Health Care Reform At Any Cost?

As Washington hastens to wrap up the particulars of health care reform, let’s stop to reflect on the potential consequences. Our national health expenditure as reported for 2007 by the Centers for Medicare & Medicaid Services was $2.2 Trillion or 16.2 percent of GDP. The percent jumps to 17.5 based on the 2009 forecasted expenditure of $2.5 Trillion and third-quarter annualized GDP.

Fast forwarding to 2015 the U.S. population is projected to increase from 307 to 324 Million with those ages 65 and older increasing from 39.0 to 45.6 Million. Health expenditures are forecasted to increase to $3.5 Trillion by 2015, before expanding coverage under the proposed health care reform legislation. Let’s consider carefully the implications of rapid health expenditure growth in a recovering economy. The minutes of the Federal Reserve System FOMC of November 3-4, 2009, suggest long term GDP growth rates in the 2.5 to 2.8 percent ranges, moderately higher than the IMF which suggests the U.S. GDP growth rate will be below 2 percent “for a considerable time”. Assuming a 2 percent growth rate from 2009 forward our national health expenditure will reach 22.0 percent of GDP in 2015, before expanding insurance coverage.

While the Congressional Budget Office has scored the Senate plan at a cost of $147 Billion (2016 maximum insured population) before excise taxes and penalties…this analysis fails to recognize the additional consumer or employer cost. There is no reason to believe those uninsured today will consume less health care services than those presently insured. It fact, there may be a case for suggesting the uninsured have built-up health care needs. Unlike the sophisticated forecast of CBO, we derived our cost estimates from the actual experience of the 2007 national health expenditure.

On average, people covered by Medicare expend $10,975 and the insured population spends $8,433 per person. Applying this experience to the estimated 32 Million uninsured people to be covered under the Senate plan, health care expenditures have the potential to increase by $269.9 Billion (in 2007 dollars) or $316.2 Billion annually by 2015, assuming a 2 percent inflation rate. By 2015 the combined effects of population changes, the proposed expansion of coverage, utilization growth rates, and inflation have the potential of increasing our national health expenditure to an astonishing 24.0 percent of GDP.

As health care marches to higher levels of GDP it places economic recovery, Federal deficit reduction, and the American way of life at great danger. As Americans, we can all agree the health care system needs to be reformed, but to expand coverage without simultaneously reforming the delivery system is beyond rational economic comprehension.