More on Increasing Health Care Costs

In an earlier post on health care costs I noted that decreasing health care spending will be difficult, and that spending more on health care is not necessarily bad. Mickey Kaus responds to Timothy Noah’s belief that health reform is needed due to health care costs spiraling out of control. This chart is also discussed by both.


First, just because rising health care costs have eaten up all of the average American’s wage increases, it does not necessarily follow that either this rise was unwarranted or that health care costs need to be controlled. Maybe Americans, like richer people everywhere, want to spend more money on health care (as opposed to, say, newspapers) and advances in health care have given them more valuable services to purchase (or have their employers purchase for them). That’s probably not true–and almost certainly not 100% true–but you can’t tell it just by looking at Noah’s big graph. (Nor do I understand Robert Samuelson’s column, which seems to argue that because health care is not “material” it isn’t a valuable service and can’t be the basis for capitalistic economic growth.)  If the graph showed that rising expenditures on computer technology had eaten up all the increase in Americans’ paychecks, would we immediately declare a “computer cost crisis” and demand that rising laptop expenditures be constrained? Or would we say, “Hey, people are spending a lot more on computers these days”?

Second, the savings you get from the “public option”–savings on marketing and administrative costs, ability to use the massive purchasing power of the government to bid down prices–seem like one-shot propositions. We switch to a public plan, we save our 20-30 percent on administration and bargaining, and then the rise in health care costs resumes, thanks to ever-fancier technology and complex treatments (that actually are effective–just expensive). Soon costs have eaten up the 20-30 percent and are back on a rising path to consume a growing share of GDP, no?

The lesson I would draw isn’t that we shouldn’t try to reform health care, or that we shouldn’t try to reduce costs. It’s that we shouldn’t reform health care in order to reduce costs, and that we shouldn’t expect health care reform to in itself control the health care entitlement problem that’s scheduled to devour the budget. We should reform health care to provide long life, security and peace of mind to Americans, while we resign ourselves to the likelihood that this will consume an ever-larger portion of our economy.

Kaus is right on both points (which is not to say there is no room for any cost savings in health care). His comment on the one-shot decrease in cuts is based upon experience. We saw this with the move to HMO’s and other cost cutting efforts in the recent past. We got a one-shot decrease but health care costs continued to rise afterwards. None of these manipulations of the system change the underlying facts that we have an aging population and an increased amount of expensive technology which health consumers both want and benefit from.

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