Thursday, February 23, 2012

The Myth of Runaway Health Spending

In the 2/17/2012 Wall Street Journal, J D Kleinke addresses, "The Myth of Runaway Health Spending".

The rise in health spending is commonly trumpeted as a reason for more government controls.

However, the NCPA notes the following take-home points from Kleinke's piece:
* Health care spending increased continuously since the 1970s, consistently outstripping inflation and economic growth.

* This trend continued into the last decade, with the 7 percent rate of growth in 2000 rising to more than 9 percent by 2002.

*However, this trend has since turned negative with the rate dropping almost every year since 2002, reaching a low of less than 4 percent in 2009.

It is crucial, in reviewing this trend, to note that the downward pressure existed long before the recession began -- this lends credence to the belief that the ingredients that drove down spending are independent from the economic situation as a whole. Specifically, a number of developments in the early 2000s are largely responsible for the gradual reduction.

* A number of expensive medicines that were developed in the 1980s and 1990s, such as drugs for mental illness, HIV, cancer, heart disease and schizophrenia, have since become generic and are much cheaper.

* Greater information channels exist for communicating health care options and preventative measures.

* Market forces have slowly permeated the health care industry with higher deductibles, new copayments, and Health Savings Accounts allowing participants to have a hand in controlling their own health care spending.
The current system is mixed, with both free-market and statist elements. We should not blame the free-market elements for problems caused by government controls. And indeed, it has been the free-market elements that have kept costs at least partially under control, as happens in the rest of the economy.