Monday, August 17, 2009

We Should Spend More, Not Less, On Health Care; Resilient Health Care Sector is Engine of Growth

In today's Wall Street Journal article "We Don't Spend Enough on Health Care," Craig Karpel argues that increased spending on health care is actually desirable, and suggests that we don't spend too much on health care (currently 20% of GDP), we spend too little - 30% of GDP by the middle of the century would be optimal. Further, he points out the benefits of health care employment to the U.S. economy:

Mr. Obama has said that "the cost of health care has weighed down our economy." No one thinks the 20% of our GDP that's attributable to manufacturing is weighing down the economy, because it's intuitively clear that one person's expenditure on widgets is another person's income. But the same is true of the health-care industry. The $2.4 trillion Americans spend each year for health care doesn't go up in smoke. It's paid to other Americans.

A little-noticed feature of the current recession is the role of the health-care industry as a resilient driver of the general economy. Health-care now accounts for 10.4% of nonfarm employment. Health-care employment grew by 19,600 jobs in July 2009, on a par with the average monthly gain for the first half of 2009, which was down from an average monthly increase of 30,000 in 2008. Remarkably, these gains occurred in a period during which total employment shrank by 6.7 million.

The U.S. health-care economy should be viewed not as a burden but as an engine of growth. Medical and orthopedic equipment exports increased by 65.1% from 2004 through 2008. Pharmaceutical exports were up 74.6%. The unprecedented advances expected to come out of American stem cell, nanotechnology and human genome research—which other countries' constricted health sectors cannot support—will send these already impressive figures skyward.

A study by Deloitte LLP has found that more than 400,000 non-U.S. residents obtained medical care in the U.S. in 2008, and it forecasts an annual increase of 3%. Some 3.5% of inpatient procedures at U.S. hospitals were performed on international patients, many of them escaping from Canada's supposedly superior health system.

"Inbound medical tourism," Deloitte stated, "is primarily driven by the search for high-quality care without extensive waiting periods. Foreign patients are willing to pay more for care within the United States if these two factors play a large role." The deficiencies of the foreign health-care systems the Obama administration wishes to emulate can be counted on to generate ever-increasing revenues for U.S. providers and employment for Americans.

MP: The top chart above of employment in the overall economy vs. health care employment shows that during a time (Jan. 2007 to July 2009) when the U.S. economy lost almost 6 million jobs, the recession-proof health care sector increased employment by almost 1 million jobs.

The chart below (sorry for the color quality) of the monthly change in health care employment reveals an amazing statistic. Since January of 1990, health care employment has increased in every single month except one (July 2003), or in 234 months out of the last 235 months.

Originally posted at Carpe Diem.


At 8/17/2009 10:06 AM, Blogger PFCT said...

Generally like your blog but this is the worst post ever Mark!

Healthcare is sucking resources away from all the other sectors and killing American competitiveness.

At 8/17/2009 11:34 AM, Blogger Colin said...

Agreed, this is economically illiterate. The fact that it goes to other Americans is irrelevant. The only thing that matters is the bang for your buck. If we introduced a real free market in health care costs would go down and quality would likely go up. We'd be spending less money, freeing up resources for other ends.

Spend enough money on anything and you can make employment go up. That isn't the point. What we need is to drive up efficiency and productivity to increase our economic welfare.

At 8/17/2009 1:33 PM, Anonymous Anonymous said...

Interesting. Chicago newspaper yesterday said nurses can't find jobs. Who's kidding who?

At 8/17/2009 2:22 PM, Anonymous Anonymous said...

Arguing we should spend more on health care is as assinine as saying we are spending too much. We should spend PRECISELY what the free market demands and utilize resources accordingly.

If we remove market distortions such as overregulation, litigation, barriers to entry, mandated coverage, etc, we'll get much closer to optimal provision.

Our society is old and unhealthy. We will be spending more regardless of what anybody thinks or wants. If we started charging premiums and/or rationing care based on people's stupid lifestyle choices, we'd have a healthier, happier society.

People need to shut their pie holes and stop pushing food in and letting carbon dioxide out. A 20 minute run on an elliptical trainer would dous more good than hour long Town Hall meetings. We could solve 70% of health care problems by charging people for food and insurance based on their body mass index and weekly aerobic exercise.

It's obscene to see obesity as one of the main problems among our POOR and seeing obese children is sobering. Parents of obese kids ought to be fined or arrested.

Here's a simple solution for people who don't take care of themselves: LET THEM DIE!

It's called 'natural selection.'

At 8/17/2009 2:36 PM, Blogger KO said...

I'm ok with the argument that paying more than the rest of the world is not necessarily a bad thing. How else would we get real quality care to most people and encourage R&D?

But this goes way overboard. They might as well say that a higher share of the GDP should go to government jobs in Caliornia because government jobs pay way more than average.

At 8/17/2009 5:14 PM, Blogger QT said...


Obesity cuts across all demographics and income brackets in the U.S. (as well as political Al Gore, Newt Gingrich) Obesity seems to reflect growing affluence (ie. most citizens can afford to eat out several times a week) and decreasing physical activity both on the job and in the home.

Kids no longer walk 2 miles to school and most folks don't chop wood or plow fields. Even if we ate the exact same diet as our grandparents, we would still gain weight because we live less physically active lives.

While I agree that obesity is a very serious health issue, penalizing patients or denying access to care would be politically a hard sell and likely unenforceable.

At 8/17/2009 5:58 PM, Anonymous Anonymous said...


I'm well aware that obesity cuts across all demographics in the US. The point is that while the poor in most countries suffer from malnutrition and starvation, our poor are overfed and malnourished by choice, not by circumstances.

Obesity, smoking, excessive alcohol use, lack of exercise, and unhealthy lifestyle choices creates a generally unhealthy society. Add an aging population with those habits and it's little wonder we must pay so much for health goods and services. If we charged people insurance premiums according to choice and pooled risk for chance, insurance would be self-sustaining.

We are willing and able to punish parents for a variety of child abuses. Obesity should be no different. Show me an obese child, and I'll wager their physical proportions are a scaled down version of mommy or daddy.

I'm not advocating we force people to exercise and eat right. You can choose to be as disgusting as you want to be. But that doesn't mean society has to pay for your excesses. The wealthy can 'afford' to be fat and unhealthy. They pay their own way. It's the poor who live off of other people's dimes. It's like the sheriff in Blazing Saddles putting the gun to his own head and saying, "Don't move or the (poor/elderly/young/gay/black) guy gets it!" They hold US hostage with our greater concern for THEIR well-being.

At 8/17/2009 8:49 PM, Anonymous Bill said...

This is bad economics. Suppose the tooth fairy or some other party were willing to supply USA medical services for no charge. There would be no expenditures for health care inside the country. Would we be worse off?

At 8/17/2009 9:01 PM, Blogger QT said...

"I'm not advocating we force people to exercise and eat right."

No. As I recall you advocated that we let people die.

"Here's a simple solution for people who don't take care of themselves: LET THEM DIE!"

If I understand the above correctly, aren't you advocating denying people life saving care? Forced exercise and nutrition might seem reasonable by comparison. I can understand that you feel strongly about this issue but obesity alone is not the only factor driving costs.

I believe it is important to try to understand the dynamics that have lead to run away costs over the last 40 years. The recent link to a posting on Greg Mankiw's website provided some very useful historical analysis on this question. The present debate and in particular the spin coming from President Obama has contributed little to an informed debate.

Unfortunately, this debate has become highly charged which means that any objective discussion is becoming less likely. The answers are more likely to come from the medical profession than the political classes but unfortunately, it is unlikely that we will ever hear them in the present climate.

The U.S. system needs significant health insurance reform however, as a Canadian, I can tell you that our system is very hit and miss. Fine as long as you have a broken arm or something relatively simple. Referrals to specialties are often over 1 year. Any condition that is time sensitive can go inoperable due to wait times to get treatment. Lack of diagnostic equipment, older treatments and outmoded therapies.

The outcome is cost effective but not acceptable at the micro level (ie. negative patient outcomes such as months of chronic pain, medical conditions that go inoperable, treatable conditions that become terminal).

Like I say, if you are healthy, Canada is great.


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