Health Care Insight

by Elaine Schwartz    •    Oct 4, 2010    •    345 Views

Perhaps it all began when President Lyndon Johnson called Wilbur Mills, chairman of the House Ways and Means Committee. “Wilbur, I’ve just been looking through the polls here, and I’ve only got a few weaknesses, and the worst of them is that I’m not doing anything for the old folks. I need some help from you.” The result? During 1965 Congress passes Medicare Parts A and B.

Fast forward to 2010 and health care spending that far exceeds what Congress originally projected. Why? Through an excellent 2 week series, The Incidental Economist concisely explains where we spend and “what makes it so expensive”. In a short period of time, you will be able to gain considerable insight.

No, they say, obesity is not the problem. Instead, they look at inpatient and outpatient care, drugs, administration and insurance, investment in health, and health care workers. Then, areas of underspending and red herrings precede their conclusion.

For each component, they provide 2 or 3 paragraphs with basic facts and a summary graph. Discussing inpatient care, they point out that, at the hospital, we actually spend less than other comparable countries. While each day costs more, we stay there for a shorter time period. However, once we are at home, as 41% of all health care outlays, outpatient care propels spending. Moving through big pharma, bureaucracy, and health care workers, some facts are surprising. Interestingly, goods and services that we privately pay for are the focus of their underspending discussion.

At the end of each day’s entry they say, “None of this proves that this money is wasted or fraudulently taken. Nor am I saying that we shouldn’t spend more money than other countries. But this is money that goes above what you’d expect us to spend based on our greater wealth. We should at least be able to account for and explain this increased spending in some way.”

The Economic Lesson

Health care spending is close to 17% of GDP. However, the opportunity cost of health care is far more than dollars. The cost is the missed opportunities to spend some of that money elsewhere, or, instead, to save it.

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