The Consequences of Run Away Health Care Costs
Estimates today put the US per capita health care spending at $9,000 a year. For a family of four this represents $36,000. Most families do not see this magnitude because their employer picks up the lion share and Medicare covers most of the expensive years. Still health care costs, such as out of pocket expense or the employee share of his employer provided policy, sends most screaming “foul” when presented the bill.
The estimated bill for the entire US is about $3 trillion annually, or about 19% of the entire GDP. For comparison sake, this is slightly larger than all the Federal taxes collected and 3% short of all Government spending. This is a gigantic expenditure.
Putting US expenditures in a different perspective, for example in comparison to other selected countries. In a 2008 study, the US boasted a health care expense of 16% GDP while the other countries studied ranged from 8% to 11%. Something seems odd. Why are the US figures for much higher?
If the US were as efficient with health care expenditures as the most expensive of the other countries, health care costs could drop by a third.
Unfortunately, that would not be the end of health care cost creep. All other major countries still report national budget conflicts with the relentless rise in health care costs. But getting our costs a third lower is an attractive target just the same.
This new, lower health care cost world would have some differences from what Americans know today. Health care plan administrators (formerly the Aetna’s and Cigna’s of the world) would simply pay claims and keep records. What these administrators covered and how much they actually paid would be set by a national non-political board of medical professions. Coverage would be universal. (Potentially, as in Germany, there might be a second layer of coverage which could provide coverage not available in the national plan.)
There would still be the problem of how to pay for health care. Presumably if American businesses did not have to provide coverage, that cost could go “one time” into increased wages and salaries. Then, individuals would need to pay their own way. Or, a national tax system could be established, or possibly some combination of both.
Not so fast. We should expect the predictable laments.
- “Too much government” despite the fact that a national board would be composed of non-government employees.
- “I don’t want to be forced to buy coverage” despite the fact that those who do not buy insurance games the system.
- “We have the best health care in the world and this will ruin it”. The data shows the US does not have the best health care in the world, but clearly any change can be fraught with the potential for problems.
The most obvious changes involve the loss of capitalization value for many health care organization as well as the loss of $900 billion that flows annually to hospitals, doctors, and drug companies. Doctors, hospitals, and drug companies will simply not receive the same revenues as before. This would mean lower wages, salaries, and fees being paid as well as a sharp drop in the stock value of publicly traded health care providers.
Sound good? I guess it depends upon where you stand. Do you pay or do you collect?
The numbers speak.
The country could decide to hold firm with our current health care delivery system. That path is clear, it is the one we are on. So expect each year to see a bigger piece of GDP (and each person’s budget) going to health care and not other discretionary spending.
Alternatively, the US could look to a Universal health care model with a target health care cost as a percent of GDP, and decide to move towards it over, say a 10-15 year period. While it would be feasible to adopt Universal health care faster, the dislocations will be severe.
Evolution in this case might be better than revolution.