Do health-care costs really need to be contained?

On one hand, increasing medical expenditures creates jobs, saves lives and alleviates pain and suffering. On the other hand, rising health-care costs consume greater portions of our economy, so we have to forgo other goods and services, and also require higher taxes.

For U.S. businesses, health-care costs represent a sizable portion of the cost of doing business, ranking third behind salaries and the costs of raw materials. Because they have to build that cost into their prices, American companies find themselves at a disadvantage against competitors in other countries. DaimlerChrysler says that health insurance premiums were higher than the cost of steel in 2005, equaling about $1,500 per auto.

There is little we can do to control general inflation or the growth in the elderly population. However, Americans can do a number of things to reduce the high cost of health care.

We could adopt national health insurance. First and foremost, we could cut the high administrative costs of health care and provide services to those who aren’t insured by creating a single-payer system that covers everyone. It’s estimated such a system could reduce our total health-care costs by 15 percent.

On May 23, 2005, the National Coalition on Health Care, a non-partisan alliance of more than 90 major organizations, issued a report showing that system-wide health-care reform would save much more money than it would cost, and certainly would cost less than the current system.

Although inevitable, national health insurance doesn’t look to be a political possibility in the near future with the present administration in control and with heavy opposition from the insurance and drug industries. However, a number of other things could be done to reduce the cost of health care until national health insurance is adopted.

We could shelve the competitive model and go back to the cooperative model that existed prior to the 1980s. A cooperative system of health care would reduce or eliminate the need for duplication of equipment and services, eliminate costs of advertising and substantially reduce administrative overhead.

For example, in Lincoln, Neb., all three hospitals have the full range of hospital services and related medical and administrative personnel, and they spend copious amounts on advertising to increase their market share. Under the 1970s cooperative model, one of the three hospitals handled all of the cancer care, another handled all of the cardiac care and the third handled all of the obstetrics services. They had no problem referring appropriate cases to one another, and they did not need to incur the staggering cost of developing and providing services that were handled by the other facilities in their community. And, because they cooperated, they didn’t need to spend substantial amounts of their budgets on advertising.

Second, we could place a heavier emphasis on prevention and wellness, such as enhancing and paying for smoking-cessation programs and providing insurance benefits for obesity programs. Such preventive efforts would reduce acute and chronic disease, thereby reducing the costs of treatment.

Third, we could treat pharmaceutical companies like public utilities. Their costs for advertising, patent protection and research could be controlled and safety standards better applied, resulting in more affordable and safer prescription drugs. Alternatively, we could permit Americans to purchase drugs from other countries, where they cost substantially less. This approach works well in Europe.

Next, we could pay providers for efficacious patterns of care. In other words, reward good outcomes rather than volume. Then we could get tougher on fraud and abuse by acting on antitrust laws, increasing detection of fraud and boosting penalties for violators. And we could enact malpractice tort reform to limit jury awards for pain and suffering, establish statutes of limitations and cap attorney’s fees related to malpractice suits.

Each of these efforts would make health care more affordable, but each engenders political or professional opposition to one degree or another. To solve our problems, we need good leadership in the health-care and governmental communities — people with a vision of how to tackle these significant root problems.

Kenneth Johnson lectures on the health-care system and health insurance at Des Moines University and Upper Iowa University.