The proper role of government in financing and delivering health care is one of the hottest public policy issues of our time. Some experts call for more regulation and more subsidies, while others call for less. All levels of government in the U.S. are coping with rising spending on health care for their own workforces and rapidly rising spending on programs for the poor and elderly.
This booklet is designed to help state legislators find solutions to health care problems by first identifying their causes and true extent–which often are not as they are reported in newspaper stories or touted by special interest groups–and then by presenting 10 principles that ought to guide reform efforts.
Do we really spend too much?
It often is assumed at the outset that “we spend too much” on health care in the U.S., but who is “we” and what is the “right” amount? Individuals, not nations, earn income and choose how to spend it.
When adjusted for inflation, per-capita health care spending in the U.S. today is about 10 times what it was in 1950. By itself, this statistic is not evidence of a problem. Data from around the world show that people tend to spend a bigger part of their incomes on health care as they grow wealthier (OECD 2004). Health is what economists call a “superior good,” which means spending rises faster than income.
Spending on health care in the U.S. totaled $1.9 trillion in 2004–an average of $6,430 per person, almost one-sixth of the nation’s gross domestic product (NCHS 2006). No doubt some of this increased spending has produced good results. Higher spending on health care is responsible for some part of the significant increases in lifespan and reduced disability during the past half century. Most spending today is on treatments that were unavailable at any cost in the not-so-distant past (Cutler 2004, Gratzer 2006). Health care providers in the U.S. provide a higher level of care than is available in most, and perhaps all, other countries (Brase 2000).
Reasons we spend so much
Spending on health care in the U.S. often is compared unfavorably to spending levels in other countries, but there are some good reasons having little or nothing to do with public policies that help explain why health care in the United States costs more than it does in other countries. Among them:
- We invest much more in saving prematurely born infants and extending the life of our elderly. Other countries withhold care and stop treatment (Wesbury 1990, Wennberg 2006).
- Pregnancy, birth, and abortion rates among girls aged 15 to 19 are higher in the U.S. than in other developed countries (Singh and Darroch 2000).
- The portion of the U.S. population aged 15 and older that is obese is nearly double that of Canada and substantially higher than in other wealthy countries (Anderson and Hussey 2000).
The need for health care reform
Even knowing that a high level of spending on health care is not necessarily a bad thing, and that there are reasons why we spend more than consumers in other countries, we might still conclude that we spend too much on health care in the U.S. In fact, we should come to this conclusion.
Waste and inefficiency are easily identified in our hospitals, government programs, and private insurance markets (Meier 2001b). We see it in the number of people who lack health insurance, the lack of price transparency in much of the health care system, the high rate of medical mistakes in hospitals, and the massive transfers of income–often from the poor and uninsured to the well-to-do and insured–that the current system generates.
A “good health care system” wouldn’t employ armies of “gatekeepers” to intrude in the relationship between doctors and patients, wouldn’t require lawsuits to ensure that victims of malpractice get adequate compensation or that incompetent providers lose their licenses, and wouldn’t ration access to life-saving drugs.
These are the real problems facing health care in America today, and they each can be traced back to bad public policies. The rest of this booklet examines these policies and describes the most promising reforms.
Suggested Readings: Bast, J. Rue, R. and Wesbury, S., 1993, Why We Spend Too Much on Health Care, Chicago: The Heartland Institute; Cutler, D.M., 2004, Your Money or Your Life: Strong Medicine for America’s Health Care System, New York: Oxford University Press; Gratzer, D., 2006, The Cure: How Capitalism Can Save American Health Care, New York: Encounter Books.