Issues & Insights
James Gillray after: John Sneyd Copyrighted work available under Creative Commons Attribution only licence CC BY 4.0 http://creativecommons.org/licenses/by/4.0/

No, We Don’t Spend ‘Too Much’ On Health Care — Here’s The Proof

Health care costs in the U.S. are too high. We all agree on that. But it’s important to define the word “high” and put costs in proper context.

Sen. Bernie Sanders is promoting Medicare For All (M4A) to “solve” several problems with the current health care system. However, in 1987 the Senator was quoted as saying, “If we expand Medicaid [to] everybody — we would be spending such an astronomical sum of money that, you know, we would bankrupt the nation.

What’s changed? Is expanding Medicare different than expanding Medicaid? Further, his latest proposal adds dental and vision coverage, leading to an even higher price tag.

There are at least three issues with the “emergency” declared for which M4A is the solution:

  • Costs need proper context: Instead of Gross Domestic Product (GDP), the amount of health care spending should be divided by Household Disposable Income (HDI).
  • Sen. Sanders has misrepresented projected M4A costs, a misleading claim that’s concerning.
  • Sen. Sanders has promised thousands of dollars of savings to participants, reminiscent of President Obama’s promise of savings with Obamacare, which never materialized.

Household Disposable Income Provides Proper Context

Health spending is always measured as a percentage of GDP to show how the U.S. spends “too much” on health care.

Source: World Bank

But the following graph puts health care spending in better context:

Source: Random Critical Analysis. (Note: CHE is Switzerland.)

This graph, developed by blogger Random Critical Analysis, explains U.S. health care spending better than any other. It shows spending is appropriate when compared to household disposable income (HDI). Health care spending in the U.S. as a percentage of HDI is reasonable, as the shaded area shows.

For example, the graph shows the U.S. spends nearly 20% of HDI on health care, much higher than the next highest country (second is Switzerland—CHE) at 16%. But the U.S. average HDI per person is 20% higher ($44,000 versus $37,000 for Switzerland). So, U.S. spending is above the projection line but within the gray range.

Household disposable income is the bottom line that affects decisions made by consumers, not the country’s GDP. Never have I said, “We’re all doing well collectively, so I can afford to spend more on my family’s consumption of health care.”

GDP is different than household income. In fact, the U.S. doesn’t even have the highest GDP per capita in the world (there are typically 10 countries with higher per-capita GDP than the U.S., including Switzerland, yet Switzerland’s HDI is 20% lower!) But the U.S. has the highest HDI of any country.

For decades, we’ve been told that the U.S. should not spend such a high percentage of GDP. But this graph says, “Yes, it should!” The difference is that GDP relates but indirectly correlates with health care spending. Household disposable income is so well correlated that this explains why the U.S. spends more on health care — because we have more available to spend.

At a minimum, HDI suggests an additional context to consider to GDP. At a maximum, using health care spending as a percentage of GDP as a measure of its context should stop.

Note that the data reflected is through 2015 for various comparison purposes — because my book uses 2015 for all data. Not much has changed since then (including the effect of Obamacare, where just 4% of the population is enrolled).

M4A Cost Estimates Have Been Misrepresented

Both proponents and opponents of M4A argue that the federal budget will increase by $32.6 trillion over the next 10 years (per the Mer­catus Center at George Mason University).

But Sen. Sanders has quoted this $32 trillion figure as the total cost of M4A. It is not; it’s just the increase in the government portion. Further review of the Mercatus study shows that the total national health care spending, regardless of who pays for it, is projected to be $58 trillion over 10 years.

Sen. Sanders said on the 2020 campaign trail in June 2019: “The number $32 trillion is roughly probably right. That sounds like a lot of money, but do you know what happens if we keep the current system, which is the most wasteful and expensive system in the world? Estimates of the cost will be $50 trillion. Medicare for All will be less expensive than continuing the current dysfunctional health care system.

I’m disturbed by this misrepresentation, comparing an apple and an orange as if declaring health care an emergency allows for solutions that may ultimately cost more in the long run. He implies M4A will save $18 to $26 trillion based on a vague comparison.

In fact, the Mercatus study has been misinterpreted by many that M4A spending could be $2 trillion lower than current spending (implying savings of 3% out of $58 trillion). However, the Mercatus study author Charles Blahous says that claim is false, writing “No, My Study Didn’t Find Medicare for All Would Lower U.S. Health Costs by $2 Trillion“. The study instead shows a range of projections, some of which cost more than the status quo, which is never mentioned by M4A proponents.

M4A Family Savings Have Been Misrepresented

Sen. Sanders also claimed, “Our proposal will save the average middle-class family thousands of dollars a year in health care.

This sounds like the promise made under Obamacare, which never came to fruition. President Obama infamously stated, “The typical American family will save about $2,500 a year under Obamacare.”

I’m sure there was someone out there who saved $2,500. But a 2016 Kaiser Family Foundation report showed that premiums had increased almost $5,000 per person since Obamacare was enacted! And because we’ve heard the Obamacare lie before, we will never believe a lie again.

Conclusion

I marvel at the U.S. health care system. It is often described as the envy of the world, yet people castigate it as if it’s poor. How ironic.

Health care in the U.S. is so desired that the best and brightest want to practice medicine here, it benefits patients exceptionally, it develops many amazing interventions and cures, and it’s well posi­tioned to tackle complex problems in the future.

This is a wonderful time to be alive and to benefit from the one health care system that hasn’t suc­cumbed to the pressures of cost and quality, to triage cases in the halls of hospitals like in the UK, and to be fooled by the falsehoods promoted about the cost emer­gency in our health care system.

There should be options, allowing people who want to save by spending less while others choose to spend more. Market options allow them to do that, instead of a one-size-fits-all government program.

Rich Yurkowitz is a health care actuary and author of the book, Medicare For All, Really?!

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  • Inconvenient truth: And, per capita and for many years, the average US citizen spends about the same on legitimate entertainment as they do on health care. That does not include legal (alcohol, nicotine) and illegal drugs, porno, smart phones (which are, face it, just a form of unnecessary entertainment for most) lotteries, flavored water, i.e., coffee.

    • The conclusion in tis article is just plain silly. The vast majority of
      Americans have little if anything to say about their healthcare spending. Whatever insurance they get from their employer is what determines cost.
      Create a real market and we would see what people are willing to pay for.

  • $44,000 per year (HDI) is a lot of money for health care. But what does that money actually buy? What is the quality of health care? Are people Happy with what the hospital COVID expenditures bought (e.g. the quantities of neglect, titres of medical malpractice, unnecessary deaths, etc.)? The author is living in a health care fantasy land dominated by data points and his imaginings (not real world experience). In California the hospital hallways have been filled with sick patients for several years now, starting before the COVID pandemic when Obamacare doubled hospital patient loads: Several hour lines just to get through hospital doors and register to wait with seats and floor space filled with sick people are not uncommon. This after hour and a half waits for hospital parking. Many people give up and go home after several hour without ever seeing a doctor. That is what $44k buys in SoCal. No difference between the UK, Los Angeles and many other big USA cities. Upping HDI to $88k won’t help. The author could have learned this by talking to a few real patients.

    Lacking any notion of quality of health care and outcomes, spending data are meaningless. This is what is wrong with government mandated spending in the USA. The crazy Dem/liberal notion is that throwing more money at a problem will solve it: be it health care, college tuitions or foreign wars. According to orthodox liberal theory/logic: doubling hospital payments to $88,000/year, a big pay raise for the same services, makes things twice as good. This “toxic” or dysfunctional thinking bloats government budgets and fuels price inflation. Throwing money at problems does make things better for wealthy donors who get good bang for their lobbying and campaign donation bucks. Same thinking permeates corrupt school funding, where throwing more money at school districts is the annual magic elixir (which never works). Dysfunctional thinking leads to dysfunctional outcomes. The author would benefit from some old-fashioned shoe leather investigation of his topic. But even if the book lands on the worst-seller list, he will likely land a high-paying government or corporate job writing health care propaganda from the comfort of an air-conditioned office detached from real world hospital patients and their outcomes.

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