The Toxic Profit Motive In The Health Care Industry

A lot of people in the media are arguing about Republican or Democrat efforts to change or eliminate Medicare.  The republicans claim that to eradicate Medicare as we know it is the only way to save the economy.  Oddly, they neglect to address the root of the problem.  The reason Medicare is being targeted is because it has become expensive.  This is because the fixed rate of taxation to fund Medicare has remained constant while the costs of providing medical care have risen dramatically.  Rather than discuss the two obvious ways to alleviate this -raising the rate of taxation or addressing the increasing cost of health care- the Republican plan simply focuses on the abolition Medicare.

It’s interesting that the Republican plan seeks to eliminate the service rather than the issues that are affecting the service.  Namely, the Republican plan does nothing to address the causes of rising health care costs.  As Kelly Cummings points out on the site, the ultimate problem with the health care industries is profits.

Can this be true though?  The L.A. Times reported that 2009 health care spending in the US was $2.9 Trillion, or roughly 16.9% of GDP.  This is an astronomical figure but, we can break it down to get a feel for where these costs are going.  Start with the health insurance industry.  According to Health Care for America Now, the five largest health insurance companies in the US made $11.7 billion in profits in 2009.  This is less than one percent of overall health spending.  However, the profits generated by the health insurance industry are the smallest out of all industries involved in health care.

Compare the profits produced by the health care industry with the pharmaceutical industry.  Spending on prescription drugs in the US reached $300.3 billion in 2008.  This figure does not include over the counter products either.  The profits generated by the top 20 pharmaceutical companies in 2008 was $51.6 billion.  This profit rate indicates that nearly 20% of US spending on prescription drugs goes to profits.  What makes the figures for the pharmaceutical industry all the more exacerbating are the rates of Americans using prescription drugs.  According to the National Center for Health Statistics, nearly half of all Americans now use at least one prescription drug regularly.  This includes one in five children and nine out of ten seniors.  Numerous studies also show that many prescriptions are unnecessary and ineffective.  Controlling this aspect of health care could go a long way toward reigning in public health care spending.  Afterall, medicare spending on prescriptions drugs increased from 7% of all public spending in 2005 to 60% in 2008.

Another alarming industry to consider would be the hospitals themselves.  Health care spending going towards the hospitals reached $718 billion in 2009, approximately one third of all health care spending.  However, 20% of these costs were profits.  Considering nearly half of the hospitals in this country are non-profit, this means that a number of hospitals are charging excessive prices due to their ability to corner a market.

These figures continue to rise as we consider other major industries involved in health care.  In 2009, the top 18 manufacturers of medical equipment and products earned a combined profit of $8.7 billion dollars while these same businesses took in $80.5 billion in revenues.  Again, this equals a profit margin of over 10%.

These are only some of the industries that constitute the overall health care framework in the US.  It is important to remember that of the $2.9 trillion spent in the US on health care, $409 billion came from medicare and $224 billion came from medicaid.  The remainder came directly from consumers.  Furthermore, CBS News revealed that $60 billion each year was lost to Medicare fraud.  Why doesn’t the Republican plan address this major issue?  But I digress.

The cursory look at these major medical industries reveals a profit margin that ranges from 4% to over 20%.  Considering these industries exist to serve our health, it is a bit much that they should derive such profit from that.  The businesses and industries addressed above had profits nearly equal to the 2009 cost of medicaid.  Restricting or eliminating these profits would go a long way toward addressing health care costs.  At present, over 10% of domestic health care spending goes to profits.  Furthermore, a significant amount of public funding is lost to fraud.  Fraud and profits make up nearly $300 billion each year.  In addition to this extreme figure, unnecessary prescriptions and health care represent an uncertain but well documented portion of public and private health care spending each year.  Other elements such as efficiency can further reduce these costs.  Anybody who remembers the parody, “If Airlines Were Run Like US Healthcare” can see how some simple efficiency improvements could change health care in this country.

I’ve offered a lot of information in this blog but the ultimate point I wanted to get to was that the profit motive in the health care industry is the problem.  In an industry that serves something as important as human lives (we only get one), profits should not play a role.  Thus, it is time for this country to realize that if a Single Payer System is too politically divisive, then transitioning the health care industry to a non-profit model is the only thing that can save US health care.  That’s right.  Removing the profit motive from these collected industries immediately eliminates 10% of annual health care costs.  Furthermore, it eliminated the benefits of inefficiency.  At present, an inefficient system generates profits because it imposes more costs on the consumer.  However, when the profit motive is eliminated, inefficiency acts contrary to the ambitions of the system.  Also, the use of extra testing, unnecessary prescriptions, and unwarranted medical procedures ceases to serve a financial purpose to a non profit industry.

I know this blog has been a bit rambling.  So, please comment and add your perspective and information to this discussion.  With enough discussion we should be able to firmly develop the benefits of a non-profit health sector in the US.

This entry was posted in Economy, Health Care, Infrastructure, United States and tagged , , , . Bookmark the permalink.

1 Response to The Toxic Profit Motive In The Health Care Industry

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