Why Not Spend Even More on Health Care?

BY Paul Solman  October 17, 2012 at 12:58 PM EDT


A nurse paying a house call to an elderly patient. Photo by John Moore via Getty Images.

Ed Beardsworth: If Revlon sells an extra $1billion worth of lipstick, that’s a good thing. That adds to GDP, etc. If health care companies sell another $1 billion, then that’s a bad thing. What’s the difference, exactly?

Paul Solman: I love this question. I have for years been alienating friends and acquaintances alike by suggesting an even more extreme version of the same point implicit in your email: that if the objective of economic growth is to maximize utility, AKA total economic welfare, health care spending may be just what the doctor ordered. Indeed, to be provocative — and with tongue comfortably away from cheek — I have argued that it may not be a bad thing if health care costs continue to climb as a percentage of GDP. On the contrary, it may be a measure of economic success.

Making Sense

I’m out on a limb here, but suppose manufactured consumer goods continue to get cheaper and cheaper, in general and on average, and thus dwindle as a percentage of the total economy. A decline in food and water prices, relative to the economy, is more iffy but not unimaginable. In 1900, Americans spent something like 25 percent of their income on food. Today, the number is well below 10 percent and according to some sources, less than 5 percent.

Energy? It could rise, I suppose, but in the long run, assuming we don’t asphyxiate ourselves, free photons give us at least a shot at low-cost to nearly-free energy.

Housing? I suppose that will hold steady, but you get the idea. It’s plausible that many costs will go down. So then what would you spend your money on if not a longer, healthier life? In which case, there will be ever-newer technologies and techniques, ever-newer drugs, more and more research, development and deployment. It will take lots of people, lots of money. But I, at least, can’t think of anything I’d rather spend it on.

Yes, of course, we spend profligately on health care in America compared to other countries, with no better results. Yes, our doctors make more than doctors anywhere. Yes, ads for meds often prey on the gullible and desperate. Yes, universal health care might conceivably cut administrative costs substantially. Yes, most drugs are of the me-too variety.

But Harvard economist David Cutler has long shown that for all the extra expense, health care in America has still been a bargain in terms of the benefits it has delivered. I don’t see why that will stop being the case anytime soon.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions.