Economist Robert Fogel argues in an article for the conservative American Enterprise Institute that there’s no need to suppress demand for healthcare services. He says people want to spend their incremental income on healthcare, which in turn drives economic growth. Writes Fogel:
The long-term income elasticity of the demand for healthcare is 1.6—for every 1 percent increase in a family’s income, the family wants to increase its expenditures on healthcare by 1.6 percent….Expenditures on healthcare are driven by demand, which is spurred by income and by advances in biotechnology that make health interventions increasingly effective. Just as electricity and manufacturing were the industries that stimulated the growth of the rest of the economy at the beginning of the 20th century, healthcare is the growth industry of the 21st century.
It’s an interesting debate exactly what is the “right” percentage of GDP that should be spent on healthcare.
Charles Morris writes in The Trillion Dollar Meltdown: Easy Money, High Rollers and the Great Credit Crash (PublicAffairs, 2008) that the U.S. economy could easily support healthcare spending at 25% to 30% of GDP — compared to 16% today. But Morris adds:
Having said all that, American health care is also extremely wasteful and is an operational mess. At twice the per capita level of spending as in other advanced countries, we are not getting a good deal. Much of the problem stems from the insistence that health care is just like any other consumer market. It’s not.
Hat tip to CNBC’s Larry Kudlow, who pointed to the Fogel piece in arguing that the free market is what’s needed to fix healthcare in America — a viewpoint I disagree with (I’m in the camp that government should play a bigger role).
On a related point, Kudlow says that casualties of the type of reform being proposed by the President and by Senate Finance Committee Chairman Max Baucus (D-MT) “could include the 11 million people in the Medicare Advantage program…and the 8 million in health savings accounts. These will be scrapped under Obama-Baucus.”
I agree Medicare Advantage will likely be a smaller program post-reform, but it will still exist. As for HSAs, the original SFC policy options released in May (see prior post) proposed some new rules on HSAs, but didn’t come close to scrapping them – same for the more recent framework for reform from Baucus (see prior post).
I sent an email to Kudlow for clarification and will let you know if he responds.
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