Monday, March 23, 2009

How much of the GDP should go to medical care?

476 words

I have just started reading a book I got from Mike Huntington, MD (a retired radiation oncologist) at church Sunday: Do not resuscitate: Why the health insurance industry is dying, and how we must replace it. The author is John Geyman, M.D. It has started out with an excellent summary of the history of medical care insurance in the United States, a history which helps to understand the dilemmas we are presently face.

A graph inside the front cover shows extrapolations of average household income and of average family health insurance premiums, and suggests that these two numbers will meet along about 2025. This, of course, is impossible, so if the two extrapolations are correct something is going to hit the fan well before 2025. The graph expresses a point which we all understand intuitively, though perhaps we cannot take the specific numbers in it literally.

It is well understood that medical care has been looming larger and larger in our national life. It now accounts for about one sixth of the gross domestic product. While it clearly would be impossible for health care expenses to rise to 100% of GDP, it is not so clear that there is anything inherently wrong for the percentage of the average person’s income devoted to medical care to be increasing.

At the turn of the 20th century the average person had to spend a very high percentage of his or her income on food. Now for most people food is a much smaller part of their expenses (unless they eat out a lot). In 1901 the percentage of personal income spent on radios and television sets was much lower than it is now, 0%, in fact, because there was no radio or television then. As technology changes, some things cost a lot less (computers, for example, in recent years) and some things cost a lot more----medicines and the services of doctors, for example. There is no way a priori to state what the correct percentage of expenditures would be for any of these things.

As medical technology and techniques and skills have improved, it is not strange that we have come to value them more and to be willing to pay more for them.

The situation is confused, though, because such a high percentage of today’s medical costs are paid for by “third parties,” insurance companies and/or the government (that is to say, taxpayers), and the decisions about how much medical care to pursue are often made by individuals for whom there will be few if any immediate out-of-pocket costs and therefore no incentive to seek the most cost-effective treatment.

The interesting question is how much of the increased costs of medical care are due to the third party factor, and how much to the fact that we place a higher value on medical care because it is now more effective and therefore worth more.

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