US healthcare tab soars

Government and corporate efforts at restraint will not stop the trend, say some economists.

Related stories: 06/26/02 Parties vie for high ground on drug benefit 02/05/02 Healthcare again grabs political attention

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"Things are going to have to get a lot worse before there is a will to make them better," holds Mark Pauly, a health-cost expert at the Wharton School in Philadelphia.

Healthcare spending in 2001 accounted for 14.1 percent of the US gross domestic product (GDP), the nation's total output of goods and services. By 2012, that share will rise to 17.7 percent, projects the Centers for Medicare and Medicaid Services, a federal agency in Baltimore.

That expense level is far higher than for all other well-to-do nations. The Paris-based Organization for Economic Cooperation and Development finds that 28 of its member nations spend, on average, 8 percent of GDP on healthcare.

Canada devotes 9.1 percent of GDP to its system of government- financed healthcare for all citizens.

Critics of the Canadian system talk of long lines for certain procedures. Some Canadians travel to the US for special treatment or to avoid a long wait. It is unlikely, though, that Canada's savings from this cross-border traffic reach 5 percent of GDP.

The basic problem is that if ill and hurting, an individual will spare little expense for any treatment he or she regards as helpful. That's especially so if health insurance covers most costs.

"No country is rich enough to give everybody everything that they think will have some benefit," says Henry Aaron, an economist at Washington's Brookings Institution.

To a considerable extent, the rise in health costs is driven by new medical technology. Here, the US is the leader in both development and use. US researchers have won some 90 percent of Nobel Prizes for medicine in recent decades. Other nations utilize such advances at relatively low cost.

Mr. Aaron has faith that the extra technology costs are worthwhile. "We live in an era from which it seems increasingly likely that advances will emerge that transform human lives."

Limits on healthcare spending in Belgium, Italy, or Britain won't affect much whether that "promised land" of medical cures is reached, or how soon, Aaron notes. But the US should be "very careful" in how it restrains costs.

Few expect the US to adopt the lower-cost systems of other nations. The American system is too rooted in the nation's institutions, culture, and traditions.

"The chances that we will adopt the Canadian or French healthcare systems as a whole are about as good as those that we will join the ... Commonwealth or adopt French as a second national language," writes Aaron in a recent paper.

Further, the US can afford a higher health bill. Aaron calculates that even if the proportion of GDP devoted to healthcare rose to 20 percent over, say, the next 40 years, Americans would still have 33 percent more income to spend on nonmedical goods and services than today. That assumes the nation's per-capita income grows a modest 1 percent a year.

Thus, increased healthcare spending and rising consumer welfare are "entirely compatible," he notes.

Nonetheless, extra spending on healthcare must be paid for. If employer-financed, it usually eats into workers' earnings, not profits. If government-financed, Uncle Sam or the states may be reluctant to raise taxes to cover the additional bill or to cut other spending.

President Bush has proposed to add prescription-drug coverage to the Medicare system for seniors. The details are not yet clear.

But if it makes drugs cheaper for seniors, their usage - and so, their cost - is likely to rise, says Aaron. But long-term predictions of health spending are unreliable.

In 1990, experts said healthcare costs would reach 20 percent of GDP by 2000. They didn't. Health Maintenance Organizations intervened, cutting costs and services to the insured. But that action produced a huge consumer protest. Governments stepped in to loosen the restraints.

"The respite from rising healthcare spending is over - in the words of the Irving Berlin ballad, 'nor for just an hour, not for just a day, nor for just a year, but always," Aaron writes.

One curious fact is that the hugely expensive US healthcare system - more than $4,500 a person, versus $2,000 per capita for the average OECD spending level - hasn't made Americans, on average, longer-lived. Life spans in most industrial nations are a year or two longer. And most of them have relatively more smokers.

The rebuttal is that the US has a much more heterogeneous population. It has poor native Americans on reservations, poor blacks in slums, more obesity, a greater gap between the rich and poor, more people without health insurance, and more gun-related deaths.

Perhaps that's an excuse.