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‘Why did this have to happen…?’
Devaluation of the dollar driving up the cost of health care.
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It is a question that we often ask ourselves, especially when things go wrong. After all, things don’t “just happen.” There is usually an underlying cause and if we look hard enough we can find it.
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Take for example the crisis in the sub-prime home mortgages. Why is it now that we have run into this problem? After all, people have been taking out home loans for many years. Research implicates the passage of the 1977 Community Reinvestment Act, which was implemented to help those at the bottom of the economic ladder qualify for home loans. Although the intent was noble, the unintended consequences are being faced today. This legislation pressured banks into making loans to people who were not credit-worthy. How? When a bank plans to change its business in any way, for example opening a new branch, it must receive regulatory approval. When applying for such approval it must show that it has made a sufficient number of loans to such risky borrowers. Not making enough loans? Then no approval.
This was further complicated in 1995 when the U.S. Treasury Department created the Community Development Financial Institutions fund to help banks finance economic development “encouraged” by the CRA. The banks were pressured to make their loans without benefit of the usual gauges used to determine a person’s credit-worthiness. Their incomes did not have to be verified and determinations were not made regarding the size of the loan relative to the borrower’s income. Obviously these are all critical factors to consider when lending out money. Banks were “encouraged” to ignore them.
The fact that this was occurring was not apparent to the general public because of the housing bubble, which allowed for easy refinancing of the bad debt. But, once the bubble broke, problems became obvious as these borrowers began defaulting on their loans. The negative impact of this is now being felt not only in the United States but throughout the world.
Another example in which underlying causes can be elucidated involves the price of crude oil, which just passed $141 a barrel as I write. Levels this high are unprecedented. But why so high? One reason we are told involves demand and in fact that is true. Take China for example. Currently it is putting 1,000 new cars on the road, not each year, not each month but rather each day in the city of Beijing alone! This doesn’t take into consideration what is happening on the roads of its many other cities. Thus demand for oil is skyrocketing; increased demand increases price.
But the weakening of the U.S. dollar is also contributing to the rising price of oil. Oil is pegged in U.S. dollars. In 2002 one U.S. dollar equaled one Euro. Now, six years later, it takes $1.60 to equal one Euro. At a current price of $4.10 (estimated) per gallon of gasoline, if the dollar had not been devalued by inflation, we would be paying only $2.56 per gallon. Inflation is often misunderstood to mean rising prices. Rising prices are merely an effect of inflation. Inflation itself refers to a rise in the amount of paper currency in circulation, which is determined by the Fed’s fiscal policy.
Consider one result of this, as was pointed out in the Presidential debates. The amount of dollars needed to buy a gallon of gas has gone up dramatically over the last 20 years but an ounce of gold today will buy roughly the same amount of gas that an ounce of gold bought 20 years ago! This is because our dollar has been severely devalued. Gold has not. There has been major pressure to inflate the dollar because of our national budgets, which are based on deficit spending. In the last 50 years they have only been balanced two times. And balanced budgets will not occur anytime soon. Because of the war, over $500 billion per year is currently being borrowed from China.
When facing debt, nations tend to expand their currency in order to pay past debt with cheaper current dollars. The United States is no exception.
Impact on health care
All of the above factors ultimately impact health care.
My patients are losing their homes and finding it more difficult to pay their medical bills. Some of my patients drive quite a distance to see me. Their trips to my office are becoming much more expensive because of the cost of gasoline.
By law, on July 1, a 10.6% cut in Medicare physician reimbursement was to be initiated. However, neither political party wanted the cut. Therefore rather than implement the cut, CMS was ordered not to process any of our claims starting July 1. This indeed stopped the cut. But, rather then getting paid 10.6% less, we got paid nothing!
Congress then returned from its July 4 recess and passed legislation that “corrected” our reimbursement. For the remainder of this year, no cuts will be put into place and on January 1, 2009, reimbursement will be increased 1.1%. But the Consumer Price Index rose 1.1% during the past month alone and the rate of inflation is rising faster than it has in over 20 years. Furthermore, because the federal formula for calculating our reimbursement still contains the SGR, in 18 months on January 1, 2010, we are scheduled to get a 21% cut in Medicare physician reimbursement. Meanwhile, I’m being told that this is a victory?
Clearly, we are in economic trouble. The increasing price of gas and the devaluation of the dollar will drive up the cost of almost everything, including health care. This in turn could drive down our standard of living.
What is not so clear is “why did this have to happen … in my lifetime?”
Richard Dolinar, MD, is a Senior Fellow in Healthcare Policy at the Heartland Institute, Chicago, a Clinical Endocrinologist in Private Practice, Phoenix, Ariz., and a member of the Endocrine Today Editorial Board.