By Dr. Nayyer Ali

Will Healthcare Swallow the Economy?

June 14, 2007

The American economy’s single largest sector now is healthcare. It eats up 16% of the GDP, or about two trillion dollars. This amounts almost 6,700 dollars per person per year in spending. Over the next ten years, healthcare is projected to expand to 20% of the economy, and will continue to grow through the next few decades. There are now many anxious voices both in Washington and in the media that are concerned that this rising healthcare spending will swallow up the economy.
Why is spending rising so rapidly? There are three main factors. First is the aging of the population. In three years, the first members of the baby boom generation will reach age 65, and be eligible for Medicare government insurance. The ranks of the elderly are the fastest growing segment of the population, and because they are old, they consume more healthcare. The second factor is medical technology. Every year new medicines, devices, and procedures are developed that allow us to do even more for the ill than we once could. These new technologies are often very expensive, but worth the money to those who need them. Finally there is the never-ending demand for healthcare. At the end of the day, health is still the most important item we purchase after food and water.
Medical care that extends life, reduces disability, relieves pain and suffering, and allows people to enjoy their time on this Earth is extraordinarily desirable to all of us. Who wouldn’t gladly pay a million dollars to save their spouse or child from cancer? Who wouldn’t rather be able to treat their diabetes with a pill than with a shot? The demand for healthcare, unlike the demand for housing or cars or food, is essentially unlimited.
But critics are worried that healthcare will take too big a slice of the economy. This just begs the question: how big is too big? How do we decide when we are spending “too much” on healthcare? While it is true that healthcare spending as a share of the economy is rising gradually, and may go to 25% of the economy in the next 40 years, how bad is that?
One must take into account that the economy is also growing over the next 40 years. Currently, per capita income in the US is 42,000 dollars, and 16% goes to healthcare, or about 6700 dollars. This leaves about 35,000 dollars per capita for all other things we desire. In 40 years, assuming per capita income continues to rise about 2% per year, it will reach 92,000 dollars. If we spend 25% on healthcare, that is 23,000 dollars, but that still leaves us with 69,000 dollars for everything else. We can continue to devote a gradually larger share of our economy to heath, while still having plenty of growth left over to allow the standard of living in all other areas to continue to rise. There is no looming disaster that is inevitable.
There is however a political problem that is very real. The problem is that the people who earn a living and pay taxes in America are mostly young and healthy, while the people who consume healthcare are mostly retired elderly or disabled. So how do we construct a rational system that insures those who need it but are not working, while limiting the tax burden on the healthy workers who must pay for the medical care?
The current crazy-quilt of employer based healthcare for most workers and dependents combined with federally funded health insurance for the poor (Medicaid) and the disabled and retired (Medicare) is starting to break down. There are too many middle-men in the system making extremely fat profits, from private health insurers and drug companies to medical equipment suppliers and HMO’s.
It is time to extract the fat from the system while creating a broad-based net of tax support for healthcare. In exchange workers can have the peace of mind that when they or their loved-ones need healthcare, it will be covered. It is time for a single-payer system run by the federal government and paid for by general payroll taxes. The model for this is already in place. It’s called Medicare, and it is proper that we expand it to cover everyone in the United States. Comments can reach me at



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