As we are all aware, President Barack Obama signed the Patient Protection and Affordable Care Act on March 23 (P.L.111-148). It is far-reaching, and will influence many parts of our lives for many years. The concern of this report, however, is what it will do to you today. When examined from the perspective of a single individual, its biggest immediate effect will be the requirement that every U.S. citizen and legal resident have qualifying health care insurance coverage. The new law indicates that those without coverage will have to pay a penalty. This penalty will start to take effect in 2014, and be phased in over a two-year interval. By 2016, the penalty will be the greater of $695 per year per person, up to a maximum of three times that amount ($2,085) per year per family, or 2.5 percent of a family’s household income. That is, those with an income of $27,800 per year or more will be fined an amount equal to 2.5 percent of what they report as income to the Internal Revenue Service. In addition, starting in 2016 this penalty will be increased annually by a cost-of-living adjustment.

Interestingly, exemptions will be granted for some very specific cases. The most common ones are financial hardship, religious objections, and those without coverage for less than three months. The exact level of financial hardship is spelled out in the law quite succinctly; the only people who qualify are those with incomes below the tax filing threshold (in 2009, the threshold for taxpayers under age 65 was $9,350 for singles and $18,700 for couples).

The other side of the situation is that if you have employer-sponsored health care insurance, or pay for your own insurance, you can keep your current policy. However, the new law requires a higher minimal standard of benefits for all participants. As a result, it is expected that by 2016 all policies will cost 10 to 13 percent more than the expected future cost of a current policy extended to that year. Countering that expense will be a potential tax credit by which a family of four that has an income of less than $88,000 will receive tax credits to help pay insurance premiums and deductibles. At the same time, people at the other end of the economic spectrum will be given a new burden. Those families that report an income of more than $250,000 per year will have to pay more in the form of a Medicare payroll tax; their unearned income will be subject to an additional 3.8-percent tax.

As you know, in the past some of my colleagues advised individuals and small businesses to purchase health savings accounts (HSAs). The new law will have an immediate effect on people that took that advice. It will exclude a currently accepted practice, in which the costs of over-the-counter drugs not prescribed by a doctor were reimbursed on a tax-free basis. The law will increase the penalties for inappropriate distributions from HSAs, also; that is, for withdrawals that are not used for qualified medical expenses. But, to the best of my knowledge, none of my friends were using their HSAs for unqualified expenses.

So, what does this mean to the people of Missouri today? At this specific point in time, very little seems to be happening that has a direct immediate impact on most readers of this blog. The fines and penalties that might become associated with an independent attitude won’t kick in for another few years. But a lot more will happen in other aspects of the health care arena by that time. They say that the true art and science of economics involves an understanding of the changes that occur at the margin, and we need to look at all the little bitty changes, one at a time, to see how they fit. So far, and from this single perspective, these marginal changes are quite minimal. But this is just the beginning. Going through the health care bill section by section during the next few weeks will give us a better idea of what it is really all about.

Americans are proud of their independence and their rights as individuals to express their unique perspectives. No one is about to tell you what to do, and many people would be willing to fight to keep that privilege. That’s good, but our concern in recent weeks has been how that extends to health care. As it is now, everyone goes about getting health insurance on their own, if that is what they desire. Most of the people who have employer-supplied insurance usually accept that. All the people who are older than age 65 have the federal government–sponsored Medicare program accessible to them. Americans who are truly indigent are eligible for the various state-managed Medicaid programs. Individuals with jobs that don’t offer employer sponsored health care insurance can buy it on their own, if they wish. The problem is that this arrangement is partly responsible for the continuing increases in health care costs.

During the past few years, there has been a gradual downturn in our economy. There are fewer jobs, and many of those that exist are offering reduced benefits. In keeping with our independent American spirit, some people are opting out of the personal choice of buying health care insurance. In Missouri, the number of people without health care insurance has continued to grow. Back in 2004, there were 463,000 Missouri citizens without any form of health care insurance. By the beginning of 2007, the number of Missourians without health care insurance had increased to 744,030 people. It is expected that the numbers are higher now, but more recent verifiable data is not accessible.

This year, the St. Louis Area Business Health Coalition examined how changes in our economy have affected some aspects of hospital costs in this region. What they discovered should give us all a reason to rethink the current health care debate. Their report looked at the same years mentioned above.

The first item of theirs that caught my attention was an evolving change in language use. The generic term for hospitals’ economic problems is “uncompensated care.” Historically, hospitals have listed some nonpayment for services as bad debts, and those items would be transferred to financial services companies. At the same time, those health care service activities that were charity care were thought to be situations in which the hospitals had no expectation of payment. During the past decade, though, the differences between charity care and bad debts were in a state of flux because of variations in the Internal Revenue Service’s reporting guidelines. However, if one only restricts these expenditure types to the generic term “uncompensated care,” there has been a great increase during this time interval.

Here is a look at the exact numbers: It appears that in 2004, the Missouri hospitals included in the Business Health Coalition report spent $60 million on charity care, and, in addition, bad debt cost them another $140 million, for a total of $200 million. By the end of 2005, those same Missouri hospitals spent $73 million in charity care, and bad debt cost them an additional $165 million, for a total of $238 million.

It is important to add here that these figures represent only the hospital care costs. None of these numbers relate to any of the uncompensated care that physicians contribute every day, and none of this relates to uncompensated care supplied by nurses, technical personnel, clinics, surgical centers, medical laboratories, etc. That is, this data is just in regard to the “big box” hospitals.

The arithmetic is very simple, though. There were about 5.8 million people living in Missouri in the years of the Business Health Coalition report. So, $238 million dollars divided by 5.8 million people is $41 per person. That is, during 2005, each and every man, woman, and child in Missouri had to contribute at least $41 toward the hospital uncompensated care bill. (Some might say, “Your tax money at work.”)

This average $41-per-person cost may not seem like much, until you realize that there was a 19-percent increase between 2004 and 2005, and things have continued to rise since that time. Would you be better off if this problem were reduced? Something like that could happen if everyone had their own independent insurance policies. It appears that some countries have done that already and are doing well. Do you think we should try it here?

Competition and choice are characteristics of a free and open marketplace. Some have suggested that a more open market for health care insurance could resolve a few issues in the present health care debate. That would help, because increased competition among health care insurance suppliers might reduce costs. This came to mind during the recent California health insurance shock. If you hadn’t noticed, many people were surprised when a leading California health care insurer proposed a 39-percent rise in the price of premiums for those individuals who buy their own insurance. It was noted that this price increase came at a time when the largest health care insurers had an average profit increase of 56 percent, even though the economy was down. As those insurers indicated, the profit had resulted from the prior year’s activities, while the proposal to raise premiums was related to an expected change in future costs.

Rather than paying this high premium, some purchasers may want to shop for something less expensive. Those insurance policy purchasers might want another company — perhaps one that reinvested some of its profits in a way that kept its premium prices lower. While trying to visualize how this might play out in Missouri, the question arose: Would people who find coverage unaffordable in this state buy less costly policies from another state, if available? Then, if some lower-priced policies were available, would some of the currently uninsured take advantage of that situation? If that were so, would that resolve some of the problems in our health care dilemma? Are we seeing a situation develop in which marketplace competition might benefit our community? To learn more about this, I thought it reasonable to see how this would express itself in Missouri.

My first concern was whether there were any significant barriers to such competition. This was examined by the O’Neill Institute at Georgetown University recently. As many know, states have a primary role in regulating their own health insurance industry. The federal McCarran-Ferguson Act spells out “the respective roles of the federal and state governments in regulating health insurance.” However, the O’Neill Institute’s answer, in rather general terms, is that this barrier can be bypassed. Although the existing act separates federal and state roles in regulating health insurance, the people at the O’Neill Institute believe that legislation could be designed around the business end of insurance, specifically relating this to interstate commerce. But the key point is that yes, it can be done.

Given that it can be done, is that what we want to do? What will happen if many people from Missouri buy less-expensive health insurance policies from a company headquartered across state lines called, say, Out-of-Missouri Co. (OOM)? One can imagine that if everyone purchasing OOM insurance stays healthy, more people would be insured but at a lower immediate cost. At first, that appears good. But what if my neighbor with hypertension and diabetes buys an OOM policy, too? If that happened, the managers at OOM would need to raise the premiums for everybody; that is because OOM Co. would be insuring more sick people. That could cause two results: 1) the people in OOM’s home state would have to pay a higher premium price, and 2) so would we. If the resulting price remains lower than any comparable Missouri price, we are better off; but we may have harmed our out-of-state neighbors by causing their prices to increase.

Perhaps we need to look at why the OOM policy was lower than the Missouri policy in the first place. There could be several reasons for this. Those that are most common are the following.

1. The people in the state where OOM is registered might be healthier than the people of Missouri. That could be true, but if OOM Co. were swamped with sick Missourians purchasing their policies, its costs would increase.
2. The insurance regulations in the state where OOM is registered might be different, and the insurance coverage being offered might not be the same as what is needed in Missouri. The regulations in the state where an insurance company is registered are ostensibly intended by that state to protect the residents from their most common problems. The distribution of disorders in Missouri may not be the same as in that other state, so the insurance may not satisfy Missouri’s regulatory requirements.
3. Health care costs vary geographically. As a result, insurance purchased in a state with less-expensive health care costs might not be sufficient in another state. As a result, the purchaser of OOM may have a greater out-of-pocket expense.

So, what would happen if we were to go ahead with this? It is expected that the first people that might take advantage of this are those who are currently uninsured. Those uninsured that are young and healthy would be rapidly accepted by the OOM insurer. Those that are less healthy might not be accepted by an OOM insurer, because of their preexisting disorders. A great many sick Missourians might be unable to buy this less expensive OOM insurance. That means that you and I could end up having to contribute to their care, and the result may be an additional expense to be borne by everyone in the state. But, in reality, this expense is not something new; we are already paying it now.

Interestingly, the Congressional Budget Office looked at this issue about five years ago. They found that if the benefits available from states with the lowest costs were in effect nationally, the price of individual health insurance policies for those able to purchase them might be reduced by an average of about 5 percent. So, it seems that Missouri’s young healthy uninsured would be able to purchase OOM health insurance, and each purchaser might save about 5 percent. But an unintended consequence could be an increase in health care costs for everyone else.

Well, that is one choice. As the health care debate continues, we will have to look at some of the others before deciding which option we want.

Last year, the American Journal of Medicine included a disturbing story about bankruptcy in America. In that study of five states (California, Illinois, Pennsylvania, Tennessee, and Texas), it was found that medical expenses had become a causal factor in almost 50 percent of all personal bankruptcies. That investigation revealed that these financial catastrophes had been occurring for some years, but the proportion related to health care appeared to have grown over the same period of time as many of our other health care concerns. In fact, a logistic regression analysis of the data revealed that the odds "that bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 2001." That report became more disconcerting when it described the average person impoverished by medical debt. The typical individual was a 41-year-old with a job and some college education, who was working to support a family with young children. In addition, that research indicated that the strongest predictor of a working person developing a catastrophic combination of severe illness and bankruptcy was the loss of health insurance during the preceding two years. As we all know, situations like that are not uncommon in the current economic climate, because many existing jobs have had their benefits reduced.

Well, that’s sad, but my interest was in whether that had any special meaning for the people of Missouri. When I examined the issue, I found that it is difficult to perform a similar data analysis within this state. Nevertheless, for those interested in this subject, there are other links that can be used to learn about the local situation. At the Federal Reserve Bank of St. Louis, people have been concerned about local bankruptcy problems for many years. Interestingly, as far back as in 1998, research performed at the Federal Reserve Bank of St. Louis found that the medical expenses of the health care uninsured were a leading cause of bankruptcy in this region. More recently, such bankruptcy problems were re-examined and a relationship to medical expenses was found to continue to exist. Then, another study discovered an additional relevant factor: The average national personal bankruptcy filing rate in the United States in 2004 was 380 out of every 100,000 people. If one examines each individual state, Missouri wins again. In Missouri, in the year 2004, there were 700 personal bankruptcies for every 100,000 people. That was found to be the highest rate of personal bankruptcy in the United States that year.

So, what does this mean to you? Some may recall my October 2009 post. There, I showed that Missouri spends a larger portion of the state GDP per person for health care than most other states. Compared to the U.S. average, that is about $500 more per person in this state. At the same time, average life expectancy in Missouri is two years less than the U.S. average. That means we are spending more and getting less. Now, the personal bankruptcy data implies that some of those who are surviving this health care dilemma are being driven into poverty. As the original report showed, these are hardworking, educated people trying to support their families.

Previous reports from the Show-Me Institute revealed that certain types of insurance programs, like Health Savings Accounts, can be used to prevent such health care–related financial catastrophes. Because this has become a greater problem now than it was when those reports were written, one would expect the insurance market to respond to this need. Some of the brightest people work in the insurance industry, and they need to create a product that addresses this issue. An additional problem is that most of the people that need this type of insurance are not aware of their danger, so some public education is needed. Now that there is a bit of a breather in the rush to health care reform, perhaps there is time to look at this situation, and the other free-market ways that can be developed to help the people of Missouri.

The recent Massachusetts election confirmed the fact that the health care debate is far from over. The people in the one state where every citizen nominally has health care insurance have extended their influence to the health care of the nation. Those voters may not have been addressing that issue alone, but their actions will have some effect on us all. Interestingly, depending on one’s political perspective, anxiety had been expressed about every plan being brought forward, not the least of which was the concern about the potential effect of these proposals on constitutional liberties. That may no longer be a problem. Nevertheless, even if another alternative is developed, the evolution of the discussion has helped us all.

In our open free society, there is a benefit associated with the debate itself.  Some see an increased awareness of these health concerns as a potential stimulus for continued economic growth. As we know, the United States is in the midst of a profound demographic change. There has been an aging of the population characterized by an increased proportion of persons aged 65 and older. The Congressional Research Service’s demographic charts reveal a great upsurge in the number of older people in this country. By keeping that population healthy, we should all benefit from this preserved human capital. By improving the health and well-being of the generations to follow, additional benefits accrue. As others have indicated, “the accumulation of human capital—in the form of increased knowledge and skills and improved health and longevity” will continue to play an essential role in the economic growth of this country. My contention is that making people aware of these issues has offered some benefit to our society, regardless of the outcome of the debate.

If the investments in American health care that already exist work as expected, there should be a measurable improvement in the long-term functional status of many citizens, both young and old. Not only will the Medicare generation continue to receive benefits, but people that are newly aware of these issues will have a better chance of a healthy life extending into their old age. With many people continuing to be healthy, a small part of the future demand for health care may become reduced over time.

But there is another activity occurring, one discussed less often. In many cases, as people grow older, they continue to work and contribute to the GDP. This had been noted in the past, but few paid attention to it. However, even before people were aware of the developing “sea change” in American health care demographics, there was an increase in the proportion of the workforce older than age 65. Most of those workers are people who are not obligated to work because of reduced economic circumstances. Instead, these individuals have chosen to continue on their jobs, and contribute to society in other ways, because it gives more meaning to their lives.

Going forward, one expects still another “sea change” to develop as a result of the health care debate, but this would be in the doctor-patient relationship arena. What had been a paternalistic situation, with the physician in the role of an all-knowing father, is in the process of shifting. When most patients are older (and more experienced) than their primary care providers, physicians will need to explain their activities in greater detail. The Internet has created a standard of health care knowledge that is free and open to the public. As a result, at every patient interaction, physicians will have to show that their expertise is greater than what one can look up online. Otherwise, why would a patient want to participate? That is, the doctor encounter has to continue to be a “value added” experience that the patient can measure.

At present, from an economic perspective, the prices of health care are not informative, and consumers cannot use dollar-related data to compare physicians and/or hospitals. The existing problem of health care information asymmetry has kept patients at a disadvantage.  Reforming that situation may be an added benefit developing from within the current discussions. This seems to be included, to some degree, in every version of the health care bills. No matter on which side of the aisle one sits, everyone appears in favor of improving knowledge.

Many people would like the relationships in health care to follow a straightforward economic pattern. They imagine that the doctor-patient relationship should look like an Intro to Economics price to quantity graph, with physicians as suppliers and patients as demanders. If that were the case, simply adding more doctors could shift the supply curve and create a new equilibrium. They think that would produce a lower price for health care and resolve many of America’s health care concerns. The real world, however, is not quite like that.

The first, and most obvious, problem is that the physician supply has not kept up. That is one of the many reasons why the United States is being inundated with foreign-trained physicians. As another post showed, the number of U.S. physicians is inadequate for our country’s needs now. The most reliable resources indicate that there may be a shortfall of 150,000 by the year 2025. If the economics of health care followed the simple model described above, then the supply curve would shift in the undesired direction. In that case the price of health care would become even greater than the dollar figures mentioned in the current political debate.

But there is more. The demand for health care has increased much more than expected. A look at the Congressional Research Service’s demographic charts shows that there are many more older people in this country. The United States is in the midst of a profound demographic change, and has had an overall aging of its population; this has been characterized by the increased proportion of persons aged 65 and older in our population. In general, as people get older, they use more health care. The result may be a shift of both the supply and demand curves. Using that old economics diagram, the resulting equilibrium will be higher and much more costly.

However, some argue that physicians are more than just the suppliers of health care. Those people feel that physicians may be a part of the problem themselves and some physicians may stimulate overuse of the heath care system. In the recent past, President Barack Obama spoke to the American Medical Association about this issue, and implied that physician behavior may be one of the factors driving up costs. He suggested that some doctors create a demand for services, and their intervention has contributed to the problems of the health care market. The difficulty with that argument is in separating issues that relate to demand from the physician role as the gatekeeper to health care system. Physicians are often the means that patients use to initiate access the health care system. However, the health care demand exists in and of itself; it is an independent factor. All that physicians do is show they care for patients by responding to the existing demand.

If physicians are not the cause of the problem, is physician supply a factor of concern? It is important to be aware that some believe an increase in physician supply does not translate into better care. In fact, as counter-intuitive as it may seem, some recent reports indicate that patients’ satisfaction with care, and patients’ perceptions of access, are no better in high physician supply regions than in low physician supply regions. With that understanding, many argue that more physicians may not result in better care for patients. People who follow that argument believe that what we need is improved efficiency, not more doctors, to produce a more cost-effective result. (See: Skinner et al, “The Elusive Connection Between Health Care Spending and Quality.” Health Affairs 28, w119–w123, 2009.)

Could it be that what we need is both more doctors and more efficiency? In some countries with different health care systems, demographic predictions of this variety have resulted in significant changes in hospital design and physician education. The demographic details for our country present a pretty strong argument showing that there will not be enough physicians for your care when you get older. At the same time, every one could use more efficiency. How will the combined House and Senate bills respond to these issues?

Somehow, amidst the politically charged health care discussions, it seems that some have overlooked one practical thing: If the health care insurance rolls increase, as some expect, will there be enough doctors in the future? The number of graduates from U.S. medical schools has been constant at about 16,000 per year in the recent past. But our country grew by 50 million people from 1980 to 2000, and the number of new doctors has fallen as a percentage of the population. Just a year ago, the American Association of Medical Colleges (AAMC) estimated that if there are no changes in the American demographic distribution, there will be a shortfall of more than 150,000 physicians by the year 2025. The number of new students enrolled in medical schools reached a new record of 18,036 this year (up only 1.6 percent from last year). But there will not be enough. In fact, the AAMC indicates that an increase in enrollment by more than 30 percent will not make up for the growing demand. If that is an expected demand, shouldn’t there be some indication of a supply-side response?

If one thinks about the AAMC report, it seems that there may be an even greater problem than the organization has estimated. That is because few medical students are choosing primary care specialties. The growth of the aging baby boomer population means there will be an even greater shortfall. In some states, people are concerned about these issues, but there seems to be little discussion in Missouri.

In Wisconsin, it was found that they were short 374 primary care physicians this year, and by 2030, there will be a 14-percent shortfall. In Massachusetts, the state’s health care experiment resulted in 440,000 new people with health care insurance, and their problems are going to be even greater given that about 52 percent of their medical residents in training are planning to move out of state after graduation. In Connecticut, just like in many other states, there is an aging physician population among those involved in “family practice,” and doctors are finding it difficult to recruit young physicians.

Both the House and Senate bills proposed to reform the nation’s health care system speak about the need to increase the numbers of primary health care practitioners. However, if one performs a comparison, a resolution to this issue does not appear to be addressed in a direct manner in either version. The bills under discussion now seem aimed at increasing incentives to providers, but not increasing provider numbers. It takes years to train competent physicians. If these bills (or some combination of them) pass into law, and if provider incentives attract more Americans to want to become physicians, this country will still continue to have an inadequate physician supply for many years. This lag period will harm us all.

In the past some have thought that physicians induce a service demand. How that figures into our current problem was discussed elsewhere recently. But physician-induced demand does not matter when there are not enough physicians. If things continue as they are now, someday you will be old and sick and unable to find a competent physician.

A recurring concern within our national health care debate has been about insurance, and how to make it work for our friends that don’t want, or cannot afford, to participate. This led some of us to examine how that problem is solved elsewhere. One approach is seen in Switzerland. As many are aware, Switzerland is a country with a history of high-quality health care. It has 7.2 million people living in 26 cantons (states). The 1994 Swiss health insurance law requires everyone staying in that country for 90 days or more to purchase a basic health insurance policy.

Before 1994, health care insurance was not compulsory in Switzerland and premiums were risk-related. That older system was similar to what we have now in the United States. At that time, most people with jobs had some form of private health care insurance supplied by an employer. Members of the military and full-time government employees had health care insurance through a government-owned company. People outside of those categories were able to purchase insurance, and the rates varied over a wide range. A publicly discussed concern at that time was the fact that certain individuals, classed as high-risk because of chronic disease and age, found health insurance unaffordable. In response to the public outcry about that, the Swiss Federal Health Insurance Act was designed to help all the people without insurance and to promote competition between health insurers.

Now there are 91 Swiss health insurance companies that offer these compulsory policies through their “not-for-profit” divisions. Market forces are such that some companies have chosen to limit the cantons where they sell insurance. In each canton, as a result, there are about 50 companies competing in the health care insurance marketplace. The compulsory policy premiums are community-based, so everyone living within the same mail code is charged an identical fee, without regard to any previous medical problems. The competing insurers differentiate themselves and make their profits by selling extra benefits through complementary policies managed by the for-profit divisions of those companies. The extra benefits available through those insurers include things like dental care programs, hotel-quality single bed hospital rooms, “in-your-home” child care when a parent is ill, spa/gym memberships, etc.

The Swiss health plan purchasing process is designed to make consumers aware of their personal ownership of the insurance policies. A nationwide website guides people to the most appropriate plan to match their personal needs. Each policy must be bought by an individual, even though the government may reimburse a purchaser for part of the cost. The policy belongs to the purchaser, and goes with the purchaser when moving to a new job, because it is not a job benefit.

People that are indigent have health care insurance, too. In each canton, a “means test” determines how much the canton will reimburse an indigent resident, but that person gets to pick their own preferred private insurer just like everyone else. Then, the cantonal government issues a voucher that the recipient transfers to the insurance company. In 2001, the cantonal governments paid about 19 percent of the health care policy premiums.

Regulations there require a given insurer to charge the same fee to each purchaser for the basic policy, without regard to any preexisting health conditions. This results in a universalized program that provides for the treatment of illnesses, accidents, and pregnancies, and which includes the costs of all medical treatments, hospitalizations, and medications. However, at every interaction with the health care system, an individual must contribute something out-of-pocket. This is intended to make the purchaser acutely aware of the medical costs. These payments are not just nominal amounts of money, as seen in health insurance co-pays in this country; it is the full price of the interaction. In a typical Swiss policy, an individual pays a deductible, and the initial cost of all treatment and medications are paid out-of-pocket. Then, after the event, the patient is reimbursed by the insurer for almost 90 percent of the amount paid. However, to avoid any sudden economic calamities, the compulsory policies have a pre-set maximum out-of-pocket level, and all expenses beyond that are paid directly by the insurer.

The Swiss compulsory universal health insurance program was developed through a series of referendum elections in each canton. Significant improvement in health care access has been reported, because the system is intended to allow everyone to see a physician whenever necessary. Perhaps as a result, about five years ago Swiss life expectancy at birth was 79 years for men and 84 years for women. In comparison, U.S. life expectancy is just this year beginning to approach 78, and in Missouri, during the most recent year with accurate data, it was only 76.4.

Such care is not inexpensive, but it costs less than what we pay here. Implementation of the Swiss plan resulted in spending on health care representing only 11.5 percent of that country’s GDP, at a time when the health care spending in the United States approached 15.3 percent of our GDP. Although our country is not the same as theirs, maybe there is something we can learn from them.

To learn more about the Swiss and other health care systems, please see “The Grass is Not Always Greener: A Look at National Health Care Systems Around the World,” by Michael Tanner of the Cato Institute.

A recent news article compared cost and quality of health care across all the states of our country. We are in the middle of the United States, so it was good to find that our state was near the middle of Medicare spending per beneficiary, and close to the midpoint in terms of the “overall quality of health care.” Of the states that border Missouri, only Iowa was listed as having better quality, and more than half of the other bordering states were found to have both poorer quality and to be more expensive.

That is good to know, but that data was just for the Medicare population, a group that is mostly made up of people over age 65. What about the rest of us? To look at this, it is best to use information about life expectancy. In the medical community the phrase “life expectancy” describes the number of years a person would be expected to live if the current health care system remained as it is now, without any changes for the duration of that person’s life. In 2000, the U.S. Census Bureau said that life expectancy in Missouri was 76.2 years, and since that time it has improved to 76.8. Well, that is pretty good, and it is even better for you and me that it is getting longer. However, in 2009, the average life expectancy for the entire United States was reported to be 78.11. At that same time, in most of the industrialized nations of the world, life expectancy was reported to be 79.0. I guess that means that in Missouri, life expectancy is not as good as in most of the nation’s other states, and life expectancy is poorer than in of most of the industrialized nations of the world.

Why should that be? Could it be something simple, like there being not enough doctors for the number of people who are in need of medical care? That may be. (See my recent report on rural health care in Missouri.) The OECD tells us that in most of the industrialized nations of the world (that is, in the countries where people live longer than we do in Missouri), there are 2.9 practicing physicians per 1,000 people, while in the overall United States, there are only 2.34, and in Missouri there are only 2.24.

Nevertheless, the fact remains that we are spending more for health care than anybody else. Everyone knows that in the United States, we spend more than 16 percent of our Gross Domestic Product for health care, or $7,290 per person, while in Missouri it is $7,709 per person.

So, there you have it. As everyone knows, we are spending more and getting less. This needs to be changed. It may seem simplistic, but wouldn’t we be better off if there were more physicians? That would certainly reduce one complaint about there not being enough physicians to supply the current needs in this country. But, beyond that, wouldn’t an increase in physicians produce more competition among health care suppliers, and a corresponding reduction in fees?

During the current health care debate, there has been a great deal of discussion about an option for a national, public health care plan. Several of my friends have expressed some dismay about what its effect might be. A counterargument that has been used is that in America everyone needs some sort of health care insurance. Those without health care insurance harm their fellow citizens, because their failure to act places others at risk. In this country, people generally do not turn their backs to the unfortunate, so we all end up having to chip in to care for those without insurance.

A few weeks ago, the Show-Me Institute published a study by Arduin, Laffer & Moore Econometrics, “The Prognosis for National Health Insurance: A Missouri Perspective.” It is a thoughtful piece — 44 pages filled with important information. One of its foremost concepts deals with the “health care wedge.” In simple economic terms, the wedge is what separates the health care demander (patient) from the health care supplier (provider). In the past, this wedge was driven by insurance companies, and now the wedge is being driven forward by the government. As a result, neither the product end users (patients), nor the product suppliers (providers), have a good understanding of the costs. It is as though there is a third party present when doctor and patient meet. That third party happens to be the one that pays the bills, and that could be an insurance company or Uncle Sam. For a concise review of this problem’s history, see Milton Friedman’s 2001 summary.

One approach to correcting this has been suggested in the past: the concept of health savings accounts (HSAs). HSAs are a type of consumer-driven health care funding mechanism that allows the patient to be much more involved in making health care decisions. Owners of such accounts must spend their own money, which they have accumulated in a pre-tax account, so their health care spending is characterized by frugal caution.

The problem is that HSAs require their owners to acquire and maintain a high level of health care knowledge and sophistication. Most people with HSAs search the Internet to analyze their problems, and arrive at their doctor’s office with a printout of therapeutic choices. In many cases, the doctor visits are designed to add another level of expert knowledge to that already possessed by the patient. In the modern world of Internet access, everyone ought to try to do that — after all, what can be more important than taking care of your own health? The problem is that many people do not have the time, inclination, or ability to pursue this type of self-informed care.

There is another way, a concept called a health care co-op. These types of cooperatives are health care plans in which the purchasers (the patients) are the owners. The organizations are self-governed, and the members elect the board to oversee the health plan management. In this manner, the co-op reduces the wedge mentioned earlier. Because the participating patients are the co-op owners, they have a better understanding of what is being spent. In such a situation, the co-op itself acts as the insurer for its members. Then, when the doctor and patient meet, there is no third party, because the patient is a co-owner of the insurance company.

Missouri has a long history of successful cooperative enterprises. There are, and have been, multiple rural cooperatives to help farmers market and distribute their produce. At present, the Missouri Electrical Cooperatives are the most well known, because they have earned nationwide respect for their community work. Similar organizations have been an important part of our state’s development, and some of this has been coordinated by the Missouri Institute of Cooperatives.

It may be time for residents of this state to think of utilizing a Missouri Health Care Cooperative. As indicated in the past, more than 245,000 Missourians without health care insurance have incomes greater than 200 percent above the federal poverty level. Rather than asking people to buy health care insurance, maybe those that can afford it should be invited to invest in a Missouri Health Care Cooperative. Then, not only would those purchasers have health care insurance, they would also share in the profit made by their insurer.

Most Missouri doctors work in densely populated communities, while areas needing physicians appear unable to attract them. Although health care issues fill our headlines, the problem of distribution receives little press coverage. Our state suffers from a unique health care disparity problem, one of geographic distribution. Elsewhere in America, it has been common for people to migrate to the cities and their suburbs, while in Missouri many prefer to live in rural areas. Today, about 27 percent of our state’s residents live in rural locations.

Previously, people thought the physician distribution problem would be resolved by economic factors alone, and suggested there would be a diffusion of doctors from urban to rural communities. But that did not occur. This may be attributable to the problem that most of the Missourians without health insurance live in rural areas. A 2004 state survey found that rural regions had the largest populations without health insurance, and few doctors choose to work where most people have no health insurance.

At one time, people thought the distribution disparity arose from physicians preferring to be near other doctors, in order to benefit from professional synergism, such as sharing emergency calls. However, another factor has been found: the risk of lower earnings in rural medical practices — a disincentive that keeps physicians from choosing those locations.

In response to this problem, the federal government started the National Health Service Corps (NHSC) to establish financial incentives that would bring doctors to areas with a physician shortage. Congress then established the Area Health Education Centers (AHEC) program, designed to retain health professionals in these locations.

Neither program, however, has satisfied Missouri’s needs. In spite of these government efforts, more than 18.6 percent of Missourians live in areas that are underserved by physicians, and more than 60 Missouri counties are identified as health care professional shortage areas. Last year, Missouri became the 10th-worst state in terms of the doctor/citizen ratio.

Why does this problem continue? In 1991, there were 10,095 physicians working in our state. Since then, the number has grown, and by 2001 there were 12,565. At the same time, however, the average physician age has increased. During that 10-year interval, the number of physicians under age 45 decreased by 25 percent, and now most rural Missouri surgeons are looking to retire. As a result, many Missourians do not have access to the health care they need.

How to respond remains uncertain, although a recent innovation addresses this issue. Missouri Southern University and the Kansas City University of Medicine have united to build a medical education program in Joplin. In an example of a group of citizens responding to their own needs, that community is developing a school to supply them with doctors. With this new program, another 100 physicians will graduate each year from the Joplin location. No one knows whether those graduates will remain in the area, but after four years, some will have local ties. Others, though, will look elsewhere. To keep them, incentives will be needed.

One approach might be to underwrite medical student loans that will connect the students to a local service obligation. Vermont initiated such a practice, and it has done well. There, new physicians that accept such loans have an obligation to practice in areas where there is a physician undersupply. A similar program already exists in Missouri, but it has had such limited publicity that most medical students and physicians are not aware of it.

There may be other and/or better incentive programs. It is up to your ingenuity, and that of your community, to develop them.

Many of my friends are involved in discussions about health care. A common thing I hear is that people are happy with the parts of the health care system that affect them personally. Often, there is a story, such as: Doctor (you supply the name) found a cancer in my (you supply the relative); he/she started therapy just in time and that person’s life was saved.

That is wonderful. But is that all there is? The health care debate seems centered on financial issues. Where is the dialogue about health? With all the talk in the news and elsewhere, is something missing? Could your health be better?

Missouri is blessed with many health care educational programs. There is the Saint Louis University Medical School, the first school west of the Mississippi, founded in 1836. Then there is the School of Medicine at Washington University, the Kirksville College of Osteopathic Medicine, the University of Missouri–Columbia Medical School, the University of Missouri–Kansas City Medical School, and the College of Osteopathy in Kansas City. In addition, there are plans to build a program in Joplin. If so many physicians are being produced, then health care in this state should be pretty good. Is it?

To find out about that, one must look at how the health care system product is measured. Although asking your aunt about her cardiologist and how well he responds to her needs can be helpful, aggregate data is needed to get valid information. The common tools used by states to measure health care system outcomes are: 1) life expectancy; and, 2) infant mortality.

According to the World Bank, “life expectancy at birth is the average number of years a newborn infant would be expected to live if health and living conditions at the time of its birth remained the same throughout its life.” That definition includes both the current health of a population and the quality of care people receive when sick.

In 2000, the U.S. Census Bureau said that life expectancy in Missouri was 76.2 years, and it has improved since then to 76.4. That can be contrasted with 78.5 in Iowa, 77.5 in Kansas, 76.7 in Illinois, 75.3 in Kentucky, 75.3 in Oklahoma, 75.1 in Arkansas, and 75.0 in Tennessee. Missouri is in the mid-range among our adjoining states, but not at the top, and many states have life expectancy rates higher than ours.

In 2009, the average life expectancy for the entire United States was 78.11, and more than half the people in this country were doing better than Missourians. What is most disturbing is that there are several countries in 2009 with life expectancy rates better than ours. With this measure, many people are found to have better health than we have in the United States, and in America many states are reported to have better health care results than we have in Missouri.

The second most frequently used gauge of health care system outcomes is the infant mortality rate. It is used to evaluate prenatal care, postnatal care, and all the other aspects of society that affect young children. The following are the rates for infants under one year of age per 1,000 live births in 2005. In Missouri it is 7.5, Kansas 7.4, Iowa 5.3, Illinois 7.4, Kentucky 6.6, Tennessee 8.9, Arkansas 7.9, and Oklahoma 8.1. Our state, again, is in the middle range. That year, the infant mortality rate for the entire US was 6.89 per 1,000 live births. Once again, it seems that Missouri’s health care results are not as good as the average for our country.

How does this compare with the rest of the world? Many international organizations study this. The easiest numbers to access come from groups interested in economics, such as the Organization for Economic Cooperation and Development. Among OECD nations, the average is 6.1 per 1,000 live births. The United States is not too far from that average — but Missouri is. In 2005, there were five countries with infant mortality rates of less than 3.5. What is the difference? Do they care more about their children than we do?

What is the matter with health care in Missouri? These are only a couple of the areas that need improvement. Please be sure that your quality of health is included in the health care discussion.