A percentage point here and a percentage point there and soon you're talking real money
The news that Americans have stopped getting fatter -- but are still pretty fat -- is a nice opportunity to distinguish things that change how much we spend next year from how much we spend 10 years from now.
There are two things going on with health-care costs. The first is that we spend a lot right now. In 2008, we clocked in at $2.3 trillion. That's a lot of money. But the other problem is that that sum is growing by quite a bit every year. A normal year sees 8% or so growth.
We can afford $2.3 trillion. We can't afford $2.3 trillion after 20 years at 8% growth (which would be $10.7 trillion, if my calculations are correct).
To get costs under control, we have to change the 8%, not the 2.3 trillion. To make this clearer, let's say we do some serious cost control and cut $200 billion from the system next year. That's heavy work that will hurt a lot of people. It's more than we've ever done before. But if we're still growing at 8%, then 20 years from now, it leaves us with $9.8 trillion in spending. That's $900 billion less than the original projection, which is something, but not enough.
Conversely, let's say we don't cut a dollar next year, but we lower the growth rate to a (still fast!) 6.5%. In 20 years, we're spending $8.1 trillion. That's $2.6 trillion less than the projections. Which would you prefer?
That's not to deride the worth of things that cut the $2.3 trillion. Saving money is good, and it buys us time. But if we just cut payment rates by enough to save, say, $200 billion, all we're doing is buying some time. Things that attack the growth of health-care spending -- reversing the rise in obesity, for instance, would mean that demand for health care grows more slowly than we project -- change the 8%, and are thus much more important.
Graph credit: Congressional Budget Office
January 14, 2010; 3:04 PM ET
Categories: Health Economics
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