Is increasing spending on healthcare a real economic issue?
Healthcare spending in the US is predicted by the US Centers for Medicare and Medicaid Services to double by 2017. The report has just been published by Health Affairs. The authors of the report mention two main causes of the increase in spending, one of them being higher drug prices. But prices also incorporate innovation, while the unit price of individual products typically decreases with life cycle. If the increase is not due to pure price inflation, then from the economic point of view, the only issue could be increasing burden for the public financing (Medicare, Medicaid). If, however, we look at private spending (most health plans), then a simple thought experiment can show us how absurd the fear of excessive spending on health can be. We can envisage an economy with, say, 90% of GDP going into health care. Yes, hospitals, drugs, doctors’ and nurses’ wages, diagnostics, rehab, counselling, etc. If there is demand, the supply for such services will only be a reflection of patient
