More Health Care Is Better: OG Wisdom, Straight Outta 1999

Charles R. Morris's famous 1999 article, via Levant: "Given that healthcare is in fact a productive industrial sector, the “drain on the economy” issue really translates into the issue of competing priorities. If we don’t spend the money on healthcare what will we spend it on? Larger homes, bigger SUVS, better electronic games, faster food, or a missile defense system? However, a discussion of choosing to divert healthcare dollars to other sectors is a mere academic exercise. For as Morris (1999, p. 96) points out “policy wonks still treasure the delusion that we as a nation will somehow decide what share of resources should be claimed by health care, when the demographic facts have already decided it for us.”"

Morris via NCPA:

Within the next 25 years or so, according to recent estimates, health care could account for as much as 25 percent of spending in the United States (ed. note: Obamacare = less?). Spending trends in almost all other developed countries are headed in the same direction, although with a time lag. Author Charles R. Morris asks, what is so bad about that?

Morris argues that health care is becoming a high-productivity, high-technology industry where each dollar buys more. Thus, although health spending is increasing, most health care costs are going down. And as the personal computer industry shows, falling costs and improved performance usually induces more spending, not less.

The share of national income devoted to food and health care combined hasn't changed in 50 years, says Columbia University economist Sherry Glied. We just spend a lot less on food, and a lot more on health care.

There is lots of literature out there on this basic point, I recommend U.S. Health Care Spending In An International Context, notably the section Health Care In The Macro Economy, which everyone should read. I'll just quote this:

the fact that in most industrialized countries health care has absorbed an ever-increasing fraction of GDP while other types of output—for example, agricultural products — have claimed a decreasing share does not by itself imply an excessive allocation of resources to health care.

The alleged economic burden of health spending.
How serious a problem, if it is one at all, is the inexorable growth of health care as a component of GDP? On this question the responses of policymakers can vary, depending on their political purview. At the local level, policymakers usually give much weight to the employment opportunities offered by a growing health sector, which leads them to resist reductions in or closing of local health care facilities. On the other hand, at the macroeconomic level, policymakers often view growing health spending with alarm, although added consumer spending on other goods and services—on SUVs or entertainment— invariably is viewed as a sign of economic health by both policymakers and the media. What explains these seemingly inconsistent views toward consumer spending?

And some crucial Cancon as a follow-up, from our own Finance Department, those well-known irrational spendthrifts, Health-care Spending: Prospect and Retrospect, with these vital points:

What conclusion can be drawn then about the sustainability of health spending? Again, it depends on how sustainability is defined. Some suggest that any category of spending that grows faster than GDP is problematic, since it could require reductions in the share of GDP devoted to other areas of spending. However, the structure of public spending has always evolved over time, and these changes have been affordable. For example, total health spending as a share of GDP increased from 7% to 9.4% between 1975 and 2001. At the same time, federal public debt charges came down from 6.6% of GDP in 1990-91 to 3.2% of GDP in 2002-03 (Figure 18). Future reductions in debt charges may be expected to create additional fiscal room.
(...)
The spending increases projected under 1990s enrichment ratios thus appear to be within the limits of sustainability from both fiscal and political perspectives. However, this could change with a swing in public opinion. Given the wide range of spending options that are fiscal feasible, discussions of sustainability ultimately become a question of public choice. Even very large increases in health spending as a share of GDP are technically feasible, provided citizens choose to devote an ever increasing portion of GDP to the health-care system and are willing to pay for its cost.
(...)
Our projections show sizeable increases in total (public/private) health-care spending as a share of GDP. However, total provincial-territorial government spending on health remains under 10% of GDP by 2040 under the scenario we consider to be a reasonable baseline. While it is impossible to predict the level of health spending increase that can be successfully absorbed, the increases projected under this baseline scenario may be considered likely to be sustainable on a couple of bases:
• historical perspective – the projected increase is well within the range of historical increases over the last 20 years;
• inter-provincial comparisons – figure 10 showed that the projected increase is within the range of existing provincial variation in spending.
It should be emphasized, however, that these projections alone provide only one measure of the sustainability of health spending i.e. the health spending-to-GDP ratio.
A more complete analysis could place the projections shown in this note in a broader fiscal framework that includes all government revenue and spending. Such a framework could be used to evaluate the long-term impact of increases in health spending on government budget balances and debt-to-GDP ratios by taking into account potential offsetting changes in other components of spending.