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Where do health spending dollars go?

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Q: Everyone it seems is bemoaning the "rising costs of health care" and the "need to get insurance premiums down." Isn't what is really going on a simple capitalistic shift in wealth? If all these costs are going up, where is the money paid for them going? I would be much more interested in knowing who is getting wealthier while others have to re-prioritize their spending. ... The wealth is being redistributed - someone gets richer, someone poorer. They ask in elections if "you're better off than you were four years ago." Hell, I was better off 40 years ago. — Hank, Seattle

A: You may have had better coverage, but the health care available to you -- if you can pay for it -- leaves you much better off today than you were 40 years ago. There's no debate over the fact that modern medicine can now diagnose and successfully treat many more illnesses than it could 40 years ago.

That's one big reason it's more expensive: medicine today provides much better care. Those MRI scanners, for example, cost money -- to develop, construct, operate and maintain -- a lot more than those 40-year-old X-Ray machines. Prescription drugs that now treat everything from cardiovascular disease to cancer weren't around 40 years ago: some of the money you're talking about went into the research that created those drugs. And more dollars now go to paying for those drugs: many people today routinely take a daily pill for diseases that were untreatable. And doctors are performing procedures that were unthinkable 40 years ago. Because of all that, people are living longer with chronic illnesses that were also once untreatable: those patients represent a major portion of the higher cost of health care. All of which costs money.

Where does the money go? Tracking the direct costs is the simple part. According to a recent study by the California Health Care Foundation, the $1.6 trillion spent on U.S. health care in 2002 (up 9 percent from 2001) breaks down like this: 31 cents of every dollar went to hospitals; 22 cents to doctors and other clinicians; 10 cents went to pay for prescription drugs; 10 cents to dental care; 9 cents to nursing homes; 7 cents to administrative costs and 10 cents to "other" -- which includes a number of smaller items like medical equipment and hospital construction. The two biggest gainers that year were prescription drugs (up 15 percent) and administration (up 16 percent).

But those numbers don't account for indirect costs. There's no question that medical malpractice lawsuits, for example, have sucked a lot of money out of the system. Forty years ago, for example, people accepted that certain medical procedures involve risks, and, when things went wrong, they didn't instantly sign up with a trial lawyer and look for someone to blame. Today, OB-GYNs have to pay $100,000 a year for insurance to protect themselves from the prospect of an emotional jury holding them responsible for an outcome that only God could have prevented. The question is: how to control that cost without eliminating the legitimate right of people to sue the occasional doctor who screws up badly.

In the past 40 years, we've also turned health care into an "industry" -- and privatized every corner of it (ironically) in the interest of driving down costs through competition. There used to be, for example, a "public" hospital system in this country that offered health care services to those who couldn't afford it. They may not have been the best hospitals, but they were supported with public funds and took all patients, regardless of ability to pay. (That may have been "socialism," but it worked pretty well.) Today, those hospitals have been sold off to publicly-traded, earnings-driven chains -- or closed because they can't be made "profitable."

The result was to increase the cost of treating people by marking up care to generate the profit needed to keep shareholders of these companies happy. But the people who used to go to public hospitals are still getting sick. Now, when they finally show up for treatment, they're sicker than when they should have seen a doctor in the first place -- when they probably could have been cared for at a much lower cost.

The same profit motive has been introduced to the process of administering health coverage. When Blue Cross Blue Shield was formed 70 years ago, it was an association of not-for-profit insurance plans across the country. Today, most health insurance is provided by earnings-driven, publicly-traded insurance companies. These insurers have also inserted themselves into the process of treating patients -- telling doctors which procedures they will or won't pay for, or which medicines they will or won't cover. True, there have always been doctors who ordered too many tests or performed unnecessary procedures, and it's vital to have controls to prevent that. But adding a third party to every doctor-patient interaction -- with all of the added procedures and paperwork -- has almost certainly added to the overall cost.

Finally, patients -- the people who consume health services -- now take much more control over decisions about their care than they did 40 years ago, aided by the deluge of information available in books, magazines, TV shows and the Internet. That's a good thing. But, as President Bush has pointed out, most people covered by health insurance bear little of the cost, so there's no incentive for them to shop around or think twice about demanding to see a specialist. If you could go shopping at the mall for $10 a visit, I doubt you'd spend much time looking at price tags. Stores could charge pretty much whatever they wanted.

So why can't we fix this? Mainly, because it's hard to reduce these issues to 20-second sound bites. And good information is hard to find. With so many players in the game, there are plenty of powerful interests who don't mind muddying the waters with misinformation to protect their winnings. But it's a huge problem and it's not going away. Listen to the candidates, do your own research, make up your mind, and then vote.