NCPA - National Center for Policy Analysis

HEALTH CARE SPENDING: WHAT THE FUTURE WILL LOOK LIKE

June 28, 2006

European critics of the U.S. health care system often focus on the private provision of health care and health insurance.  Yet the more important difference between the United States and other developed countries is the failure to control government spending.  Other countries employ global budgets and control access to expensive drugs and new technology, say economists Christian Hagist and Laurence J. Kotlikoff.

The United States, compared to other developed countries, has very meager spending controls.  If current trends continue, U.S. government health care spending will consume an ever-growing portion of national income -- far more so than any other developed country. 

For example:

  • If current trends hold in the United States, by 2050 government health care spending will claim one-third of gross domestic product (GDP).
  • Government health care spending as a share of GDP will triple in Norway (to 25 percent) and more than triple in Australia and Spain (to 21.1 percent).
  • More modest increases are predicted for Canada and Sweden, where the numbers will reach 13.5 percent and 12.9 percent, respectively.

By comparison:

  • Japan's government is now spending only 6.7 percent of the nation's output on health care, and spending will total 18.2 percent of GDP by mid-century.
  • In the United States, government health care spending now totals about 6.6 percent of GDP.
  • But if the U.S. government continues to let benefits grow for the next five decades at past rates, it will end up spending 32.7 percent of its GDP on health care.

No country can spend an ever-rising share of its output on health care, indefinitely.  There is a limit to how much a government can extract from the young to accommodate the old.  When that limit is reached, governments go broke, and the United States appears most likely to hit this limit, say Hagist and Kotlikoff. 

Source: Christian Hagist and Laurence J. Kotlikoff, "Health Care Spending: What the Future Will Look Like," National Center for Policy Analysis, Policy Report No. 286, May 2006.

For text:

http://www.ncpa.org/pub/st286

 

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