Wasteful Health Care Spending and Unknown Costs

Americans spend a lot of money on health care without really knowing what it's for, which leads to waste.

Paul Albaugh · Nov. 1, 2017

Now that Halloween is behind us, Americans are faced with something far more frightening for the foreseeable future. The cost of health care is one of the scariest things facing all Americans and there is currently no viable solution to the monstrosity of Barack Obama’s Unaffordable Care Act. Congressional Republicans have been completely inept at getting any meaningful legislation to President Donald Trump’s desk.

The extreme cost of health care and the spending involved is something recognized by nearly all policy experts. However, there is a chasm of disagreement between experts on how to address the problem. Those on the Left advocate for a single-payer system, while those on the Right advocate for a return to free-market solutions. With both sides arguing for completely different solutions, there seems to be little hope that anything meaningful will get accomplished.

That said, there are currently two primary problems with health care in America: wasteful spending on behalf of the federal government and the individual cost. We have known for decades that the federal government has a spending problem, and with health care taking up more than one-fifth of the economy, it should be no surprise that there is just as much wasteful spending with health care as there is with any other government function.

In particular, Pascal-Emmanuel Gobry, a fellow at the Ethics and Public Policy Center, notes two facts that are worth highlighting:

First, it is the consensus of the relevant studies and health-policy experts that about half of all health-care spending in the U.S. is wasted. That is, if we spent half as much as we spend, we wouldn’t be worse off at all, so long as we spent the remaining money on what’s truly needed. In fact, we might be better off, and not just because an enormous dead weight would be lifted off the economy.

Second, not only has this fact not registered at all on the American public consciousness, but the vast majority of health-policy experts are in denial about it — not in the sense that they straightforwardly reject the non-controversial finding, but in the sense that they seem very reluctant to admit it or talk about it and certainly seem to behave as if it were not the case.

Perhaps even harder to swallow than the wasteful spending itself is that the most wasteful health care spending is also the most popular.

First is the idea that everyone somehow is entitled to health care, and that makes for two popular entitlements: Medicare and employer-paid health insurance. (We use the word “entitlements” here to mean benefits mandated by law.) Medicare has been a disaster for decades, but more taxpayer money keeps being dumped into it, all while there is less value that comes out of it.

Then there is employer-paid health insurance. Since soon after World War II, employers have used health insurance as part of their benefits package to help attract workers. It’s certainly nice to have employer-paid health insurance, but Gobry correctly notes that it’s “subsidized by the biggest loophole in the tax code,” which really makes it more of an entitlement than a benefit.

Gobry argues, “Some conservatives resist that sort of language in the interest of a philosophical defense of private-property rights, the idea being that to call a tax break government spending presupposes that our money belongs to the government. I applaud and share the philosophical attachment to private-property rights, but we shouldn’t let it obscure the fact that macroeconomically, tax expenditures have many of the same effects as government spending, since they represent spending directed by the government rather than private individuals.”

Another popular yet wasteful area of health care spending — that no one wants to mention because they probably know someone personally in the profession — is doctors. Unfortunately, many within the medical profession put their own interests ahead of those they serve, much like politicians.

Of course most doctors aren’t at fault, but there are many who have used the medical profession and its positive image to create a legal structure that fills their pockets and prevents accountability. Among other things, there are countless procedures that could be performed by less skilled medical personnel but they legally can’t because they don’t have the title of “Doctor.”

Finally, there’s one more angle to look at the problem with our current health care system as we know it. No one knows the actual cost that each individual specifically imposes on the health care industry. Every person is different and everyone’s medical needs are different. Thus a one-size-fits-all scheme like ObamaCare was bound to fail.

In other words, most Americans are paying for health care that they don’t really need, not because they want to but because they must. If we could somehow determine how much health care for each individual actually costs, then individuals could choose to purchase the health care that they need.

Unfortunately, it doesn’t seem that the current health care monstrosity is going to be fixed anytime soon. In fact, it’s likely to get worse before it gets better. Most people’s health insurance premiums are already expected to rise from 10-20% again this year, and with this fundamental problem of cost left unaddressed, it’s no wonder. If only our representatives had the courage to do something different.

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