Unbiased Analysis of Today's Healthcare Issues

What share of society’s “raise” should go to healthcare?

Written By: Jason Shafrin - Sep• 30•14

Politico.com has an interesting series of articles titled Obamacare 2.0, which examines different perspectives on how to improve the Affordable Care Act.   One common theme in about half the articles is that the ACA does not do enough to cut healthcare spending.

The rise in healthcare spending over the past few decades has been significant.  In 1995, 13.6% of the economy went to healthcare.  By 2012, this figure had climbed to 17.9%.  The CBO projects that federal spending on Medicare, Medicaid, CHIP and health insurance exchange subsidies will rise by 85% between 2014 and 2024.  Further, 22% of the federal budget goes to Medicare, Medicaid and CHIP, and this figure will only rise as the baby boomers retire.

Those who focus on cost control have a valid point which cannot be discounted, especially as it relates to the fiscal solvency of the federal government.

On the other hand, consider where else you would want to spend your money besides healthcare.  In 1995, per capita GDP in the US was $28,782.  By 2012, this figure had risen to $51,755.  In other words, each person saw an increase of $22,973 in income on average.  Of this increased income, $5,353 went to healthcare and $17,620 went to non-healthcare items.

Ignoring issues of the unequal distribution of income, one might think that by 1995 the US had sufficient income to cover the basic needs (e.g., clothing, food, housing) for all its citizens.  If this is the case, then how would you rather spend your money?  Nicer cars?  Bigger houses?  Better education?  Certainly.  However,  many believe that healthcare is a luxury good and that as society’s income increases, society and individuals become more willing to pay a larger share of their income towards healthcare.  Life is short and one cannot enjoy and of the aforementioned luxuries if you are not alive and healthy.

To put the increase in health spending another way, in essence, society got a 3.5% raise every year between 1995 and 2012 and we decided to spend 23 cents of every dollar of that raise on health care and 77 percent of the raise on everything else.

That doesn’t sound like too crazy a breakdown to me.

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One Comment

  1. Preston Gorman says:

    The $7 trillion question: Did the extra spend result in additional value for the consumer? Put another way, did the 23 cents spent on healthcare get them better healthcare the way additional money on a car would presumably get them a better car?

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