The United States faces multiple healthcare challenges. The U.S. spends
dramatically more
on
healthcare
than any other wealthy nation,
$5,000 more
per person. Yet life expectancy is
declining
across the nation.
As healthcare spending increases as a percentage of GDP, national productivity growth slows. Productivity growth in the healthcare system is almost nonexistent. Low productivity growth is a function of too much government regulation. Complying with regulations costs money. Low productivity growth follows from government subsidies that encourage healthcare consumption but do not affect the supply of healthcare. Demand rises. Supply is stagnant. Costs and queues increase, but the supply of healthcare remains the same. Growth in productivity is the foundation of a wealthy economy and nation.
Perhaps most importantly, excessive healthcare consumption is a major driver of the federal deficit, which is reaching crisis proportions.
The net federal deficit approaches 100% of GDP. Each 1% increase in borrowing costs to fund the deficit raises the deficit by 1% of GDP. The country is at the edge of the whirlpool of a negative feedback loop. Still, there is little political will to control Medicare spending, which is growing above nominal growth in GDP. Each year, Medicare spending consumes more of the federal budget.
There is, however, some political consensus on controlling Medicaid spending. Medicare involves government healthcare spending for low-income households. As part of the Consolidated Appropriations Act, the coronavirus expansion of Medicaid subsidies will be phased out.
This is good news
. But there is more low-hanging cost-cutting fruit available. Medicaid recipients place a low value on Medicaid benefits, as
low as 30 cents
per $1 value of benefits.
Spending on Medicaid does not increase physical well-being. As the Camden, New Jersey, study of Medicaid super users explains, patients who suffer from multiple chronic diseases that are a function of lifestyle
donât change
their lifestyles. They drain increasingly finite government resources without commensurate acts of personal responsibility.
So what to do about this?
Well, in the United Kingdom’s National Health Service, the government imposes triage on patients who wonât modify their behavior. Alcoholics who wonât quit drinking go to the back of the queue for liver transplants. The morbidly obese go to the back of the queue for joint replacements. Through its control of federal Medicaid spending, the U.S. should institute spending caps on funds appropriated for state Medicaid programs. Force states to make hard choices. Compel triage. Make clear that the federal checkbook is no longer open. In addition, the formula for federal funding for Medicaid increases should be based on the personal consumption expenditure inflation index, which is more accurate than the consumer price index. The CPI overstates inflation.
We also need to be honest about the opportunity cost involved in soaring Medicaid spending. When more money is spent on Medicaid, less money is spent on higher education. Intellectual capital is the most valuable asset of the U.S. And Medicaid
spending reduces human capital
. To be clear, when Medicaid spending is cut, people who are no longer eligible for Medicaid are not thrown out on the street. Such people will still be treated in hospital emergency rooms. But treatment at an emergency room is unpleasant, so frivolous healthcare will be reduced.
Top line: The U.S. can no longer afford to waste money on Medicaid. It is not cost-effective, and recipients donât value it. As important, taxpayers are getting a bad deal.
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James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes
a daily note
on finance and the economy, politics, sociology, and criminal justice.
