In the most recent edition of the Journal of the American Enterprise Institute, Veronique de Rugy investigates how health care reform will “cost taxpayers more, much more.”
According to Congress, de Rugby explains, the different health care bills will cost approximately $900 billion over the next decade, yet somehow will simultaneously save taxpayers’ money in the long run. Why does this sound familiar? Because the government has made similar arguments before.
Take Medicare, for instance. In 1967, long-run forecasts estimated that Medicare would cost about $12 billion by 1990. In reality, it cost $110 billion that year. Today, it costs $500 billion.
Moreover, based on Congressional Budget Office data, this chart below illustrates how long-term projections of Medicare spending have steadily increased, even in recent years and over short periods of time. In 2005 for example, CBO projected that Medicare would cost $1.5 trillion in 2050. Two years later, in 2007, the same CBO projected that this cost would reach $2.8 trillion. And in 2009, it projected that the cost would be $3 trillion instead. In other words, this projected cost doubled in four years.
This upward revision of projected costs comes despite CBO’s allowances for “excess cost growth,” meaning that CBO is aware that it tends to underestimate the long-term cost of programs, so it allows for some excess spending in its projections.
Furthermore, the actual expenditures exceed projections—in 2008, federal outlays for Medicare exceeded most recent projections by $63 billion; in 2009, federal outlays for Medicare exceeded projections by more than $148 billion.
The Organization for Economic Cooperation and Development (OECD) recently released an updated report on health and health care development worldwide. American youngsters, according to the report, drink and smoke less than their foreign counterparts.
About one in five American 15-year-olds reports having been drunk at least twice, compared to nearly one in three 15-year-olds across the OECD (Click here to see a map of the legal drinking age around the world):
As for smoking, about 17 percent (almost one in six) of 15-year-olds throughout the OECD reports smoking at least once a week, as opposed to about 8 percent (almost one in 13) of Americans at the same age. (Click here to see the minimum age that minors can buy and smoke tobacco around the world):
Obesity is where the picture gets ugly for Americans. American children are the fattest among all OECD nations, by a wide margin:
Dean Baker and Hye Jin Rho of the Center for Economic and Policy Research have an interesting new paper titled ‘Free Trade in Health Care: The Gains from Globalized Medicare and Medicaid.’
In their paper, Baker and Rho argue the all-too-familiar line that “patients are paying too much for their health care.” But they provide an interesting twist: why not permit free trade in health care?
The huge gap between the cost of health care in the United States and the cost in other countries with comparable health care outcomes suggests the potential for substantial gains from trade. This paper describes one mechanism for taking advantage of these gains – through a globalization of the country’s Medicare and Medicaid programs. The projections in this paper suggest that the country’s long-term budget situation would be substantially improved if beneficiaries of these two programs over the age of 65 were allowed to take advantage of the lower-cost health care available in other countries (that also have higher life expectancies than the U.S.). This could also allow them to enjoy much higher retirement incomes than they would otherwise receive.
They estimate significant savings for the U.S. and gains for other countries. Who would have guessed there would be gains from trade (that’s sarcasm people)?
The chart below illustrates the potential savings to the government over the next 75 years for each beneficiary who opts to use a Medicare voucher to buy into the health care system of another country:
The table below shows the implied savings to the Medicare system if 30 percent of the eligible population opts to use a Medicare voucher to buy into the health care system of another country:
The gains from trade, of course, help the countries that provide health care as well. The gains to beneficiaries from moving to another country for health services are illustrated below:
So what can we make of this? Well, for one, the future can’t be predicated with any degree of certainty when it comes to health care. It is now in the filthy world of politics.
But if the health care debate truly centered on helping those who can’t help themselves, then the focus would remain on fixing Medicare and Medicare. But clearly helping the needy has somehow evolved into helping everyone.
Nevertheless, Baker and Rho provide an interesting way to sharply reduce the costs of health care for those who may need it.** In the words of the authors,
The huge gap between the cost of health care in the United States and the cost in other countries with comparable health care outcomes suggests the potential for substantial gains from trade.This paper has described one mechanism for taking advantage of these gains – through a globalization of the country’s Medicare and Medicaid programs. The projections in this paper suggest that the country’s long-term budget situation would be substantially improved if beneficiaries of these two programs were allowed to take advantage of the lower-cost health care available in other countries. This could also allow them to enjoy much higher retirement incomes than they would otherwise receive.
**I will not go into the morality or practically of providing health care to the poorer segments of society. Whether these programs are necessary is not my point here. My point is to highlight a practical method to improve what is unlikely to disappear.
According to a new Gallup survey, “Americans currently tilt against Congress’ passing healthcare legislation.”
49% of respondents said they would advise their congressman to vote against a health care bill and 44% said they would support their congressman if he or she would vote for the bill.