The Costs of High Healthcare Costs

The Costs of High Healthcare Costs

Dave Chase believes that healthcare costs have stolen the American Dream. Beyond that, Chase believes that our high healthcare costs have cost us more than just money. People stay in jobs they don’t like so that they can afford healthcare, people feel a wage stagnation as employers have to spend more on healthcare, and up to 70% of people who file bankruptcies due to healthcare costs have insurance. The high costs of healthcare come at a substantial emotional, psychological, and aspirational cost to Americans.

 

In his book The Opioid Crisis Wake-Up Call, Chase writes, “Had health care costs paralleled the Consumer Price Index, rather than outpacing it, an average American family would have had an additional $450 per month – more than $5,000 per year – to spend on other priorities.”

 

The money that families are spending on increased healthcare is not the only money that could be redirected toward other priorities. Employers are spending more on healthcare, which means they have less to use for business investment, less to use for retaining great talent, and less money for expanding into new areas.

 

The stagnation for individuals and companies is real, and it has serious costs beyond just the money going toward healthcare. Individuals who don’t see their take-home pay increase will feel discontent. If inflation picks up, and the amount of goods that can be bought diminishes, people will channel their frustration into social unrest. If businesses cannot invest in R&D because too much money is going to the healthcare costs of their employees, then the United States will not see new innovations inside our boarders, and the dynamic companies that we depend on for our jobs will not be able to compete on a global scale. The costs of our high costs of healthcare go beyond a loss of spending money for some people. The costs are real, and threaten our economy, our global standing, and our social contracts with each other and our institutions.

Cities Suffer From Loss Aversion

“Many U.S. cities are, in essence, a fact-free zone when it comes to public assets. They have little knowledge of the assets they own and the market value of those assets, either under current or altered zoning regimes. Ironically, U.S. cities know what they owe (such as pension liabilities) but not what they own. Rectifying that disconnect is the first step toward sane and sensible public finance,” write Bruce Katz and Jeremy Nowak in their book The New Localism.

 

Katz and Nowak highlight the ways that local and regional governments in cities and metropolitan areas are establishing new networks to develop innovative solutions to global problems that have vexed state and national governments since the early 2000’s. Cities are reinventing ideas of governance and finding ways to adjust to the challenges they face in a way that larger governments seem to be unable to do. One area that is holding most city governments back, however, is financing.

 

Local government financing does well when the economy is strong and when people are moving to the area to create and fill jobs. However, when the economy is weak and people are moving away, local governments cannot keep up. Cycles of strong and weak economies have lead to the situation that Katz and Nowak described in the quote I used to open this post. Cities focus on their liabilities and worry about the costs and expenses that pile up and become major obstacles whenever the economy turns south. The authors argue that these pressures can become a singular focus for local government officials, preventing them from thinking clearly about the opportunities they face while limiting their creativity to adjust to new economic conditions and develop innovative solutions.

 

I don’t find it too surprising that city governments are more worried about what they owe than what they own. I am currently reading Daniel Kahneman’s book Thinking Fast and Slow and his descriptions about the way people respond to potential losses seems to be right in line with the behavior that Katz and Nowak describe for our city governments. We feel a loss of $100 as equal in terms of pain as we feel joy from a gain of $200. That means our losses are twice as painful as a gain is joyous. Mayors, city managers, and elected officials have their jobs on the line and can be held responsible for economic forces that are far beyond their control. This is likely a big part of what leads to this risk aversion among our local governments, and why so many of them are focused on what they owe and what could go wrong in a downturn. The narrow focus that this creates for governments, however, is likely to exacerbate any economic shocks that they do experience. By failing to plan and think big, city governments are failing to get the most out of the assets they do have, and are failing to build a buffer of protection for themselves and their residents if an economic shock occurs.

 

The solution that Katz and Nowak provide is a structure of new networked governance, where governments are able to provide the authority and base funding for projects and ideas, but private organizations can manage public assets and capitalize on charitable and foundation giving for more risky projects. This opens an avenue for bold movement that risk averse elected officials and public agencies could not approach. It allows cities to maximize their assets, rather than forget about them altogether.