Healthy? Don’t Click!
Economist (and PJM columnist) Max Sawicky looks at the two trillion dollar cost of US health care and wonders if we are getting sufficient bang for our serious bucks.
by Max Sawicky
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People are hating taxes, but what about health care? There is of course plastic surgery, lipo, and botox, but most medical expenses are not what we would think of as optional. We can gamble with our health by economizing on doctor visits, foregoing treatment, and the like, but obviously this can lead to regrets later on.
One type of fallout is the difficulty in running or even launching a small business, for which health insurance costs can soar. Why do the small business lobbies go nuts about taxes but roll over on health insurance costs?
How big is the breadbox? Health care spending — public and private — was 16 percent of Gross Domestic Product in 2005, or about $2 trillion. The two biggest government health programs are Medicare and Medicaid, for a total of $655 billion in 2005. Even without M&M, health care spending is much higher than the Federal individual income tax.
Health care spending is not only high, but it has been growing faster than incomes. That means that in the future it could account for a ever-growing slice of the national economic
pie. For instance, public health spending in 2005 grew 7.7 percent. Private spending grew by 6.3 percent. Since 2001, GDP grew by only 5.5 percent, and 2005 was a relatively slow year for health care spending growth. A peak year was 2002, with growth of 9.1 percent.
Not only is our spending high and growing fast, it is much higher than other countries. The OECD puts the U.S. at 15.3 percent of GDP in 2004. Next largest are Switzerland and Germany, with 11.6 and 10.9 percent, respectively. Maybe we have more fun, but we don’t live any longer than the Swiss or Germans. In 2003 U.S. life expectancy at birth was 77.5 years. For the Swiss it was 80.6, for Germans, 78.6. For Spain it was 80.2, and their health care spending is not much more than half that of the U.S., relative to GDP. I am confident the Spanish have at least as much fun as we
do.
Believe it or not, there is a good news angle to this. To some extent,growing spending is buying more health — new procedures, drugs, professional specialization can be beneficial. The market provides this stuff because U.S. incomes grow, fueling a demand for it. One question is whether we are getting the best bang for the buck. Comparisons with other countries suggest not. If not, what to do about it?
Some point to government as a drain. Medicaid pays for nursing home care for the elderly and disabled, without which these peoples’ families (or their state and local governments) would be stuck with the tab. Medicare of course is for the elderly. Try getting health insurance at age 65. A stroke of the pen could eliminate these programs, but not the costs they currently defray.
For lack of government involvement, naturally some families would come out ahead, others not so much. Absent sudden death, eventually most everyone will have health insurance needs whose costs are prohibitive. Some would just as soon take their chances.
I prefer insurance, a commodity that is often in short supply from insurance companies. Go figure.
Max B. Sawicky is an economist at the Economic Policy Institute. He has worked in the Office of State and Local Finance of the U.S. Treasury Department and the U.S. Advisory Commission on Intergovernmental Relations. He is a member of the National Board of Americans for Democratic Action and serves on the editorial advisory board of Working USA. He is a frequent contributor to TPM Cafe.
Sawicky’s page can be found at Max Speak, You Listen!
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6 Comments
Dr. John:Let us not forget in this equation the American patient. This person drives up health care costs by being overfed the wrong foods, underexercised, non-compliant to the basic health care rules, and dependent on the health care industry or backstreets for his pharmaceuticals. Often just throwing more money at this “system” only extends the agony, and avoids the source of the problem.
Apr 25, 2007 - 11:59 am gringo:What is the root cause of high medical costs? For some reason, the article did not discuss the issue.
Also, I am curious whether a higher rate of rise of costs for the government provided medical service in any way indicates that private health care is more effective.
Apr 25, 2007 - 12:43 pm Miracle Max:Dr — No question, patients could take better care of themselves. But nobody can snap their fingers and make that happen, except maybe in their own case.
gringo — There’s a fair amount of debate about all of those issues. The most common view is that because the nature of health insurance is to pay for everything above some minimum, there is no incentive for either doctor or patient to economize. You basically buy anything with the slightest chance of working.
Most of what the Gov spends goes to private sector providers. Medicare or Medicaid reimburses doctors, hospitals, etc. As I mentioned, private spending goes up as fast as public. One case where the Gov provides health care — the Veterans Administration — has drawn a book by Phillip Longman praising the VA, and of course recently the Walter Reed situation (though WR is run by the Army) has led to criticisms of VA hospitals.
The U.S. system is less public than most any other, and nobody is racing to copy us.
Ezra Klein has an article in The American Prospect on some other countries’ systems.
Apr 25, 2007 - 5:07 pm Smokey:Government health care would be a major disaster.
Compare it to non-government health care. Laser eye surgery, for instance. The cost of laser eye surgery has declined by 90% since it was introduced — and the quality has gone up substantially.
When people have to spend their own money on a medical service, competition for those dollars lowers the price. But when someone else pays [the taxpayers], exactly the opposite happens.
Just look at the UK and Canada. Patients have to wait months for treatment of even minor medical problems.
Apr 25, 2007 - 5:08 pm Smoker:Smokey,
Pure price competition for elective procedures is not a fair comparison to policies to provide basic health care for all citizens.
Medicare services are less expensive under government auspices. Private health care insurance and its associated costs are much more expensive in the U.S. than other developed economies with various forms of universal health. Furthermore, measurable outcomes for the U.S. system are worse. So we deliver less care (many do not have it), deliver worse outcomes, and pay a higher price. And this is an argument against universal health care? Somehow I am unconvinced.
Health care providers in this country do not compete on price. Even we do not have a free market model. We have a system that is tragically broken.
Just look…just look…more smoke and mirrors. The added wait time is offset to a great degree by the facts that (a.) one will eventually receive the care from a qualified professional, and (b.) one will not have to hide assets (cheat) or declare bankruptcy to obtain needed care.
Universal care in other developed countries is an unqualified success. If the pure price model (which doesn’t exist anywhere anyway) was so great…wouldn’t we see it? Somewhere, anywhere?
Frankly, we do not. cough, cough.
Apr 25, 2007 - 7:12 pm JD Johnson:We have been conditioned to go to the doctor if we even ‘think’ we are sick. One ‘knows’ when your temp rises to 101 or a rash won’t go away, or a lump gets sore. If people had a deductable, insurance would return to being insurance, instead of free medical advice dispensed from over crowded emergency rooms at astronomical prices. Medicine is no longer an Art, and don’t wait for them to turn away business.
Apr 26, 2007 - 8:10 am