Health Cost: What Limit?

Senator Edward Kennedy chose the setting with an eye for drama, and history: the Senate Caucus Room, where his brothers John and Robert formally launched their runs for the presidency. Teddy's purpose was not to announce his own candidacy—yet— but to seize the initiative on an issue that seems sure to bulk large in the 1980 campaign: the skyrocketing cost of medical care. Before TV cameras last Monday he outlined the latest version of his national health insurance plan, designed to enable every American to have medical insurance regardless of age or state of health. Two days later he returned to the issue, this time as chairman of a Senate subcommittee that approved, with some changes, a high-priority Carter Administration bill to clamp a lid on hospital costs.

The legislative and political activity underlines a pressing national concern. As recently as 1965 the nation spent $38.9 billion in medical outlays of all kinds (hospital bills, physicians' fees, lab tests). That amounted to 5.9% of total spending for all goods and services. Since then the bill has increased by 429%. This year the total is expected to reach $206 billion, or 9.1% of the gross national product. The White House estimates that at the present rate of increase, medical costs will double every five years, a rise far in excess of inflation. Says Dr. Richard Corlin, president of the Los Angeles County Medical Association, with only mild hyperbole: "We are now in a position to spend the entire national bud get on medical tests and procedures."

Prices of the most routine facilities and treatments are staggering. Samples: in 1969 Massachusetts General Hospital charged $80 a day for a semiprivate room. Now the bill is $189 a day. Ten years ago, a baby could be delivered at Manhattan's New York Hospital-Cornell Medical Center for $350 in hospital bills, exclusive of the obstetrician's fee. But when 6-lb. Priscilla W. was born there in a fine uncomplicated delivery, she cost her parents $2,800—more than $450 a pound—$1,300 of that for the hospital.

It is true that most medical bills are covered by Government programs or by employer-paid private insurance. But many citizens who long kidded themselves into believing that, as a consequence, medical inflation did not hurt them, now realize that they do pay the bills. They pay in taxes needed in part to finance Medicare and Medicaid. They pay in smaller wage increases than they would get if private employers were not saddled with huge medical insurance premiums. They pay in price hikes that result directly from those premiums. The health insurance costs that Ford Motor Co. pays for its employees add $130 to the price of every car the company makes.

A growing number of policymakers, including Carter and Kennedy, are convinced that the nation must slow the surge in health costs as part of any effort to control the general inflation that saps the economy and erodes the dollar. But any attempt to do so must be based on a clear understanding of why those costs are so high in the first place, and that understanding is not easy to acquire. The economics of medicine are so unlike those of any other market that even many doctors and hospital administrators find them illogical. Says Dr. David Thompson, director of