NCPA - National Center for Policy Analysis

Higher Health Care Costs: Who Cares?

April 19, 2001

With health insurance premiums rising 10 percent to 20 percent and more this year, some health policy analysts are in a panic -- again -- about the "spiraling cost of health care." Yet most Americans think we spend too little on health care. How much should we spend?

  • In 1998, Americans spent an estimated $1,023 billion on health care.
  • In 1970, health care costs equaled 7 percent of gross national product -- and their growth was the primary reason President Nixon imposed wage and price controls in 1971.
  • But by 1975 health care was absorbing 8.3 percent of the GNP, and today health care is nearly 15 percent of the economy.

While policy-makers seem to be persistently vexed over health care spending, annual surveys from 1973 to 1998 have been amazingly consistent: about two-thirds of Americans think we spend too little, and less than 10 percent think we spend too much.

Pundits and policy-makers on one side and the people on the other have such divergent views because few Americans have any idea what health care costs or how much is being spent on their behalf. Someone else -- the government, an employer or an insurance company -- is paying the bill.

Because consumers are freed of cost concerns, payers exercise their own judgment about what is worth paying for. But their judgments may be at odds with the values of patients and doctors. Lacking market clout, voters have turned to politicians to correct what they view as unfair constraints. And as politicians disarm payers, the war against increasing costs will be lost.

Under today's system of health care financing, we cannot know what consumers prefer because they must accept what others will pay for. And people won't get excited about premium increases when they perceive someone else is paying the bill.

Source: Greg Scandlen (senior fellow, NCPA), "How Much Should We Spend on Health Care?" Brief Analysis No. 357, April 19, 2001 NCPA.

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