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health2a.jpg 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

by
Max Sawicky

Bio

April 25, 2007 - 1:00 am

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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