We Don't Spend Enough on Health Care

We Don't Spend Enough on Health Care. By CRAIG S. KARPEL
It's crazy to adopt a bean-counting mentality amid revolutionary, albeit expensive, advances in medicine.
WSJ, Aug 16, 2009

Americans are being urged to worry about the nation spending 17% of its gross domestic product each year on health care—a higher percentage than any other country. Addressing the American Medical Association in June, Barack Obama said, "Make no mistake: The cost of our health care is a threat to our economy." But the president is mistaken. Japan spends 8% of its GDP on health care—the same as Zimbabwe. South Korea and Haiti both spend 6%. Monaco spends 5%, which is what Afghanistan spends. Do all of these countries have economies that are less "threatened" than that of the U.S.?

No. So there must be other factors that affect the health of a nation's economy.

Mr. Obama has said that "the cost of health care has weighed down our economy." No one thinks the 20% of our GDP that's attributable to manufacturing is weighing down the economy, because it's intuitively clear that one person's expenditure on widgets is another person's income. But the same is true of the health-care industry. The $2.4 trillion Americans spend each year for health care doesn't go up in smoke. It's paid to other Americans.

The basic material needs of human beings are food, clothing and shelter. The desire for food and clothing drove hunter-gatherer economies and, subsequently, agricultural economies, for millennia. The Industrial Revolution was driven by the desire for clothing. Thus Richard Arkwright's water frame, James Hargreaves's spinning jenny, Samuel Crompton's spinning mule, Eli Whitney's cotton gin and Elias Howe's sewing machine.

Though it hasn't been widely realized, the desire for shelter was a major driver of the U.S. economy during the second half of the 20th century and the first several years of the 21st. About one-third of the new jobs created during the latter period were directly or indirectly related to housing, as the stupendous ripple effect of the bursting housing bubble should make painfully obvious.

Once these material needs are substantially met, desire for health care—without which there can be no enjoyment of food, clothing or shelter—becomes a significant, perhaps a principal, driver of the economy.

A little-noticed feature of the current recession is the role of the health-care industry as a resilient driver of the general economy. Health-care now accounts for 10.4% of nonfarm employment. Health-care employment grew by 19,600 jobs in July 2009, on a par with the average monthly gain for the first half of 2009, which was down from an average monthly increase of 30,000 in 2008. Remarkably, these gains occurred in a period during which total employment shrank by 6.7 million.

The U.S. health-care economy should be viewed not as a burden but as an engine of growth. Medical and orthopedic equipment exports increased by 65.1% from 2004 through 2008. Pharmaceutical exports were up 74.6%. The unprecedented advances expected to come out of American stem cell, nanotechnology and human genome research—which other countries' constricted health sectors cannot support—will send these already impressive figures skyward.

A study by Deloitte LLP has found that more than 400,000 non-U.S. residents obtained medical care in the U.S. in 2008, and it forecasts an annual increase of 3%. Some 3.5% of inpatient procedures at U.S. hospitals were performed on international patients, many of them escaping from Canada's supposedly superior health system.

"Inbound medical tourism," Deloitte stated, "is primarily driven by the search for high-quality care without extensive waiting periods. Foreign patients are willing to pay more for care within the United States if these two factors play a large role." The deficiencies of the foreign health-care systems the Obama administration wishes to emulate can be counted on to generate ever-increasing revenues for U.S. providers and employment for Americans.

In a 2007 study, Stanford University economists Robert E. Hall (who will take office next year as president of the American Economic Association) and Charles I. Jones reported that modeling they've conducted has found that mid-21st century U.S. health-care expenditures would optimally amount to 30% of GDP or more. They wrote:

"We examine the allocation of resources that maximizes social welfare in our model. We abstract from the complicated institutions that shape spending in the United States and ask a more basic question: from a social welfare standpoint, how much should the nation spend on health care, and what is the time path of optimal health spending? . . .

"Viewed from every angle, our results support the proposition that both historical and future increases in the health spending share are desirable. . . . [W]e believe it likely that maximizing social welfare in the United States will require the development of institutions that are consistent with spending 30 percent or more of GDP on health by the middle of the century."

The administration's health-care plan is biased toward bean-counting rather than designed to maximize American physical and mental well-being. We need to ask ourselves whether there is truly anything more valuable to us than our loved ones and our own health and longevity.

In the signature radio sketch of Jack Benny, whose performing persona was laughably frugal, actor Eddie Marr snarled at him, "Don't make a move—this is a stickup. Now, come on: Your money or your life." Benny didn't respond. The "robber" said, "Look, bud—I said your money or your life!" Whereupon Benny shot back, "I'm thinking it over!"

Confronted for the first time in history with a constant stream of medical innovations that are marvelously effective but tend to be very expensive, our legislative representatives—in particular, the Blue Dog Democrats—would do well to stop "thinking it over" and to commit themselves to action that will preserve the ability of Americans to choose life over money.

Mr. Karpel is the author of "The Retirement Myth" (HarperCollins, 1995).