Nothing threatens our future purchasing power more than soaring health costs. The Congressional Budget Office says that, without reform, health spending will account for one-third of the U.S. economy in 2040—twice today’s level. This added spending of 16 percent of GDP would be equivalent to 25 percent of total labor compensation in 2040. Not only will workers pay more for private insurance, they will pay higher taxes to fund public programs such as Medicare and Medicaid.
We spend nearly twice as much on health care per person as other rich countries. But this extra spending does not make us healthier. In 2000, the World Health Organization ranked the United States 37th in the world on a composite of health indicators. All of the other countries in this chart ranked higher than the U.S.
Some states have lower average spending than others. This isn’t because people in Massachusetts are sicker than those in Utah. It’s because some regions opt for more intensive forms of treatment than others. When doctors and hospitals make more money for doing more procedures (such as CAT scans), it’s not surprising that many of the services prescribed are unnecessary or of little medical benefit.
Health care differs from one hospital to the next. Leading medical researchers have found that similar medical care is being provided at widely differing prices, depending on where people are treated. The table below shows what happens when hospitals drive up their revenues by performing unnecessary procedures.
The poorest Americans receive the same amount of health spending as everyone else. Health costs for the poor are financed by a combination of cost-shifting within hospitals and outpatient centers (which drives up private insurance bills) and government programs such as Medicare and Medicaid. This table shows that we are already spending enough for universal coverage.
Despite paying higher prices, we get fewer health services than citizens of other rich countries. One study finds that a lot of this added cost is due to the difficulty of administering our highly decentralized system. The chart below shows that high doctor pay scales also play a role.