Why Healthcare Cost Reform Could Be The Greatest Stimulus Of All

by: Will Healy
Summary

The high cost of American healthcare.

How US healthcare is different from that of other industrialized countries.

How either single payer or free market healthcare can act as an economic stimulus.

High healthcare costs in the United States have taken a toll on the economy for decades. Medical costs are the number one cause of personal bankruptcy, and government health programs have provided care, but only at a high cost to the economy. While many have now been able to find insurance with the Affordable Care Act, millions of others are still left without care. Additionally, a greater share of the financial burden of this program fell on corporations, which has an indirect effect of higher product costs and lowered employment. Per capita costs of the US healthcare system exceed that of every other country in the world. However, if these high costs can be controlled, an opportunity presents itself to stimulate economic activity and make the American economy stronger than ever.

The debate in the United States whether to remain with private care or adopt a single payer system has been raging for decades. The debate has never been fully resolved and the compromise has been a government-based system for seniors and a private but heavily regulated system for everyone else. Spending on healthcare in the United States is approximately 18% of GDP (over $3 trillion) and is expected to grow to almost 20% by 2022. This compares unfavorably to other nations in the industrialized world. In most Western European countries with single payer systems, costs range from 9-12% of GDP. While no pure, free market system exists in the industrialized world for a comparison, Singapore (a system based on universal high deductible insurance and medical savings accounts) spends below 5%. India and Mexico, popular destinations for medical tourists seeking private care, spend approximately 4 and 6% respectively. Costs in the US were 6% of GDP prior to the creation of Medicare in 1965, indicating both single payer and a free market approach are both less costly than the US healthcare system as it exists today. If the US embarked on a single payer system and reduced the cost to 12% of GDP, costs would fall by at least $1 trillion every single year. This is an amount comparable to the $85 billion per month of stimulus in the Fed's quantitative easing program. It also greatly exceeds the cost of the Bush tax cuts ($1.6 trillion over 10 years) and the 2009 Obama stimulus ($831 billion one time). If the US adopted a plan similar to Singapore's or returned to its pre-Medicare health system, the cost savings would be even greater, perhaps as high as $2 trillion per year. And this savings is stimulus for the economy, savings that doesn't require the Fed or the government to create money through borrowing. More importantly, it's savings that does not deprive anyone, including the poor, of needed medical care.

High medical costs have burdened the American economy for decades, but with possible trillions in annual savings, controlling these costs could effectively stimulate the economy more than any program in recent years. Quantitative easing, which is money printing by a different name, stimulates in the short term at a possible cost of long-term stability. Tax cuts can also stimulate, albeit at a cost of short-term revenue to the government. However, with a normalization of American healthcare costs, this relief can be obtained without compromising government revenue levels or the integrity of the dollar.

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