Two Points on Health Care

Since questions continually arise on my health care postings, I will make a couple of points here that do not directly relate to the news coverage.

First, health care costs have posed a problem everywhere, but nowhere do they pose as much of a problem as in the United States. If we look at the OECD data, in 2003 (the most recent year available) the United States spent 15.0 percent of its GDP on health care. The next three countries ranked by expenditure as a share of GDP are Switzerland, Germany, and Iceland at 11.5 percent, 11.1 percent and 10.5 percent, respectively. Canada clocks in at 9.9 percent of GDP, Sweden at 9.4 percent, and the United Kingdom at just 7.7 percent.

The comparison of GDP shares actually understates the gap in expenditures. Per capita GDP is more than 20 percent higher in the United States than in Europe, primarily because we work more hours.

The difference in current expenditure levels is attributable to much more rapidly growing costs in the U.S. than elsewhere. In 1970, the United States was tied with Sweden and the Netherlands for 3rd place in the rankings, behind Canada and Denmark. The story in other countries is that health care costs have somewhat outpaced the growth in per capita GDP (this is partially due to aging, most of these countries have a considerably older population than the U.S.), it is only the U.S. where health care spending is exploding relative to GDP.

The other point is that the projected cost explosion for our public sector health care programs (primarily Medicare and Medicaid) over the next two decades is grounded in projections of exploding private sector costs. I don't make these projections, they come from the Centers for Medicare and Medicaid Services (CMS). The projections may well turn out to be too pessimistic (we should all hope that they are), but it is ludicrous to make plans to only deal with the public side of the problem and not address the problem of health care costs in the private sector.

The CMS projections imply that the average cost of health care for a person between the ages of 55 and 65 in the year 2025 will be almost $18,000 (in 2005 dollars). These are the 10 years before people reach the age of Medicare eligibility. How do we think that these people are going to pay for their health care in 2025? Anyone who is serious about tackling the projected explosion in Medicare and Medicaid costs better have a plan to deal with the explosion of private sector costs, otherwise, they are not being serious.

--Dean Baker

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