Expert: Outlook gloomy

America is on 'unsustainable path'

Patrick Barkey has crunched the numbers for the future of health care in America, and it's not a pretty sight.

By the year 2032, federal health-care entitlement programs - Social Security, Medicare and Medicaid - will consume every dollar of federal revenue if spending continues at its current pace. And neither Barack Obama's nor John McCain's health-care proposals will fix things in the long run, he predicted.

"Both [presidential candidates] have plans to increase entitlements," he said. "We need to be unwinding these broad-based entitlements and the sooner the better."

Barkey, an economist with the University of Montana Bureau of Business and Economic Research, was one of several speakers at the first Success in the New West conference held Friday in Kalispell.

The educational event, organized by Montana West Economic Development and Flathead Area Young Professionals, was aimed at giving participants information about current and future business trends and the local economy.

BARKEY SPOKE candidly about America's health-care dilemma. The data he has analyzed make him nervous.

"I'm a person who's really worried about health care," he said.

In 1965, health care accounted for 6 percent of consumer spending. By 2004 it had risen to 16 percent and by 2016, health-care spending is expected to dominate one-fifth of the U.S. economy.

Barkey pointed to three unsustainable trends: Medical-care prices growing at 1.7 times the rate of inflation; private insurance premium increases; and the commitments of federal entitlement programs. Add to that an aging population and a revolution in health-care advances that offers costly procedures such as knee replacements as standard care, and you've got a "perfect storm," he said.

When Medicare reimbursements were trimmed back in the 1990s to cut federal health-care costs, hospitals struggled at first but found a way to push costs onto those covered by private insurance.

"It's like squeezing a balloon," Barkey explained. "You squeeze it down in one area and it bulges out in another direction."

He believes the U.S. has two options to fix the health-care mess: Either raise taxes to levels similar to countries with socialized medicine, such as Canada or European countries, or reduce benefits. Neither option is popular.

"Not too many are talking about the unsustainable path we're on," he said.

The cost of health-care insurance premiums peaked in 2003, when premiums increased 13.9 percent. Last year there was "only" a 6 percent increase in premiums.

"What's happening is rational," Barkey said. "You're cutting back on health-care insurance."

Some employers have cut back on insurance benefits, capping coverage and upping co-payments.

"Health-care financial reform is already happening and it's being carried out by the private sector. And it's not very pretty," he said.

While Americans pay far and above what other countries pay for health care, "health-care outcomes here are worse than in peer countries," he added.

Countries in the Organization for Economic Cooperation and Development, which includes most European countries, pay much less for health care and have considerably higher life expectancies - 84 years in France compared to 80.2 years in the U.S.

"We may not be getting all that we pay for," Barkey stated.

THE TWO presidential candidates take very different approaches to health-care reform, with little overlap in their proposals, he said.

McCain's plan emphasizes tax incentives. He proposes a refundable tax credit for purchasing health insurance, but there's a "gotcha" factor, Barkey said, because it comes with the caveat of taxing health-insurance premiums. McCain also proposes a guaranteed access plan for the uninsurable.

Obama's plan focuses on increasing the number of citizens covered by private insurance, including universal coverage for children. While it's a more compassionate idea, Barkey said, there's also a "play or pay" mandate. All employers would be expected to offer health-care benefits or pay a tax.

"Both plans will cost more money," he said. "They're good in the short run, but will add to problems in the long run. What I'd like is a combination of the two plans."

Barkey said he believes incentive reforms should expose consumers to the consequences of their decisions.

Since World War II, there has been a built-in bias to have employers pay for health-care benefits. It squeezes too much into health-care plans, Barkey said.

"It's like car insurance covering oil changes," he said.

"We only take interest in our own health when someone pays us to do it," he said. "If it's not covered, we won't get the test."

Putting more pressure on the private sector actually could increase efficiency of health-care providers, Barkey speculated. Many goods and services - such as microwaves and computers - have gotten cheaper over time, but health care is just the opposite.

"Why is health care different from anything else?" he asked.

One segment of health care that has come down in price is plastic surgery, because it's not covered by insurance. Cosmetic surgeons have found ways of becoming more efficient because their livelihoods depend on it, Barkey said.

Features editor Lynnette Hintze may be reached at 758-4421 or by e-mail at lhintze@dailyinterlake.com