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The Great Unmentionable

The role of high salaries and wages in health care inflation.

Jul 30, 2012, Vol. 17, No. 43 • By ELI LEHRER
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And nothing about the training costs of the people who provide medical care explains their high wages, either. Because medical school takes four years of full-time study—as compared with three years for law school and two for business school (tuition is comparable)—doctors do, indeed, graduate with more debt than people pursuing other professional training. But the wages they earn afterward more than make up for this: An average year in medical school costs about $25,000 at most public schools, while doctors make, on average, $80,000 more than lawyers but spend only one year more in school. And while many students capable of doing the work can’t find an accredited medical school willing to admit them, that’s not true for all medical professions. Anyone with a high school degree can train to become a nurse, lab tech, or other health care worker. 

Malpractice insurance can also be very expensive, but this isn’t so everywhere—internists in states that cap malpractice awards can get it for only a few thousand dollars a year—and, in any case, the overwhelming majority of health care professionals don’t need malpractice insurance. Even in states like Florida where insurance costs over $50,000, doctors still take home very comfortable six-figure incomes in almost all cases.

If this happy confluence of factors for medical professionals—high wages, excellent job security, below-world-average workloads, and extremely high returns on educational efforts—resulted from a free market, it could rightly be considered a triumph of capitalism. But it does not. Government provides a little less than half of the total medical spending in the United States (about 46 percent by most estimates; more if tax expenditures are included), oversees the licensing of almost everyone who comes near patients, and limits where and when hospitals get built. The system that produces these high wages is shot through with government subsidies and regulations. Absent a reform that simply ends government involvement in health care altogether, it’s hard to envisage lower health care costs without lower compensation for workers in the sector.

But nobody wants to touch the issue. Even if they may occasionally gripe about the high wages paid to doctors, liberals like the authors of the Brookings study actually celebrate these higher-than-market wages and, just as important, how major medical centers serve as key employment generators in Democratic-leaning major cities. (All of the 10 largest cities and 19 of the top 20 count a hospital system as one of their top 5 employers.) But conservatives do no better: The only real cost containment measure included in President Barack Obama’s disastrously bad health care bill—an “Independent Payment Advisory Board” (IPAB) with the power to slow the growth in payments for Medicare services—has been derided as a “death panel” and as a “socialist dream” by conservative critics, yet the board won’t have any direct say about the more than 70 percent of care not paid for by Medicare, it is specifically prohibited from rationing care, and it almost certainly won’t cut nominal dollar payments for anything. The point isn’t that IPAB is a good idea—it’s poorly designed and lets bureaucrats make decisions Congress should make itself. But it’s striking that conservatives who are more than willing to talk about how public school teachers, government regulatory bureaucrats, and government workers in general are overpaid have jumped to the defense of much more costly and consequential high salaries in the medical sector.

Of course, nobody of any party wants to talk about cutting pay for any broad group of workers, particularly in the fastest growing sector of the economy. It seems heartless, at best. But there may be no other choice at a time when Medicare and Medicaid alone consume about a quarter of the federal budget (defense is 20 percent), and health care seems poised to overtake education as the largest budget area in almost every state. There’s simply no other major source of “fat” that could be cut: Medicines, for example, are less than 10 percent of all health care dollars, and cutting that in half immediately, a step that would have catastrophic results, would have roughly the same effect as simply freezing medical wages for two years. Confiscating all insurance company revenues beyond their medical expenses and operating costs (which run between 93 and 95 percent) likewise would produce roughly the same cost containment as a one-year medical wage freeze.

Yet unless medical wages get under control, entitlement spending will continue to eat up an ever-larger share of the federal budget and necessitate either service cuts elsewhere or tax increases. Better access to medical care for the poor—a key priority of the left—will also remain out of reach if almost everyone involved in providing it must earn an upper-middle-class income. 

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