Saturday, January 21, 2006

Wal-Mart, Healthcare, and Economic Illiteracy

Maryland recently passed a law that would require Wal-Mart to increase its spending on workers' healthcare. The bill mandates that employers with over 10,000 employees spend at least 8% of payroll on health benefits. This is a subject that I have previously blogged on.

Lost, or should I say completely ignored, in this Wal-Mart debate in Maryland is the notion that private companies should be OBLIGATED to provide healthcare for employees at all – never mind what percentage of their payroll should be dedicated to it.

This demonstrates once again the hypocrisy of being “pro-jobs” yet anti-business. Why would any company open a huge business in the state of Maryland when meddling socialists are going to hyper-regulate how the company pays its employees? Existing large companies will decide to expand in other locales rather than further invest in an anti-business region. When Wal-Mart first got a whiff of this bill they promptly delayed plans to open a new massive distribution center in Maryland.

Minimum wage law is socialist enough, but mandating health care expenditures takes that up a few notches. First of all, a business can’t control the price of healthcare, so by requiring that they spend any amount on it sows the seeds of more healthcare price inflation. Price increases will invariably raise the number of uninsured. Thank you Commi's....MISSION UNACCOMPLISHED.

The sheer inanity of this debate has no end. Socialists mistakenly presume that businesses SHOULD provide healthcare, and then ratchet up that by arguing for an amount to their liking. And these socialists have yet again conspired to MIS-FRAME the healthcare debate.

People don’t have healthcare because it is EXPENSIVE.


The solution to expensive healthcare is not more of WHAT MAKES IT EXPENSIVE.

Every business would love to provide healthcare, dental care, life insurance and every other benefit to attract and keep good employees.

The econo-illiterates don’t understand that forcing businesses to spend money on already overpriced healthcare DOES NOT ALLEVIATE runaway healthcare inflation. In fact it AGGRAVATES the price and as I have already noted, it INCREASES the ranks of the uninsured.

Of course Maryland legislators are,

1) Too dumb to realize this.
2) Don’t care.
3) In the pocket of the unions of Wal-Mart’s foundering competitors.
4) Outright socialists.

Take your pick(s).

Devil’s Advocate: What about the claim that Wal-Mart is shifting its healthcare burden on to the state’s Medicaid budget?

First of all. Medicare and Medicaid should never have been born – they may even be un-Constitutional. Basically, politicians promised healthcare to some people (poor and elderly) and are taxing productive members of society to fulfill that promise. Unfortunately, eliminating these programs remains a pipe dream and won’t happen any time soon. The only way it would happen is if every young and working person decided to elect pols that represented their real, rather than perceived, self-interests.

Basically, government created this healthcare "burden", and instead of fixing it on a structural level, THEY lazily want to pass the buck to businesses like Wal-Mart. Furthermore, they erroneously think this will have no consequences.

How did/does government inflate the cost of healthcare?

By subsidizing (entitling) healthcare for the poor and elderly, the government effectively became the biggest buyer of medical services.

This creates a panoply of problems, some obvious and some not so.

Axiomatically, government involvement begets gross economic inefficiencies but the overall effects are more pernicious than simply higher consumer prices.

A friend of mine is a pharmaceutical rep for Merck. He recently said this to me about the drug approval process,

“...all we (drug companies) have to do is avoid or limit hospitalization....because it is that expensive.”

Essentially he was saying that drug companies can and will promote any drug that simply reduces hospitalization expenditures. That sounds pretty sensible, right?

But when you consider the exorbitant costs of hospital care, the hurdle for cost savings is set recklessly low. What did Dr. Kovac say on ER last week? Something like the cost of one day spent in the ICU is $22,000.

I can’t find good data on normal daily hospitalization costs but that ICU figure should give some idea of how high they are. With these low hurdles, justifying $500 per year spent on Lipitor or Prozac becomes very easy for all the necessary Morons: HMOs, government bureaucrats, hospitals, and doctors.

Before you know it, the nation is spending billions on new "cost saving" blockbuster drugs.


This low hurdle is the medical analogue of the False Comparison tactic.

Now multiply this by every drug, medical device, and treatment option and you will end up with government (Medicare) approval for almost everything under the sun. In fact, about 14% of the entire Gross Domestic Product was spent on healthcare last year.

Another example. Look at this “ad” for the Freedom Bed, a $24,500 hospital bed.

From that link,

Costs of Bed Sores:

The approximate daily treatment costs for pressure ulcers in US hospitals range from $39 per day for a stage I ulcer to $811 per day for a stage IV ulcer. Stage IV ulcers can take up to 90 days to heal, leading to a total treatment cost of as much as $73,000 per occurrence. Under these circumstances the purchase price of a Freedom Bed™ would be recouped in as little as 30 days. The repayment period is even shorter when the regular hospitalization costs of the patient are factored in. Thus the prevention of bedsores and other complications of immobility such as pneumonia (which can cost up to $40,000 per occurrence to treat) in home-based individuals who would require hospitalization is one key method of considering savings to be realized.

Do you see what is going on here?

This expensive bed wants to be measured only against the outlandish costs of treating certain ailments, rather than by its inherent worth. I guess in this sense, they have re-formulated all medical tradeoffs into crude functions of extant inefficiencies.

This would be like if a consumer decided to buy a $9,000 television simply because it was cheaper than a $10,000 one.

Devil’s Advocate: That's a stupid analogy C-nut...there are more than just two televisions for consumers to choose from.

That’s right DA, but when was the last time a person picked (and was charged accordingly) a hospital based on the cost of its beds? It simply is not possible. The industry-wide bed cost is set by the largest medical buyer, i.e. the government (Medicare), and patients have no purchasing power.

If the hospital were in a truly competitive industry it would be working indefatigably to lower all of its costs, just as any normal business would. It would have to, simply to remain competitive with other hospitals. But there is no such competition and with more people joining the Medicare rolls each year, dumb money keeps getting pumped into the system. This undermines the very tenets of capitalism. When the price of a good goes up, consumers need to be able to lower their demand for said good – otherwise there is no mechanism to check rising prices.

What happens when capitalism is unchained? From a prior post,

I was trying to explain to someone how we need more free market forces in healthcare. I used the example of corrective laser eye surgery. That procedure is not covered by healthcare (or Medicare) and thus its cost has crashed from over $2000 per eye to around $350 an eye now.

Government involvement in healthcare is more pernicious than simply higher prices because it adulterates the innovation process. This interference keeps medical research stuck on treatment and blockbuster drugs that only improve healthcare AT THE MARGIN. A free market in healthcare would re-align the economics of healthcare consumption and production, yielding prices more like corrective laser surgery than the ever escalating costs we have now.

Medical consumers are impotent also because of what is known as the Third Party Payer system.

When John Doe is sick and visits his doctor to decide a treatment plan…..neither John nor the Doc pay directly for this medical care. Either an HMO or the government (Medicare) will foot the bill. Thus divorced from the economics, neither the doctor nor the patients are directly vested in the cost of treatment. Unfortunately both are pre-disposed toward overspending.

My pregnant wife recently noticed some slight spotting. She wanted to call her doctor and I warned her not to. Of course her doctor insisted that she go to the hospital that night. It is strictly CYA on the doctor’s part who is more concerned about her legal liability than the marginal healthcare dollar spent. The same goes for my infant son. Every time he is a little bit sick, my wife calls the doctor, and they reflexively tell us to come in for a visit. It is not the revenue they want. They just don’t want to risk, God forbid, someone dying after they telephonically advise them not to come in. With today's jury awards, who can blame them?

The same indifference applies to the patient. If told that running some extra tests would cost them say $1 in extra healthcare premiums per month, for the rest of their lives, indubitably many would opt out of the tests. Of course a fretful CYA Doc may not be honest about how necessary the additional tests are in the first place. This is the morass that medical spending and decision-making are stuck in.

Also in this medical malpractice debate, watch out for deceitful propaganda. During the 2004 Vice-Presidential debates, class action “gouger” John Edwards tried to downplay the malpractice component cost of healthcare. I think the number he tried to throw out was 2% of the total cost of healthcare. It is deceitful because it only takes into account malpractice premiums and jury awards – it DOES NOT INCLUDE THE COST OF SUPERFLUOUS CARE FROM CYA DOCTORS.

Anyway enough on healthcare stupidity and back to Wal-Mart stupidity.

Semi-business basher David Faber asked the head of Wal-Mart if Sam Walton would be proud of the company’s healthcare record today to which he responded something like,

Sam would because he was all about value and money well spent…

What Faber and many other viewers probably couldn’t discern from that response is that healthcare is simply too expensive as it is currently priced. What econo-illiterates probably heard was, “we are too cheap to pay for healthcare...” – which is a patently ignorant inference.

It is not an either-or situation, both worker and employer bear the healthcare burden. More money spent towards healthcare is less for cash wages and vice versa. If Wal-Mart workers wanted more healthcare benefits and less cash, they would have already left and found a job that compensated accordingly. But they don't because Wal-Marts everywhere are overrun by job applicants.

Of course, if you are of the arch elitist mindset that thinks Wal-Mart workers too dumb to take such action....then you have your acrobatic mental escape from this logic. But you should at least be honest about your arrogant postulation.

It also should be noted that Wal-Mart already spends about 7% of its payroll towards healthcare coverage. An increase to 8% would represent a 14% jump in healthcare spending for Wal-Mart. Last I checked, basic arithmetic was simply not part of the Communist Manifesto. I'll explain.

Healthcare premiums are up an astounding 73% since 2000 and a mere deflation of 14% would be financially equivalent to forcing Wal-Mart to meet the 8% threshold. Furthermore, such deflation would:

1) help Wal-Mart AND every other business in Maryland.
2) make healthcare more affordable, reducing the number of uninsured.
3) refocus medical innovation on substantial, rather than marginal, cost savings.
4) keep large employers in-state.

Economically illiterate pols should be decrying and addressing the cost of healthcare. Instead they choose to clang the bell of class warfare and deflect attention from the depravity of Medicare, an albatross of their own creation.

What was that expression about socialists? Something like,

"You need us in power today to solve the problems we created yesterday..."?

Click here for another trenchant indictment of the Maryland bill.


Anonymous said...

What about how WM underpays their employees nearly 2-3 dollars per hour as their competitors. Socialist healthcare gets hated on completely. Quasi-euro health care, canandian healthcare, all work perfectly well without the least bit of damage relayed on the individual. The issue is capitalism and our economic model we live by. Read some Karl Marx, other than the C. Manifesto, his literature speaks of denying the division of labor capitalism creates. Why does WM VP need to get paid 4.3mil a year? Completely illogical, his job isn't that difficult. He does not physically laborious activities. Its just greed and capitalism.

CaptiousNut said...

How many people do you employ?