The U.S. Health System Is Not An Economic Burden

Commentary by John R. Graham

Source Forbes

Health spending consumes a higher share of output in the United States than in other countries. In 2013, it accounted for 17% of Gross Domestic Product. The next highest country was France, where health spending accounted for 12% of GDP. Critics of U.S. healthcare claim this shows the system is too expensive and a burden on our economy, demanding even more government intervention. This conclusion is misleading and leads to poor policy recommendations, according to new research published by the National Center for Policy Analysis (U.S. Health Spending is Not A Burden on the Economy, NCPA Policy Report No. 383, April 2016).

Discussing health spending in dollars, rather than proportion of GDP, the report notes Americans spent $9,086 per capita on healthcare in 2013, versus only $6,325 in Switzerland, the runner-up. (These dollar figures are adjusted for purchasing power parity, which adjusts the exchange rates of currencies for differences in cost of living). This big difference certainly invites us to question whether we are getting our money’s worth. However, it is not clear that this spending is a burden on Americans, given our very high national income.

After subtracting health spending from U.S. GDP, we still had $44,049 per capita to spend on all other goods and services we value. Only two countries, Norway and Switzerland, beat the United States on this measure. But compared to larger developed countries, Americans have higher income per capita after subtracting healthcare spending. For example, in the United Kingdom, GDP per capita after health spending was only $34,863 in 2013. So, even though Americans spent significantly more on healthcare than the British, the average American enjoyed $9,185 more GDP after health spending than his British peer; and just under $6,000 more than his Canadian neighbor.

Britain socialized its health system shortly after World War II, completing the work by 1948. Canada’s healthcare was more gradually socialized by provincial and federal governments during the period 1947 through 1966. Many assert these so-called single-payer systems relieved the burden of private payment from citizens and made the economy more productive.

On the contrary: Since 1960, the U.S. economy has outperformed all comparable developed countries except Norway and Switzerland with respect to economic growth, after subtracting health spending. From 1960 through 2013, the share of U.S. GDP allocated to healthcare more than tripled.  However, this had no impact on the ability of the U.S. economy to deliver high GDP per capita, outside healthcare.  Adjusted for purchasing power parity, U.S. health spending increased $8,937, while GDP per capita increased $50,269, from 1950 through 2013. Thus, GDP per capita available for other goods and services, after spending on health care, increased $41,332, or $780 per year.

Over these 53 years, only Norway and Switzerland increased their non-health GDP per capita more than the United States.  Norway, which had become a petro-state due to revenue gushing from the North Sea oilfields, increased this amount by $57,981, which is $16,649 more than the United States, or $314 more in non-health spending per year per person.

The report concludes the theory that health spending influences economic growth for better or worse is too simple. In fact, wages, prices and resources allocated to healthcare are a consequence of economic activity in other parts of the economy, as well as health policy.

Further, whether the system is defined as “universal” or “single payer” may be less important than other characteristics in determining how the system performs. The report ranks 13 developed countries by the share of health spending that is controlled directly by patients out-of-pocket versus the share controlled by third-party bureaucracies, either private or public. With only 12% of health spending controlled by patients directly, the U.S. ranks ninth by this measure. Swiss patients directly control over one-quarter of their health spending. Even Canadians, who live under a tightly closed, government monopoly, so-called “single-payer” system, control a somewhat higher share of their own health spending than Americans do.

Because most other countries allow patients to control a higher share of health spending than the United States does, the report concludes this is likely another factor keeping health spending lower than in the United States.

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