Obamacare

Govt Spends Record 46% of Health Care Dollars: Why That's Not Good

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Over at Investor's Business Daily (IBD), John Merline has put together a disturbing chart. It turns out that

Federal, state and local governments will spend a total of $1.4 trillion on health care this year, which will account for a record-high 46% of the nation's total health care tab, according to spending data released by the Centers for Medicare and Medicaid Services.

That's up from the government's 39% share just a decade ago, and the share is expected to hit 48% by 2023, as government programs continue to grow faster than the overall health care economy, the report found.

If current trends continue, government at all levels will account for more than half of health-care spending around 2028, says Merline. Obamacare is part of the reason for the increase, especially via the Medicaid expansion that 28 states have signed on to.

As important, out-of-pocket spending by individuals will drop to just 11 percent of total spending on health care.

Why is this disturbing? After all, who doesn't want to pay less out of their own wallets for anything, whether it's health care or groceries or cable TV? Because these sorts of developments muffle or completely destroy the connection between costs and benefits by de-linking prices and services. If you can buy a dollar's worth of goods or services for just 54 cents, you're more likely to buy more of something whether you really need it or not. This is "Groupon Government" on steroids. Between 2009 and 2013, for instance, the federal government borrowed 33 cents of every dollar it spent. That masks the actual cost of government and surely leads to demand for services that people wouldn't bother buying if they were paying the full cost.

So it is with health care. If we think that we're paying just 10 cents out of pocket or just 54 cents overall for every dollar of health care we're getting, of course we're more likely to purchase more.

The price system isn't incidental to transactions. It's central to them as it conveys information about what things actually cost to produce and deliver. We mess with it at our peril and it's no coincidence that as more and more of costs get shifted away from the actual purchaser, demand goes up and all sorts of ineffeciences and misallocations creep into the system. It's no secret that fully or heavily socialized health-care systems ultimately ration health care; that's how countries reduce the amount of money they spend on health care. Witness Canada's long wait times for treatments that are taken for granted in the United States (and systems that have been compared to a Corolla versus a Mercedes Benz).

And there's this to consider: One of the main arguments for health-care reform was that the United States spends "too much" of its GDP on health care compared to other developed countries. Let's leave aside the important question as to whether that's a meaningful value judgement.  The New York Times reports that by 2023, spending on health care will be 19.3 percent of GDP. That's "two percentage points more than last year." Over the next decade, Medicare spending—the agreed-upon major driver of future federal deficits—is expected to increase by between 3 percent and 8 percent each and every year. But not to worry, says the Times, because "the growth in spending would be moderated by cutbacks in payments to private Medicare Advantage plans." So after Obamacare, which was passed in part to help bend the "cost curve" down, we'll be spending more than ever on health care. Great.

If we want to reduce the cost of health care relative to other things or to control its price increases over time, the best way to do so is precisely to inject more market signals rather than fewer. That's also true of things such as education, another area of commerce that is mostly run by the government at virtually all levels (and, not coincidentally, another area where annual increases outstrip general inflation rates on a regular basis). With health care, there are ways to move to a market-based system while maintaining a basic safety net for those who can't afford to pay. That's going to be the future of health care either because we smartly move in that direction or we turn to it after Medicare blows up federal spending in such a way that we eventually bow down to basic economic and demographic realities.

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  1. One of the main arguments for health-care reform was that the United States spends too much of its GDP on health care compared to other developed countries.

    That we didn’t see the professed results from their health care reform just means they need to do more of it.

    1. It’s the tiny atoll of capitalism. With enough Global Price Warming, it’ll finally be swamped.

  2. I would have thought that ObamaCare would have had more of an impact on the curves – It looks like the trend lines set many years ago are just continuing.

  3. Between 2009 and 2013, for instance, the federal government borrowed 33 cents of every dollar it spent. That masks the actual cost of government and surely leads to demand for services that people wouldn’t bother buying if they were paying the full cost.

    That’s just crazy talk.

    1. Economic law doesn’t hold for government spending.

      See, when government spends money that money is either taxed away or borrowed from wealthy people who wouldn’t have spent it on American goods and services. So it’s, like, extra wealth for the economy. Like megadosing vitamin C, it can only help. And since the added demand from people using those dollars enriches healthcare providers, that money percolates out into the economy and so the bonus wealth multiplies. It’s amazing!

      1. It’s amazing!

        Right up until your children smother you in your sleep for your life insurance or put you in the old-folks home with the most likes on Facebook.

  4. With health care, there are ways to move to a market-based system while maintaining a basic safety net for those who can’t afford to pay. That’s going to be the future of health care either because we smartly move in that direction or we turn to it after Medicare blows up federal spending in such a way that we eventually bow down to basic economic and demographic realities.

    Back alley medical care.

  5. Per chart #1- spending spiked when Reagan signed EMTALA and amnesty.

    1. REAGAN SMASH.

      1. It was Congress that passed that, though – Reagan was a Republican and therefore would never have lifted a finger to help the poor unless it was to help them die in a fire. Same with Bush and Medicare Part D and Bush and No Child Left Behind, Republicans hate children and old people almost as much as they hate poor people so anything that gets done is in spite of the GOP and not because of the GOP.

        Either that or there really is only one party when it comes to supporting bigger and more powerful government and the only disagreement is over whether today is leg day or shoulders-and-arms day.

        1. Yes, you have helped prove my point here. There is nothing “small government” about the GOP at all. It is a myth many of the Peanuts here believe like it was a natural law (another myth).

          1. So then we’re back in agreement, government needs to dramatically shrink and Obamacare is the sux0res in the realm of shrinking government.

          2. The GOP is “small government” relative to the Democratic Party. That’s not “nothing.” And of course the biggest spike is Medicare/Medicaid.

        2. Why do you talk to that thing? It’s not interested in honest debate.

          1. Why do you talk to that thing? It’s not interested in honest debate.

            Just to annoy you. Admit it, you’d miss him if he were gone.

            Plus the fact that he gets so much unearned abuse here but keeps coming back and I have a natural affinity for the underdog.

            1. I know the temptation. Carry on.

    2. “and amnesty.”

      IMMIGRANT SMASH!

  6. The price system isn’t incidental to transactions. It’s central to them as it conveys information about what things actually cost to produce and deliver.

    And yet look how long government has survived by convincing people that there is such a thing as a free lunch – and the only reason you haven’t got yours is because “they” stole it from you.

  7. my buddy’s step-aunt makes $63 /hour on the laptop . She has been out of work for eight months but last month her pay check was $16293 just working on the laptop for a few hours. look these up………

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  8. “Government at all levels will account for more than half of health-care spending around 2028, says Merline. Obamacare is part of the reason for the increase, especially via the Medicaid expansion that 28 states have signed on to.”

    I’d just like to point out that the Medicaid expansion isn’t just part of the reason for for the increase in the share of our national health care that’s paid for by the government. It’s also a major part of the reason why costs continue to rise for private pay (private insurance) patients.

    For the millionth time, Medicaid only pays 12.5 cents, on average, on the dollar billed. The system expects providers to make up for the losses they suffer on Medicaid patients by gouging private pay patients. It works the same way with Medicare–it’s just that Medicare pays more like 25 cents on the dollar billed.

    That’s why, if you show me an acute care hospital that’s been in financial trouble or closed over the past ten or twenty years, you’ll find that they had demographics surrounding them that had an insufficient number of private pay patients to gouge to make up for the difference.

    In Los Angeles, it isn’t the gorgeous hospitals of suburban Orange County that have the problem. It’s Harbor UCLA. It’s County USC. It’s MLK. Expanding Medicaid actually exacerbated these inner city hospitals’ problems. That’s why your premiums are going up next year, and that’s why your deductibles went up an average of 40% post ObamaCare.

    1. And that’s why the real function of Obamacare isn’t to provide medical insurance to people who need it but can’t afford it, it’s to mandate medical insurance to people who can afford it but don’t need it.

      All the nonsense about what wonderful things Obamacare would mean are just to disguise the fact that the government healthcare system is broke and needs more money from healthy people to pay for healthcare for poor people.

      And to the extent that healthcare is about as “free market” as your electric company, it’s all government healthcare system.

      1. Yet we taxpayers fund a buffet style “all you can eat” system for those who require the most medical care – the elderly.

        Nothing can be fixed until Medicare is dismantled or capped per patient.

        1. My experience with health insurance is that it’s all an “all-you-can-eat” buffet, with the cheery promise that the guy in line behind you is going to pay half your tab distracting you from realizing that the guy ahead of you in line was told the exact same thing.

          1. My car insurance sucks balls. I have to pay 100% of my gas cost, and it doesn’t include any repairs! Bullshit!

    2. That’s why, if you show me an acute care hospital that’s been in financial trouble or closed over the past ten or twenty years, you’ll find that they had demographics surrounding them that had an insufficient number of private pay patients to gouge to make up for the difference.

      *raises hand*

      I worked for a community hospital in teen-pregnancy central. Shorter: Medicaid. We went into a financial spiral (combined with poor management decisions) starting in 2007 and were finally forced to make a deal with a Catholic organization.

      As Medicare continued to reduce its payments, our financial situation worsened. Guess what our CEO was a vocal supporter of? That’s right, Obamacare. The money grubbing management couldn’t wait to get their mitts into Obamacare.

  9. If we want to reduce the cost of health care relative to other things or to control its price increases over time, the best way to do so is precisely to inject more market signals rather than fewer.

    That’s what the market is for. Unfortunately, most voters are still under the woolly impression that medical care in the U.S. is managed by a free market.

    1. And that the remaining sliver of the free market is what’s causing rising costs and inefficiency.

  10. The numbers are MUCH worse than that as it seems to be missing quite a bit of health care spending on the part of the government.

    A couple of years ago before the ACA went into effect I went and dug up numbers and by including government employee health insurance premiums paid by the govenrment and more importantly government employee pensions I came up with over $2 trillion in total government health spending more than 70% of all health expenditures.

    This seems to be skipping pensions and excluding the overhead costs of the government health care programs from consideration

    1. Does that include state and local pensions?

    2. by including government employee health insurance premiums paid by the govenrment and more importantly government employee pensions I came up with over $2 trillion in total government health spending more than 70% of all health expenditures.

      Was that from the Treasury’s yearly statement? I saw that Medicare and Medicaid cost over $1 trillion a year, but I don’t remember seeing .gov employee health plans.

      1. I went into the study that IBD based their post on and they claimed that they accounted for the VA and DOD health systems as well as government employee health care costs but they also only came up with $1.3 trillion in government spending for medical care when I came up with over $2 trillion.

        My guess is that they skipped the government retiree health care costs and they explicitly said they excluded the overhead of managing government health programs from the spending equation and those 2 things account for the other $700 Billion.

        Now whether their or my method is more valid is up to the reader. I’d say the pensions definitely should be included but they could be looked at as an earned benefit and therefore be the property of the beneficiaries at the time they received the benefit meaning the beneficiary is actually the one spending the money not the government even though the government put the money in the account as part of the workers compensation.

        And the overhead could legitimately be seen as a non health care expense as long as they are also excluding the overhead costs of private and employer sponsored health plans. The problem with that however is that while that money does not provide health care in and of itself it is a necessary cost for funding the health care system and so by not including it you are obscuring the true costs of the health care system.

  11. These numbers shouldn’t be any big surprise to someone who’s actually compared healthcare costs from the 50s and 60s with those from today. I’ve been pointing this out in these comment sections for years. I’ve mentioned before that in the mid-50s, a normal live birth and two days in a private room in a California hospital was about $1,000, inflation-adjusted. When our kid was born, the listed price was $10,000, and that wasn’t even with two nights stay in the hospital–that was just the procedure.

    Anyone who thinks that $10K for a regular live birth is normal or reasonable is fucking idiotic. $1,000 can be saved up by someone with median income to pay for the birth of their child. 10 Gs? Forget it. And it’s due precisely to the stupid notion that someone else needs to cover the cost of your healthcare that’s so prevalent in this country.

    1. Cash as the dominant payment mechanism will empirically lower healthcare costs by 50-80%–but the elites will never go for it because that is a HUGE chunk out of GDP, at least initially. They’ll pretend that everyone suddenly having a lot more money in their pocket from not having to pay for everybody else’s healthcare is bad for the economy, and will point to that initial GDP hit to disingenuously “prove” it. And then when the economy starts to pick back up again because healthcare costs are suddenly extremely cheap and people can actually afford to spend a little more on housing and consumer goods, they’ll act as if it was something completely different.

  12. Kinda crazy when you think about it. Wow.

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  13. That’s not how Groupon works. That’s not how any of this works.

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