2005 March 08 Tuesday
US Chief Financial Offcers See Rising Health Care Costs As Big Worry

You know how you can feel a lot of satisfaction finding that some person or group you respect turn out to agree with you on a subject? That is my reaction to a survey of Chief Financial Officers. US corporate Chief Financial Officers think rising medical costs are more important that Social Security reform.

To understand the causes of this reduced optimism, the survey asked executives to choose the top four items, from a list of 16, that are concerns for their companies. The results showed that intense competition is the number one concern among CFOs around the world, with more than half listing competition among their top concerns. In the United States, 53 percent of CFOs cite high health care costs as a top issue. CFOs expect health care costs to increase by 9 percent in the coming year. High fuel prices, increased interest rates and fears about increased regulation round out the top concerns for U.S. CFOs.

European and Asian CFOs do not list health care costs as a major issue, but do cite concern about world economic stability and reduced pricing power.

"Nearly two-thirds of U.S. CFOs say that it is very important for Congress to address the cost of health care, and another 29 percent say that it is somewhat important," Graham said. "A similar percentage say that it is important for Congress to address the budget deficit. Only 31 percent say that it is very important to implement Social Security reform."

Granted, the reason CFOs are concerned about medical costs is their own corporate bottom line. But if costs are rising for corporations then costs are rising for the rest of us. The corporate CEOs correctly see medical care as a souce of rapidly rising costs of production.

My lack of enthusiasm for Bush's Social Security private investment accounts stems in part from the future expected growth of medical costs. Both Medicare and Social Security have large unfunded liabilities. But medical care is a rising cost for the entire population. See my previous post "Medical Costs To Be 18.7% Of US Economy In 2014" for some background information on the problem. Medical costs are the more interesting and more pressing problem for a few reasons. First of all, medical costs are rising across the board regardless of whether the medical care is being paid for by the government or private insurance. Secondly, the potential solution of accelerating the rate of biomedical science and biotechnology would be both incredibly bullish for economic growth. Picture a much healthier work force that can work for more years. Also, picture medical treatments that are much cheaper and more effective. Thirdly, the result of dealing with medical costs by accelerating the rate of advance of medical science would make each of us individually healthier and happier. Whereas the choices for how to solve the Social Security problem do not provide an option which has anywhere near the potential upside for us as individuals or for the economy and society as a whole.

Another reason that health care as a policy area is more interesting than Social Security is that medical spending accounts could accomplish some of the same things that privatized Social Security accounts would accomplish (e.g. more savings and more investment). But the medical spending accounts would have more far reaching and beneficial effects because medical spending accounts would also remove layers of middlemen in the buying of health care. The use of medical spending accounts to buy high deductible medical insurance would cut employers and insurers from many transactions in the relationship between patient and care provider. So medical spending accounts would have more pro-market effects than Social Security accounts.

If you are of the opinion that biomedical advances can't make a huge impact on rising health care costs check out what some smart money is saying about the prospects for getting control of health care costs using biotechnology (Sorry I don't have the transcript of the show but the 3 people from the Charlie Rose show I refer to there really did express the sentiment that I attribute to them). We need to treat our aging population as a financial problem that has a technological solution.

Update: For more on the Social Security debate see Tyler Cowen's posts on Social Security reform proposals.

Share |      By Randall Parker at 2005 March 08 12:12 PM  Economics Health

PacRim Jim said at March 8, 2005 12:37 PM:

Unless the nanotech gang are going to make us immortal (or at least physiologically younger) people will develop another disease as soon as one is cured by biotech. It's like peeling an aging onion.

GUYK said at March 9, 2005 5:19 AM:

Socialized medicine would be in the best finacial interests of big business even if their taxes were raised to pay for it. Less cost, less paperwork and no more hassles with insurance companies. The biggest problem that I see with the government running medicine is that I figure they will screw it up just as government generally screws up everything else it touches. But on the bright side, it would put a lot of ambulance chasers out of a job. The government is kind of grouchy when it comes to being sued.

crush41 said at March 9, 2005 3:43 PM:

What about private industry moving in the direction of the company in Michigan that laid off a few employees for smoking? Could that not be extended to laying off people if they are 20%+ overweight, if their cholesterol level is over 300, if their blood pressure is over 160/110, awarding employees in some way who participate in a company-sponsored exercise program or take vitamins on a regular basis, and so on? It seems to me that the best way to motivate people to stay healthy is to hit them in the wallet if they remain slobs--maybe a benefit of rising health costs will be a fitter America!

GUYK said at March 9, 2005 4:35 PM:

for crush41--works for me! But the liberal left will scream even louder.

crush41 said at March 9, 2005 8:36 PM:

for crush41--works for me! But the liberal left will scream even louder.

I find that for every sensible action that is a consequence :)

Proborders said at March 17, 2005 8:15 AM:

Randall, Peter Brimelow's "Federal debt levels high, not unprecedented" is posted here.

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