Although town hall meetings across the country have pitted fears of government intrusion into the medical system against hopes for expanded coverage for the uninsured, the fate of President Obama's health-care initiative might depend just as heavily on a very different issue: its ability to dig the nation out of debt.Insurance reform absolutely does need to consider costs. However, dollars spent by the Federal government, as important as they are, are neither the sole metric of costs nor the sole determinant of effective social policy.
First the definition of costs. Although the Federal government spends an enormous amount on health care--$754 billion in 2007 or about $2,500 per person--this is only about a third of total health care expenditures (source). State and local governments spent $281 billion, and private expenditures, including private insurance reimbursements and out-of-pocket payments, totaled $1.2 trillion. Altogether, the U.S. spent $2.2 trillion on health care in 2007, or just under one-sixth of its GDP.
In terms of costs, policy makers should consider the $2.2 trillion figure and not just the $754 Federal share. A reform that reduces Federal spending by $1 billion but shifts that burden to the states or to private citizens changes incidence of spending but not the social burden.
Similarly, the explosion in care costs have affected public and private spending nearly equally. The health cost problem isn't just a matter of public expenditures going up. In 1980, the share of public expenditures was 42 percent; by 2007, it was 46 percent. Increased third-party payments under Medicare (our national health insurance program for the elderly), which rose from 14 to 18 percent of total health expenditures, account for that entire increase. Policies that moderate the growth in public spending but allow private spending to continue spiraling out of control aren't much of a solution.
Beyond the costs, the benefits of possible spending also have to be considered. Insuring up to 46 million more people would undoubtedly lead to those people receiving more health services. That means increased costs, but it also means increased health. Some of those health benefits will be reflected in economic statistics, such as increased productivity and output from a healthier workforce. However, the direct, personal benefits of good health itself are harder to quantify (the quality-adjusted life year, or QALY, is one controversial metric), though even more important.
Reductions in total spending that contribute to even greater losses in total benefits would be short-sighted and socially harmful. We might narrow the Federal deficit only to cost society more.