NCPA - National Center for Policy Analysis


June 16, 2009

What President Obama is promoting as health care "reform" almost certainly won't suppress spending and, quite probably, will do the opposite, says columnist Robert J. Samuelson.

A new report from Obama's own Council of Economic Advisers shows why controlling health costs is so important.  Since 1975, annual health spending per person, adjusted for inflation, has grown 2.1 percentage points faster than overall economic growth per person.

If this trend continues, the CEA projects that:

  • Health spending, which was 5 percent of the economy (gross domestic product) in 1960 and is reckoned at almost 18 percent today, would grow to 34 percent of GDP by 2040 -- a third of the economy.
  • Medicare and Medicaid, the government insurance programs for the elderly and poor, would increase from 6 percent of GDP now to 15 percent in 2040 -- roughly equal to three-quarters of present federal spending.
  • Employer-paid insurance premiums for family coverage, which grew 85 percent in inflation-adjusted terms from 1996 to $11,941 in 2006, would increase to $25,200 by 2025 and $45,000 in 2040 (all figures in "constant 2008 dollars"); the huge costs would force employers to reduce take-home pay.

The message in these dismal figures is that uncontrolled health spending is almost single-handedly determining national priorities.  It's reducing discretionary income, raising taxes, widening budget deficits and squeezing other government programs.  Worse, much medical spending is wasted, the CEA report says. It doesn't improve Americans' health; some care is unneeded or ineffective, says Samuelson.

The central cause of runaway health spending is clear.  Hospitals and doctors are paid mostly on a fee-for-service basis and reimbursed by insurance, either private or governmental.  The open-ended payment system encourages doctors and hospitals to provide more services -- and patients to expect them.  It also favors new medical technologies, which are made profitable by heavy use.  Unfortunately, what pleases providers and patients individually hurts the nation as a whole, says Samuelson.

That's the crux of the health care dilemma, and Obama hasn't confronted it.  His emphasis on controlling costs is cosmetic.  The main aim of health care "reform" being fashioned in Congress is to provide insurance to most of the 46 million uncovered Americans.  This is popular and seems the moral thing to do.  After all, hardly anyone wants to be without insurance.  But the extra coverage might actually worsen the spending problem, says Samuelson.

Source: Robert J. Samuelson, "Wrong Way on Health 'Reform,'" Washington Post, June 15, 2009.

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