Medical expenditures in the United States make up almost one-fifth of gross domestic product, and they grew faster than inflation by about 3.6 percentage points a year during the decade that ended in 2005, according to the Organization for Economic Cooperation and Development in Paris. There’s no sign the increases will end without multiple and major reforms.
Yet something has to give. Government spending can’t outrun the government's current income (tax revenues) in the huge way that’s implied by current policies.
Medical spending is rising partly because of new treatments that, health researchers say, provide considerable benefits. Granted, high costs are not unique to the US. But America’s system covers a smaller percentage of the population than in other advanced nations and often delivers poorer results.
Medicare costs are up partly because of a growing prevalence of health problems (such as obesity), as well as expanding treatments, Boston University economist Laurence Kotlikoff says in his book “The Healthcare Fix.”
Q: The healthcare industry isn’t exactly a free marketplace. Is that part of the problem?
A: Insufficient competition is a major problem, many economists say. This is a business in which the consumer generally doesn’t see the full cost of care, and those providing healthcare services don’t have to compete for consumers the way most retail stores do.
Still, how much to emphasize competition as a solution is a matter of debate. Some health-policy experts, citing other nations, emphasize the role that government can play in bargaining on behalf of consumers and holding costs down. At a minimum, they say, individuals would have a hard time finding affordable care – or making wise choices amid the complexities of insurance – without government playing a role.