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 Nali@socal.rr.com.
