the bandage slowly.Your diligence is much appreciated.

  • Report this Comment On June 26, 2012, at 2:01 AM, sliderw wrote:

    Very informative.

  • Report this Comment On June 26, 2012, at 2:08 AM, Borealis55 wrote:

    I think you need a graph of the aging population in this story. It's not enough to merely mention it. This is going to drive health care spending and employment for a while, no matter what gets done to curb it. As you and others mention, there is a lot that should be done...but all it can do is ease the foot off the accelerator.

  • Report this Comment On June 26, 2012, at 2:49 AM, sailingcheryl wrote:

    I work in home care. On an initial evaluation in the home for home care after a hospital stay, I spend 30 minutes actually working with the patient and 2.5 hrs completing endless paperwork required by Medicare, and health insurance companies require what Medicare does. So Medicare can manage all their patients with 65,000 employees because all other health care workers are filling out all the required paperwork for them. We need to reign in insurance companies and pharmaceutical companies if we are going to really cut health care spending. Including the paperwork required by HIPPA and Medicare. That is why medical institutions need so much administration staff.

  • Report this Comment On June 26, 2012, at 3:22 AM, piinob wrote:

    I do not understand why the right leaning folks who preach personal responsibility all the time are so opposed to actually mandating personal responsibility for health care. We all pay for it in one way or another anyway. By ignoring the mandate, we just assure that we will pay in the most expensive way possible. Too many folks listening to lobbyists and power hungry preachers and not enough actual research and personal decision making.

    Mark twain said "No one ever lost money betting on the ignorance of the American people" I am inclined to agree with him.

  • Report this Comment On June 26, 2012, at 4:05 AM, stefaith wrote:

    I skimmed through all the comments, and didn't find one about malpractice insurance costs. It is well known that the cost of malpractice insurance and the huge unnecessary medical tests that are performed out of fear of malpractice law suits are a huge factor in US medical costs. Making it possible for individuals to opt out of the right to sue would reduce costs immediately.

  • Report this Comment On June 26, 2012, at 9:16 AM, Fokker99 wrote:

    Interesting article, but wrong in a number of areas: First, Obamacare does NOTHING to control cost; what it does do is provide access to millions of previously uncovered people. That in itself will increase costs substantially. Second, Obamacare will easily increase the costs of administration (which you correctly point out is the largest component of manpower cost) as it will become the administrator of an even larger pool of covered individuals. Problem is, name me one program the government has ever been able to operate efficiently? Obamacare will increase health care costs through bringing millions more people into the system, AND the associated increase in governmental administrative costs.

  • Report this Comment On June 26, 2012, at 9:35 AM, MKArch wrote:

    The problem with the cost of health care in this country is simple, no one has a stake in how much care costs. Patients want belts and suspenders because they don't pay for it. Doctors actually have huge incentives to provide belts and suspenders because it means higher fees and they'll get sued if they don't. The insurance companies should have an incentive to keep costs down but Congress regulated it away when it was working well in the 1990's with the proliferation of HMO's. All it took was a 60 Minutes hit job on someones granny who fell through the cracks to derail something that was actually working.

    Here's my super simple market based way of solving the health care problem in this country. You convert the insurance into hybrid insurance/ loans where for a low premium insureds get essentially a disaster policy that limits their expenses if they are unlucky enough to get hit with a high cost issue. Up to the disaster limit the insurance company foots the bill for medical care but the insureds pay these costs back at negotiated time periods and interest rates. You can work in some subsidies for the poor but they pay enough that they care how much their doctors visits cost. Of course this makes way too much sense and is too simple to ever have a chance.

  • Report this Comment On June 26, 2012, at 9:39 AM, MKArch wrote:

    BTW you can also solve the mandate problem with my system by forcing anyone who receives care but can't pay for it into this system at worse terms than if they volunteered to join.

  • Report this Comment On June 26, 2012, at 10:09 AM, Truth2Power wrote:

    I appreciated this comprehensive look at the sector and was glad to see that it wasn't "slanted" left or right. I had no idea the healthcare industry hired so many people (directly), and it seems we do indeed face a Hobson's choice when examining costs.

    I'd like to see a system something like Germany's, which brings private, for-profit insurance companies and government-sponsored public insurance together into a comprehensive system, but obviously any solution to this looming catastrophe will need to be uniquely American. We can look to other countries for models (both of what to do and what not to do), but it's foolish to think we can (or will) simply copy another country's (government-sponsored or not) program.


  • Report this Comment On June 26, 2012, at 10:45 AM, vebb wrote:

    Ways to make $$. In this industry I see the American people unable to take personal responsibility for their own good health. We run to the Dr for a pill to fix everything, even when a simple therapy(perhaps exercise, restraint or meditation ) will fix the problem. We take years to get sick but want it fixed with a pill! * Let premiums reflect the general health of the individual, them people will take care of themselves. Then there is the ever sacred cow of medical litigation that adds untold $$ to all of our premiums. I say remove all state restrictions on policies and cap litigation, only then will real costs go down.

  • Report this Comment On June 26, 2012, at 10:46 AM, vebb wrote:

    For above : So, I am saying since I dod not see these 2 things changing anytime soon bet on healthcare to continue growing.

  • Report this Comment On June 26, 2012, at 12:40 PM, deckdawg wrote:

    Can you cite any examples illustrating massively increased government intervention in any industry resulting in a corresponding reduction in the "huge mass of redundant paper-pushers"?

  • Report this Comment On June 26, 2012, at 1:04 PM, normanl3 wrote:

    Obamacare requires that Health Ins. Cos. spend 80% of premium on actual care. This would not lead to a reduction of service jobs. It would reduce lobbying and ridiculous executive salaries.

  • Report this Comment On June 26, 2012, at 1:08 PM, wrenchbender57 wrote:

    @lee1948, Yep, that's about what it costs now for a family of four. Of course that real cost is hidden from most folks because their employer is paying part of it. But, if you look at health insurance costs right now for a family of 4 the amount you stated is very close to what it really costs for that insurance. Not sure how that makes "Obamacare" bad, or good for that matter. Just the way it is. The problem seems to be more that folks don't really realize what the cost for their family health insurance is, not who is paying for it.

  • Report this Comment On June 26, 2012, at 1:11 PM, wrenchbender57 wrote:

    I suspect the cost for some kind of "socialized" medicine would be far less expensive than what we are doing now or "Obamacare". But, the dems had to include the insurance companies or the republicans would not have gone along enough to get the health care bill passed. So, who's fault is it that we are now looking at an insurance based system rather than a government run system? It seems to me that the republicans are at least as much to blame as the democrats are.

  • Report this Comment On June 26, 2012, at 1:38 PM, stationmaster12 wrote:

    Regarding the notes on the tech sector performing below average -- it is worth noting that there are many jobs availalbe in the tech sector that go unfulfilled due to the lack of qualified candidates. I know of two major companies that have a significant number of unfilled tech positions for this reason. This reflects poorly on the American educational system, and keeps this sector from realizing its growth potential.

  • Report this Comment On June 26, 2012, at 1:56 PM, tbonci wrote:

    "If we look far enough using the same straight-line projection, health care could one day be a larger sector, employment-wise, than the government."

    I really like seeing visuals when discussing complex topics, but statements like this dismiss the complexity and are at times cringe-worthy.

    The following statement is just as true:

    "If we look far enough using the same straight-line projection, every person in the country will soon hold two separate jobs in Health Care."

    Please re-consider stating projections based on straight-line percentage growth as heavily qualified.

  • Report this Comment On June 26, 2012, at 3:55 PM, thfp wrote:

    This is a very simple article on a very complex issue, that from an investment web site should have never been published. It is not about investing. It is one opinion and graph with a left leaning slant. I can find studies to tell me anything I want to believe. There are many varied and sometimes emotional responses. In the middle responses, Kahunacfa throws out and advertisement. davesparsman has a point.

  • Report this Comment On June 26, 2012, at 6:58 PM, jesterboomer wrote:

    Health insurance reform is projected to increase total health care spending because it will bring many more people into the insured pool - and they will use more health care.

    So, if it stands, it will create a boom not a bust.

  • Report this Comment On June 26, 2012, at 8:36 PM, eldetorre wrote:

    Mandate healthcare savings accounts that do not need to be used up annually in lieu of requiring insurance coverage. Employers should be given the option to pay towards employees healthcare savings accounts instead of providing insurance or paying fines to the government.

    Eliminate AMAs ability to limit number of Doctors

    Single universal healthcare claims forms processing system regardless of underwriter.

    Separate catastrophic care from healthcare.

    Transparency in pricing for all medical services.

  • Report this Comment On June 27, 2012, at 12:13 PM, jdiazmunoz wrote:

    As with all bubbles, the health care bubble will eventually burst, with the consequential loss of jobs, in an amount similar to that resulting from a rationalization of the system. Therefore, the loss of jobs is inevitable (it is a matter of when, not if). However, if the system is rationalized, the job losses can be stretched over some time so that in the end the pain should be less.

    On the other hand, if health care costs go down in real terms, there will be more money in the consumers pockets, more spending, more economic stimulus and growth, and more jobs, so the pain associated with loss of HC jobs is debatable, because the balance of jobs lost and gained (albeit may be in different economic segments) could be negligible.

  • Report this Comment On June 27, 2012, at 2:25 PM, jvgfool wrote:

    Would lower healthcare cost allow other businesses and industries to hire more people? Would single payer universal healthcare be better for businesses? This will take them out of the healthcare circle and allow them to concentrate on their businesses.

  • Report this Comment On June 27, 2012, at 4:02 PM, TMFDarwood11 wrote:

    Health care is the new OPEC. Ya wanna live? The pay, or let someone else, via your insurance, pay!

    It's like those cancer clinic ads on TV. They show a woman who is declaring "I'm not a statistic" or a couple "I was given up for dead," Then the ad goes on with wonderful views of high tech, facilities in major cities, and all the while in fine print, this scrolls at the bottom of the screen "results are not typical, you should not expect these results."

    So, what results ARE typical and what should I expect?

    I say, expect the cash register at the clinic or hospital to go "cha ching" and children to starve while the medical establishment rakes it in.

    Will Obamacare solve this? I don't think so. Why? Because children can't vote, But the elderly can.

    This is not rocket science.

  • Report this Comment On June 29, 2012, at 5:11 PM, nin4086 wrote:

    Agree with toddsw. Due to the indirection in the way insurance works today, the consumer has no interest in negotiating costs. In economics, this is called an externality and it is the Achilles heel of free markets. Several people suggested that government should take over the insurer role. Even if it is a good idea in the short run(govt being more efficient at point in time), it will turn out to be suboptimal over the long term because politicians can't be trusted to that extent. The only role the government should play here is to remove the multiple levels of indirection and hence the externality. When the consumer has an incentive to negotiate costs, free market competition will be functional again and costs will go down.

  • Report this Comment On June 30, 2012, at 3:44 PM, Obeldobel2001 wrote:

    As the old saying goes......"There are lies, damned lies and statistics". You may want to rethink how you caluclate the "efficiency" of government administration. You note that the 65,000 government employees for Medicare and Medicaid are more efficient then the 224,000 employees of the Health Insurance Industry under the false assumption that headcount to service is a comparable statistic. However, you must realize that the private Healthcare Industry actually administers ALL Medicare and Medicaid patients' health related services and that the 65,000 headcount in Government are only additive administration to provide the necessary government reporting. They do not provide any of the health-related administration. As such, the 65,000 additional employees are only government additive costs with no real Industry benefit. That does not seem very efficient to me.

  • Report this Comment On June 30, 2012, at 10:40 PM, fool1492 wrote:

    One thing that has driven the health-related administration costs up is the fear of patient lawsuits by hospitals and doctors. Too many unnecessary tests or 2nd opinions to cover their backside leads to extra paperwork and insurance companies and the government trying to curb the excess. The country needs tort/legal reform to reduce the number of frivolous medical lawsuits.

  • Report this Comment On July 02, 2012, at 1:45 AM, ChrisBern wrote:

    Is this a serious article or a satire? I'm honestly not sure. If you want efficiency in healthcare, then take away Medicare, Medicaid, and employer tax breaks for bundling health insurance with employment. e.g. everyone goes and shops for their own medical plan, and nobody is subsidized.

    As it were, if you want to know why medical costs keep soaring, look no further than SUBSIDIES. This article even states that 108M people get their healthcare from the government. Add in the employer tax subsidy, and probably half of American healthcare is SUBSIDIZED.

  • Report this Comment On July 02, 2012, at 2:48 PM, ladybug57 wrote:

    If medicare and medicaid had never existed, our healthcare would not be as expensive. Private enterprise would have made supply and demand the controller. Insurance once covered catastrophic illnesses, but routine doctor's visits were the responsibility of each citizens. I say citizens because we are idiots for covering medical costs for illegals; can't do it in other countries. Life if not fair and the U.S. needs to stop trying to save the world.

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