Why healthcare can never fall as a % of GDP, Part Two

October 9th, 2009 by Al Lewis (alewis)

Last time I ended my entry by observing that as increasingly effective, painless, and expensive procedures,diagnostics and therapies are introduced, they will be over-consumed.  Why?  There is no economic check-and-balance against this because these resources are virtually free at the point of sale, which brings me to the third observation (counting the the last posting as two observations, for those of you who are keeping score at home):

 Anytime you subsidize something at the point of sale, it will be overconsumed.  And guess what?  Those subsidies create huge increases in consumption.  As I say in OOBonomics (Preorder OOBonomics here!), consider what we subsidize, directly or indirectly, as a nation:  Housing, gasoline, food/agribusiness, health care.    As a result, we have become a nation of oversized people driving oversized cars from oversized houses to oversized medical facilities.
 Finally, in most other industries, when product substitution takes place, cheaper, more cost-effective goods replace older inferior ones.  Not so in health care.  What gets replaced is often death, which is very costly in the emotional sense though not in the economic sense.  New “products” allow people to be kept alive at huge economic expense to the system.   Yet who among us would want to stop innovating in health care and prefer people to die?  
The bottom line from this posting and the last one?   You have many more procedures and drugs, which many more people want, and they are mostly heavily subsidized to the end-user (and often quite profitable for the doctor recommending them)…with new ones coming on-stream all the time.  Add to that an aging population and you get an immutable recipe for increasing health care expense over time.
Prediction:  When the votes are counted, 2009 will be the worst offender yet.  It’s not just that health care expenses rose.  GDP will have contracted, increasing the percentage of GDP spent on health care to its highest-level ever, probably higher than last year by a record inter-year margin.
Next:   Don’t despair.   This being the art/science of OOBonomics  (Preorder OOBonomics here! if you missed it the first time), we will have some solutions in future postings.
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One Response to “Why healthcare can never fall as a % of GDP, Part Two”

  1. dblacklock Says:

    One recent “improvement” in healthcare is this: Now when a patient gets a broken hip, it is compulsory to ascertain whether the patient just stumbled and fell (causing the hip fracture) or whether a cerebral or cardiac event caused the fall. A 24 hour heart monitor is supplied and if certain dysrrhythmias show up, the patient is referred to a cardiologist for placement of an ICD (internal cardiac defibrillator) at an obscene cost, benefitting the hospital, the cardiologist, the ICD manufacturer, and dozens of ancillary workers. Whether the patient benefits depends on what quality of life that person potentially has left, but when Medicare is paying, the decision seems easy. More frequently, when the ball is already rolling downhill, the right questions are not even asked.

    DB

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