- - Tuesday, August 26, 2014

Part six

New York-As President Obama’s foreign policies fail everywhere, an even bigger tragedy metastasizes at home: The cancer Democrats once joyfully called Obamacare is crushing hiring and household budgets throughout the American economy.

The solution is obvious: The Patient Protection and Affordable Care Act of 2010 and its myriad regulations should be scrapped and replaced with a simpler system that actually works.

Whatever replaces Obamacare must do the opposite of what this structurally unsound, pork-laden, Byzantine bureaucracy does. It must help bring down the true cost of health care and enable provision of user-friendly insurance, across state lines, that mitigates catastrophic risks.

Instead of binding all Americans into stifling and intrusive relationships with faceless government workers and their cronies, the new system should harness the power of market forces. This means finding ways to bring legal costs under control through tort reform and harnessing technology to deliver health care and treatment more efficiently and effectively.

Above all, whatever replaces Obamacare must recognize and contend with structural obstacles facing Americans.

Important age cohorts

America’s population is caught in a trap of our own making (literally).

To see this trap, we need to investigate trends in one simple ratio that too many economic policymakers ignore: the number of senior persons aged 55 and over, divided by the most economically active group of persons aged 25 to 54.

As Baby Boomers entered and matured in the workforce between 1980 and 2000, the ratio of senior persons to active workers actually dropped. There were 55 senior persons per hundred active workers in 1980; 49 per hundred in 1990 and 48 per hundred in 2000.

Since 2000, this ratio reversed: It reached 60 per hundred in 2010 and is expected to soar to 85 per 100 by 2050.

Data contained in the Consumer Expenditure Surveys prepared by the U.S. Department of Labor confirm that the senior group spends disproportionately on health care, as you can see here and here.

Unless we increase immigration in unprecedented ways (a process that is rife with problems given the global labor glut and likelihood that machines will replace an ever-increasing slice of human workers), America’s population will continue to age and require more healthcare services than we currently provide.

The only way to reduce the aggregate cost of America’s healthcare is to bring delivery costs down substantially — and this means achieving labor cost productivity.

Improving labor productivity in health care

If technology can be employed to achieve remarkable improvement in labor productivity within the agricultural sector and in national defense, ingenuous Americans must be able to do so in health care.

In 1980, each agricultural worker produced enough to feed 142 Americans. By 1990, productivity in the American agricultural sector improved 18 percent: Each worker fed 167 Americans. By 2000, productivity increased a further 44 percent: Each worker fed 241 Americans. By 2012, agricultural productivity rose an additional 12 percent: Each worker fed 270 Americans.

Productivity also increased substantially in the military sector.

In 1980, each service member protected 103 Americans. By 1990, military productivity rose 7 percent: Each service member kept 110 Americans safe. After the breakup of the Soviet Union, military productivity soared 65 percent, and by 2000, each service member protected 182 Americans. In 2012, the most recent year where comparable data is available, military productivity increased an additional 8 percent: Each service member protected 197 Americans.

In contrast to the agricultural and military sectors, the health care and social assistance sectors experienced substantial declines in productivity.

In 1980, each worker in this sector cared for 39 Americans. By 1990, productivity in the sector dropped 26 percent: Each worker cared for only 29 persons. Productivity declined still further by 17 percent in 2000, when each worker cared for just 24 persons. Finally, by 2012, productivity declined an additional 17 percent: Each worker cared for only 20 persons.

The way forward on tort and health care reform

Detailed analysis of the economic impact Obamacare actually has on employment, incomes and health care expenses will not emerge until the summer of 2015.

Long before then, the U.S. Supreme Court may do all Americans a favor and gut the monstrosity by upholding the ruling in Halbig v. Burwell (that limits certain tax credits which subsidize health care insurance) by the U.S. Court of Appeals in the D.C. Circuit.

America’s best minds need to come together and table simple, comprehensible suggestions that will bring down the cost of health care procedures.

This time, let the legislation and associated regulations be read in advance, debated in full and passed by commanding bipartisan majorities in the House, and then in the Senate.

Next: Reform public-sector compensation and hiring practices.

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