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And Now For Something Completely Different

By August 22, 2009November 2nd, 2009Commentary

An opinion piece in the Wall Street Journal suggests that the United States is not spending enough on health care.  It would be an understatement to categorize this as a contrarian view.  (WSJ Op-ed) The op-ed appropriately points out that historically the wealthier a country, or region, becomes, the more it spends on health care.  This wealth affect accounts for some of the now-notorious geographic variation in American health expenditures.  The piece also notes that there should not necessarily be anything alarming about the amount of our GDP spent on health–it is a form of economic activity that may have no less value than other categories of economic activity–manufacturing, education, entertainment, travel, etc. Health care businesses tend to be very environmentally friendly and the jobs are relatively well-paying.  People also place a high intrinsic value on being in good health and are willing to spend, or see money spent, on their health.

What the op-ed completely ignores is the fact that in this country few people directly pay much of the cost of the health care they receive, and few people understand that they do ultimately pay all of it, at least indirectly, through taxes, lower wages, and prices of the other goods and services they buy.  This failure to pay directly or to recognize the indirect costs means that individuals’ behavior, and providers’, is often decoupled from normal positive and negative economic incentives. It also means that most of our citizens have come to think that someone else is actually paying for their health care, and of course, they want that to continue if not be increased.  The burden does fall unevenly, or at least is perceived to do so, and that is the real source of the concern, if not alarm, over rising health care costs.  Employers don’t want to keep paying more and more in taxes and premiums, lower and middle-income persons don’t want to pay more in premium share, copays and deductibles (they already pay little income tax) and upper middle-income and wealthier individuals don’t want their taxes to go up to pay for more health care for others.

If everyone actually paid directly for all or most of their own health care, maybe we wouldn’t care how much we spent on health, because each individual would make the decisions about what they received and what they paid.  But as long as we have extensive payment by a relative few for others’ health care, the increasing cost will be a more and more pressing issue.

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