I was at a Kaufmann Foundation conference of economics writers late last week, and as usual at a good event like this I feel I learned a ton of stuff in informal conversations with people there and sharpened my own thinking on tons of points. One such point is the question of rising government health care expenditures, which we talked about a bit, specifically with reference to the above “scary” chart from the Bipartisan Policy Center.
My main beef with this chart is that when I hear folks discuss it in D.C. or in the press they often seem to forget that the map is not the territory. You don’t want to talk about the chart, you want to try to talk about the underlying reality that the chart represents. What the chart says is that over the next several decades a very large share of the nation’s increased income is going to go to the purchase of health care services. It says that a hefty share of these services will be purchased by the federal government via Medicare, Medicaid, and CHIP. And it says that this means there will be an increasing tax burden on the private economy to finance these purchases. But something to note here is that these health care expenses don’t just occur. They pay for things. For the expenses to get so high, people need to build the hospitals and clinics where the services are provided. People need to train the doctors and the nurses to provide the services. People need to patent the drugs and manufacture the devices that patients are charged for using. So the forecast here is that all this is going to be done. That anticipating a surge in publicly financed purchases of health care services there will be massive investment in the capital goods and training needed to provide them. And yet at the same time, to the best of my knowledge everyone wielding this chart as a scare story is trying to tell you that it’s not going to happen. They’re trying to say that this level of taxation is unrealistic and that politicians need to “level” with the American people and tell them these public benefits won’t exist. But note that if the health care industry doesn’t believe that this demand for federal purchases of health care services will exist, then the investment necessary to provide it won’t occur and therefore the purchases won’t be made. Your hospitalization will only occur if there’s a hospital bed for you to go to.
This line of thinking doesn’t indicate that there’s no problem here, but it raises the question of what the problem is. One way of thinking about it is that as baby boomers age, there will be an alarming shortage of hosptial facilities in which to accommodate their old, broken-down selves. That might require more rationing of hospital access than elderly Americans are accustomed to. Or it might require a binge of (directly or indirectly) taxpayer-financed hospital-building. Or we might treat hospital access as something people should bid for, like courtside basketball seats, where people without money get priced out of the hospital. Or we might hope that technological advances or organizational improvements let us get away with a much lower level of age-adjusted per capital hospitalization.