|
Thursday, April 10, 2008
Health Care Spending - It's Not the Aging of the Population
If policy makers are truly interested in fixing the Entitlement Crisis™, they need to look at the factors that are pushing the federal budget along an unsustainable path. As we've noted before, Social Security has minor financing issues, but its full-benefit operation does not pose a threat to long-term fiscal fitness. Medicare, however, does. And while it is tempting to indict the aging of the Baby Boom generation for fueling rapid increases in health care costs, policy makers would be wrong to set out to simply reduce benefits and/or increase Medicare premiums as a fix. Instead, they should focus their efforts on the supply side of health care, rather than increased demand resulting from the aging of the population.
In a speech given to the World Health Care Congress Europe Princeton economist Uwe Reinhardt explains why retiring Baby Boomers are not the problem. Writing for AltnerNet, Maggie Mahar summarizes his argument:
[T]he United States spends close to $7,000 per person on care -- even though its population is younger than the citizens of most developed countries, including Germany, Italy and Japan. (Because of a slightly higher fertility rate and an annual intake of 900,000 legal immigrants, the median age in the United States will rise in just three years to 39 over the next quarter-century, before the aging of America really starts to accelerate.) Meanwhile, Japan's population has been graying for some time, yet it spends only $1,000 per person. Could eating fish really make that much difference?
What will be the biggest factor pushing the tab so much higher? Innovation. "The healthcare industry will continue developing new stuff for every age group," Reinhardt explains. Will that "new stuff" -- in the form of new drugs, devices, tests and procedures -- be worth it? Some of it will be. Some won't.
...
"But what will drive costs in coming years, will come, not from the demand side of the equation, but from the supply side," says Reinhardt, repeating his theme. We can be certain that, without some significant reforms, suppliers will continue to invent new products for every age group, charging us more and selling us more -- using whatever methods it takes, from direct-to-consumer advertising to promises of near immortality and perpetual youth (just as 120 can be the new 80, 55 can be the new 35!) -- if we just swallow enough pills and replace enough body parts.
So, we could let this trend continue and demand higher premiums from seniors, forcing many to go without health care altogether, but why hoist the costs of increased health care onto a particular portion of the population that, after enjoying forty or so years of employer-provided health, no longer has an employer? It is apparent that collective action has its benefits: Health care costs are not proportional to health outcomes, as demonstrated by every other industrialized nation. So, if we can, through an act of government, take reasonable actions to lower the cost of health care and maintain a certain minimum level of health outcomes, shouldn't we? Plus, we have a moral duty to respect the promise that we, as a society, have made to each other that when we get old and no longer able to work - or rightfully decide to take an extended vacation - we will see to it that our basic needs are met.
Posted by Craig Jennings
|