How much should we spend on healthcare?
During the great healthcare debate of the first Clinton administration, it was generally held as abhorrent that healthcare was consuming thirteen percent of the gross domestic product (GDP). While there was disagreement at the time as to whether or not the entire healthcare system should be managed by the government, I don’t remember much public disagreement on whether the total amount of spending was too high. Clearly, said the consensus, it was.
On the other hand, many of my physician colleagues in those days, as not-quite-disinterested observers whose incomes depended on society’s willingness to spend lots of money on healthcare, were saying: Who says thirteen percent is too high? If not healthcare, what should we spend the money on? Caribbean cruises? Sports cars? Why not spend twenty or twenty-five percent or even more of the GDP on healthcare?
I cannot blame my doctor friends for asking a question as reasonable-sounding as this one. The correct answer, however, is not the one they expected. For there is indeed a fundamental limit on how much society should spend on healthcare. We were exceeding that limit in 1994, and we’re certainly exceeding it now.
That limit is defined by a straightforward economic principle: When we are buying consumable products that we are consuming ourselves - products like Caribbean cruises, sports cars, ice cream, and healthcare - we should spend no more than we are able to pay ourselves.
We are spending more on our healthcare than individuals are able to pay, and we have been for quite some time. In 2002, for instance, we spent an average of $5,440 per year on healthcare for every person in the United States. This is far more than most Americans could comfortably pay by themselves, without the benefit of employer-supplied, taxpayer-subsidized health insurance.
More importantly, this amount is greater than we are able (or at least willing) to pay on a collective basis. Instead of paying for our healthcare as we go, we’re adding much of the cost to the national debt. The expense accrues to the debt two ways. A big chunk of American healthcare is provided directly through government programs like Medicare and Medicaid. But even private healthcare is supported by the government through tax deductions for insurance premiums; so even for those of us with private health insurance, much of the cost of our healthcare gets added to the national debt. Thus have we arranged to pass on a huge and growing financial burden to our children, grandchildren, and generations yet unborn, in violation of the principle that those who consume products or services ought to pay for them.
