Can we afford to increase health care spending?
Health Affairs
July/August 2003
Increased Spending On Health Care: How Much Can The United States Afford
By Michael E. Chernew , Richard A. Hirth , & David M. Cutler
Abstract
Perceptions of whether health care cost growth is affordable contribute greatly to pressures for health system reform. In this paper we develop a framework for thinking about affordability, concluding that a one-percentage-point gap between real per capita growth in health care costs and growth in GDP would be affordable through 2075. A two-percentage-point gap would only be affordable through 2039. In either case, the share of income growth devoted to health care would exceed historical norms. The value of care, which determines willingness to pay, and distributional issues are more important than our ability as a society to pay for care.
From the Results:
Despite rapidly growing real (inflation adjusted) health care expenditures, both in absolute terms and as a percentage of GDP, income growth has been sufficient to allow substantial growth in non-health care spending as well.
This is a message that can easily be lost when examining time trends in the percentage of GDP devoted to health care. Such a measure masks the overall increase in GDP over time. In fact, in each decade a relatively small share of the increase in inflation-adjusted income was devoted to health care. For example, in the 1980s (the decade that saw the highest share of income growth spent on health care), real health care spending per capita rose by nearly 70 percent, but this growth consumed only about one-quarter of the increase in real income per capita. That is, the substantial growth in health spending during the 1980s did not prevent three-quarters of real income growth from being spent on goods other than health care.
From the Discussion:
Health care spending appears once again to be on an upward trajectory. The resulting concern has generated considerable debate. Our analysis suggests that the economy could sustain a differential of one percentage point between growth of real per capita health care costs and growth of GDP well into the future. However, we believe that it is important to distinguish between spending that we cannot afford to pay for and spending that we are unwilling to pay for - a difference between unsustainable and unwilling to sustain. The former approach emphasizes a need to curb spending, whereas the latter phrasing emphasizes the extent to which the extra spending can be justified by extra value received relative to the value of non-health care services that could otherwise be consumed.
… although the rise in health care costs may be affordable at the national level, it is important to recognize the distributional consequences of rising health care costs. What is affordable on average may not be affordable to all segments of society. Rising health care costs may contribute to falling rates of health insurance coverage and reductions in access to care. The appropriate response requires discussion about the ramifications of the lack of coverage and the merits of subsidizing insurance or care for various segments of the population. Discussion of society’s willingness to pay must recognize that, in part, this will reflect the willingness of some people to pay for care used by others.
http://www.healthaffairs.org/1130_abstract_c.php?ID=http://www.healthaffairs.org/Library/v22n4/s9.pdf
Comment: Do we have the capability of increasing funding for health care? This study demonstrates that significant increases in health care funding are sustainable while still allowing substantial growth in non-health care spending as well. Yes, we can afford to increase health care spending dramatically.
The real questions are whether we value health care enough to be willing to pay for it, and whether we value health care not only for ourselves and our families but also for our fellow citizens. If we do, then distributional issues become paramount since we would have to establish an equitable system of funding care.
As a society, we can afford comprehensive health care for everyone. That is no longer in dispute. But are we ready to end the distributional barriers to care by establishing an equitable system of social insurance?