Industrial Insight

healthcare costs… | August 11, 2011

Measuring Speed on the Health Spending Highway

By Christopher J. Conover

August 9, 2011, 2:09 pm

If seven-eighths of health spending were not bankrolled by third parties, the share of GDP devoted to it would reflect what 310 million people collectively are willing to pay for it. In that context, there would be nothing inherently wrong with devoting 50 percent of GDP to healthcare 75 years from now (as the CBO projected a few years ago). But given the very large and growing share of health spending financed by government, there are two reasons to be very concerned with each increment of GDP allocated to health spending. The first is that political decisions over the allocation of resources in the “new commanding heights” are almost certainly more likely to be inefficient than those that would be made in a purely private market. The second is that every extra dollar of health spending that is federally tax-financed will generate hidden losses on the economy of roughly 44 cents. Subjecting the economy to these twin sources of inefficiency puts a drag on U.S. competitiveness whose size is directly proportional to the health share of GDP. Until and unless we substantially reduce the role of government in the health sector, the health share of GDP growth might be viewed as an early warning speedometer. By 2020, we will have nearly doubled our “speed” compared to the 1980s and 1990s. Do we really want to be going this fast?


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About author

I'm the executive vice president for a steel casting trade association, the Steel Founders' Society of America. I've got a crazy wife, five crazy children, three crazy people that married into the family, and two crazy fun little grandsons.







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