Healthcare Spending Rocketing Out of Control

By Aiya Anvarova

In the recent time of severe economic crisis followed by the sluggish economic recovery that the United States has been going through, it seems that the healthcare issue is not a priority for the country. Thus, many argued that President Barack Obama should have given up the Patient Protection and Affordable Care Act (PPACA), commonly called Obamacare, and focused on the economy. However, in reality escalating healthcare spending has become a significant burden for the U.S. economy which makes it highly problematic to fix the economy without fixing the healthcare system.

In one of his June interviews, Governor Romney cited a book, “The Escape Artists: How Obama’s Team Fumbled the Recovery,” by the liberal journalist Noam Scheiber. In this book, the author put forward the idea that, early in his term, President Obama was deciding whether to focus on the national healthcare law or to devote more of his attention to the economic recovery. According to Scheiber, the President considered healthcare reform as a bigger long-term achievement and his corresponding choice of priorities postponed the U.S. economic recovery. Governor Mitt Romney proceeded with his line of presenting Obamacare as a part of the reason the economy was still sluggish by stating in the first presidential debate that he did not understand how “the President could have come in the office facing 23 million people out of work, rising unemployment and the economic crisis at the kitchen table and spend his energy and passion for two years fighting for Obamacare instead of fighting for jobs for the American people”. Accordingly, the Republican presidential challenger believes that the healthcare issue is not a sound economic issue and should not be on the President’s immediate agenda.

However, even though healthcare may not be a crucial economic issue for many countries in the world, the United States is not one of them as healthcare is one of the major expenditure items in the national budget and a sizable part of the economy. In 2010, the U.S. spent nearly $2.6 trillion on healthcare. This approximated to 17.9% of the country’s GDP, a substantially higher proportion than in any other country in the world. U.S. healthcare spending is now 55% above the average for wealthy countries. With that said, the quality of and access to care in the country is no way consistent with the enormous amount of money the federal government injects into healthcare. In 2011, the number of the uninsured Americans was 48.6 million compared to 37 million in 1980. Also the U.S. lags behind on life expectancy and the quality of preventive treatment. According to the Institute of Medicine, a third of the U.S. healthcare expenditure does not lead to improved health, that is, it is a substantial waste of the federal budget that has to be eliminated.

Healthcare spending is also creating long-term fiscal problems adding significantly to the overall federal debt. Between now and 2050, Medicare and Medicaid spending will rise from 5.5% of GDP to over 12%. In contrast, Social Security is projected to rise from 5% to only 6% of GDP over this period. Consequently, healthcare spending is the primary driver of future growth in government spending. Studies of international medical costs suggest that, compared to other high-income countries such as Canada and Great Britain, the U.S. healthcare system is inefficient, which substantially increases the medical costs both for the individuals and the government. There are a few areas in the U.S. healthcare system, such as overwhelming administrative costs and fee-for-service payment method, where changes have a tangible potential for savings and sustained cost reduction.  

Healthcare spending is nearly a fifth of the U.S. economy and is the largest driver of long-term U.S. debt. The way the healthcare issue is tackled will directly affect the economy in the long run. In general, the issue of healthcare reform is itself a major issue in terms of the economic recovery. In the context of the upcoming presidential election, it is important to understand that the ability and willingness of the next president to take hold of healthcare spending and improve the productivity of the U.S. healthcare system will have a significant impact on the country’s fiscal future and the economy in general.

List of References

Collins, S. R., Guterman, S.,  Nuzum, R.,   Zezza, M. A.,  Garber, T., and Smith, J. (2012, October 2). Health care in the 2012 presidential election: How the Obama and Romney plans stack up. Retrieved from the Commonwealth Fund website: http://www.commonwealthfund.org/

Cutler D. M., and Ly D. (2011, Spring). The (paper) work of medicine: Understanding international medical costs. Journal of Economic Perspectives, 25, 3-25. doi:10.1257/jep.25.2.3

Romney’s new attack: Why did Obama focus on ObamaCare instead of on the economy? (2012, June 6) [Web log post]. Retrieved from http://hotair.com/archives/2012/06/06/romneys-new-attack-why-did-obama-focus-on-obamacare-instead-of-on-the-economy/