July 22, 2014

Why Health Care Costs Will Continue To Rise

Although the report doesn’t speculate on the size of the potential cost savings that could be obtained from some of the reform proposals (most of which are not terribly comprehensive or economically “bold”–although elimination of the employer-provided health care tax exclusion would surely be politically “bold”), I found the discussion on pages 118-119 of the health care chapter most interesting:

Spending a rising share of income on health, as has occurred in the United States and other developed countries and is likely to continue occurring, makes economic sense as rising incomes increase the relative benefits of investing in health-care consumption to extend life…[H]ealth care consumption is a superior good…The large and growing size of health spending underscores the importance of ensuring that the sector functions efficiently and equitably.

Today I spoke at an event on Capitol Hill where the OECD’s Economic Survey of the United States was released.  (The policy brief, a condensed summary, is here.)  I was a discussant on the survey’s chapter on health care reform, which explains that the U.S. health system doesn’t seem to be performing well from a net-benefit perspective; we spend a lot more money on health care than other countries do, yet by many measures are not as healthy as those in those other countries.

The report puts forth some ideas for expanding health care coverage and controlling health care costs, and acknowledges that often the policy solutions to the two goals can run counter to each other.

To me it also seems to underscore the implication that federal government spending as a share of our economy is likely to continue to rise–not flat line–and the importance as well as feasibility of coming up with a way to pay for these rising health expenditures, while at the same time doing our best to make health spending more cost-effective.

--Diane Lim-Rogers (cross-posted at economistmom.com)