According to the 2008 Statistical Abstract of the United States, health expenditures accounted for 15.3% of GDP in the United States in 2004, up from 8.8% of GDP in 1980. That is vastly more than healthcare’s share of GDP in Canada (9.9%), France (10.5%), Germany (10.9%), Denmark (8.9%), Norway (9.7%), or Sweden (9.1%), all countries with publicly financed universal health insurance (see attached spreadsheet). In the United Kingdom, which also has public provision of health care via the National Health Service, healthcare only accounted for 8.3% of GDP. Italy and Japan have some of the longest-lived people in the world, but their healthcare expenditures absorbed only 8.4% of GDP and 8.0% of GDP, respectively. And not only did the U.S. have the highest health care expenditures as a share of GDP in 2003/2004, it also had the largest increase since 1980. So, from a public policy perspective, how large should U.S. healthcare expenditures be as a share of GDP? Well, according to public policy how large should U.S. entertainment expenditures be as a share of GDP? How large should housing expenditures be as a share of GDP? How large should travel expenditures be as a share of GDP? Perhaps you get the idea. That is not the right question.
The answer is that if it is worth it to them, healthcare expenditures should be as high a share of GDP as Americans choose for it to be. If they choose to go to the doctor every time they have a sniffle, rather than spend their money elsewhere, fine. If they would prefer to take allergy medicines so they don’t sniffle at all and cut spending elsewhere, then that’s their business. If they believe their life is more enhanced by a weekly massage given by a healthcare professional than by a weekly trip the beauty parlor, they know what is best for them. If they believe that breast implants for flat-chested women, hair implants for balding men, and straighter and whiter teeth will do more to aid their careers than additional education and training, it’s their money and their decision. If they would rather purchase replacement body parts so they continue to ski and play basketball into late middle age, rather than settling into a life of long walks, bicycle rides and bridge playing, to each his own.
If, moreover, they are willing to spend what remains of their life savings receiving technologically advanced, extremely costly, and unproven health care to possibly extend their lives by a brief period of time, they should be free to make that choice. And, someone has to go to the physician or hospital rated the best, rather than the physician or hospital merely considered adequate. If the former charges more, then people should be free to pay it.
The federal, state and local governments do not have to decide how much people spend on healthcare. People should make that choice themselves. The government needs only to decide what level of health care everyone should be entitled to, no matter what it costs, whether they can afford it or not. And what health care people should be forced to pay for other people to have, whether they are willing or not.
The problem with the extra 5 percent of GDP, more or less, that the United States spends on healthcare is not that it is worthless, although some of it probably is. The problem is that at least some of it, an unknown amount, is worth less than other things that are given up to pay for it, if people really had to choose. But in the United States, for the most part, those with health insurance are not required to choose. Money is taken from everyone, like it or not, in taxes or lower wages, for health insurance, government health care spending, and government subsidies for private health insurance. And after that point, any healthcare a person chooses to consume is often “free,” or nearly so, while spending on other things costs money.
With the healthcare industry, like other industries, pushing for people to buy more and more services at higher and higher prices, “free” sounds like a pretty good deal. The healthcare industry, with the coercive power of the government behind it, forces everyone to put more and more money in, so whoever takes the most out comes out ahead. Whether or not it would be worth it if they had to pay. And if it really isn’t worth it, then it is wasteful, and whatever Americans are giving up to pay for that extra health care damages the economy and our competitiveness.
And what about that basic healthcare everyone should receive? Some of those forced to pay in, for others to receive extravagant, costly health care, aren’t even entitled to basic care under current arrangements. Reading over the health care statements of the candidates, it is good to see most at least saying they want to change that. But if the goal is to allow everyone now entitled to extravagant costly health care at public expense to keep it, while extending similar care to the uninsured, the country is going to go bankrupt.
According to the Census Bureau, public healthcare expenditures totaled 6.9% of the GDP in the United States in 2004. That is the same as in Canada and just slightly less than in the United Kingdom, where public healthcare expenditures absorbed 7.1% of GDP. But this is an underestimate for the United States, as I described in an earlier post, because it does not include expenditures by private health insurance companies for government employees whose insurance is paid for by tax dollars. Nor does it include the additional tax dollars that have to be collected to offset the tax breaks for private health insurance paid for with private money. Directly or indirectly, I believe U.S. public healthcare spending is probably about 10.4% of GDP, or about two-third of the total in the U.S. That is about the same as the entirety of healthcare expenditures as a share of GDP in Canada, France, Germany, Norway, Sweden, Denmark, the Netherlands.
Think about it. If U.S. government health care expenditures and subsidies were allocated with a greater degree of equity, and the U.S. healthcare industries were forced to perform with an equal level of efficiency, then with just the federal state and local taxes already paid or foregone, the U.S. could guarantee all Americans the same level of healthcare that everyone is entitled to in those other countries. Universal health care, as good as in Canada, France, Germany, Norway, Sweden, Denmark, and the Netherlands, without a single additional tax dollar.
And in addition, Americans who could afford it, or who received charity from other Americans, could be free to purchase as much additional healthcare as they wished on top of that, or pay as much more for it as they thought worth it, in advance via insurance or in cash, without any tax breaks or subsidies. Perhaps they would choose to spend more than today, perhaps less, perhaps the same, but it would be their choice. And since it would be their choice and their money, the amount spent would bankrupt neither our governments nor our businesses.
So why not do it? Because powerful interests who control our elected officials would lose something, and are therefore opposed.
Let’s just look at three key interests — unionized public employees with employer-provided health insurance, very affluent people with health insurance, and the health care and health insurance industries. In general unionized public employees currently have their employer — the taxpayer — pay far more for their health insurance, which covers more things, than most private businesses do. And they get this lucrative income without paying taxes on it. The wealthy, when they receive health insurance from an employer, also receive the massive tax break, having the government in effect subsidize 40% to 50% of it. That doesn’t sound like an incentive to think twice about whether a particular type of care is worth it, does it?
Senator Clinton, and perhaps only Senator Clinton, acknowledges the unfairness of the government tax subsidy for unlimited, costly, extravagant care. But rather than limiting the value of health insurance that anyone could receive tax free, she proposes to preserve the unlimited subsidy for those earning less than $250,000 per year. So under this proposal if you have a couple of public employees, union workers or non-profit employees with a family income of $249,000 receiving an additional $30,000 in employer financed health care, then that additional $30,000 is tax free. But if you have a couple of private sector workers earning $250,001 but receiving just $15,000 worth of health insurance, then they have to pay taxes in the $15,000. Based on my knowledge of what people earn, I don’t think the $250,000 is an accident. Senator Clinton is promising to continue to provide unlimited subsidized health care for her affluent Democratic supporters while cutting it off for more affluent Republican supporters.
On the other hand, Senator Edwards, Senator Obama, Governor Romney, and Governor Huckabee don’t propose reigning in this unlimited subsidy at all. Doing so would not be popular with the wealthy. Romney wants to preserve that unlimited tax subsidy, and also to provide it to individually purchased health insurance as well. That means a business owner could eliminate health insurance for his or her employees, while still getting a 40% or 50% government subsidy for a very expensive individual policy for himself. Clinton and Obama want to provide all Americans with a health insurance plan as generous as that provided to members of Congress. What share of GDP would that cost, and if luxury-class health insurance is available to anyone, and all had to pay for it, why would anyone choose something cheaper? Mayor Giuliani would limit the tax exclusion for individually purchased care to $15,000, but doesn’t mention limiting the employer-provided exclusion to that amount. Senator McCain proposed “leveling the playing field” by providing health insurance tax credits of $2,500 $5,000 for families), but does not suggest making additional amounts taxable.
Of course the health care industry likes the idea that whatever health care it can talk people into is either free or heavily subsidized, so people don’t think too hard about the tradeoff with other things or value for the money. So the industry opposes limitations on what is paid for or subsidized by the government. The result is more waste.
Why are the Democrats, in particular, unwilling to face the fact that limiting the growth of health care spending means telling people that there are some services the government will not pay for or subsidize, and they can only have the if they are willing to pay for them themselves? Part of it is a concern for equity. To some, if anyone is entitled to receive a high-cost, low odds of success cancer treatment, then everyone should be entitled to receive it, regardless of ability to pay. If some physicians are better than others, then the better physician shouldn’t only be available to those who could pay more for higher quality. Some other criteria (Contacts? Access to information? Which neighborhood you are rich enough to live in? Which union you belong to?) should determine who receives healthcare from whom. If anyone gets straighter, whiter teeth than everyone should get straighter, whiter teeth.
You see this in the traditional Medicare program. The government doesn’t decide what to pay for a given service, with the recipient required to pay more if they go to doctors or hospitals that charge more. A doctor or hospital either accepts what Medicare pays as the total, or does not get paid by Medicare. Neither can a patient choose a more expensive, newer therapy by agreeing to pay more than Medicare does. Either Medicare covers it, or it doesn’t.
If you think this is equitable, think again. Resources are not unlimited. So rather than provide a more modest level of care for everyone, and allow some to purchase more on their own, in the United States we provide a more extravagant level of care for many, and nothing for some. And not just at the national level. At the state level, in every recession when money gets tight, people are pushed off the Medicaid rolls instead of people on the Medicaid rolls being told they are entitled to fewer health care services.
In more “equitable” universal health care countries, on the other hand, more advanced health care procedures and techniques are often unavailable. This doesn’t just hurt those who could have afforded to pay extra for advanced health care, and are forced instead to pay the entire cost and get nothing for their tax dollar. It also hurts those who cannot afford the advanced health care. Why? Healthcare is a technology-driven industry, like consumer electronics, and as in consumer electronics the most advanced healthcare is both brutally expensive, to the point where it really isn’t worth it, and not necessarily much better than the simpler, established healthcare it replaces. But in consumer electronics, because no one is forcing people to pay for the expensive new stuff, over time the new stuff that isn’t much better than the cheaper old stuff disappears, while the new stuff that is better becomes cheaper with mass production techniques, to the point where it is affordable for everyone.
So if better off people want to consume luxury-class or to become "early adopters" of cutting-edge healthcare, then let them. But don’t force other people, including those less well off in healthcare or in general, to pay for this, directly or in tax-based subsidies. No matter whose political coalition they are in. Everyone should have the basics in healthcare. But everyone should be forced to make choices for anything beyond the basics.