In a recent post by Rutherford Lawson, a fellow OS member, and hardcore "libertarian" who goes by the pen name UncleChri, has argued in several comments that Medicare is the main contributing factor that drove the U.S. health care expenditure to unprecedented levels. To put it more bluntly, the ballooning health care cost is all the big bad government's fault, a theme this OS member is always happy to repeat any chance he gets.
To support his claim, he referred us to an OECD website, which contains historical data related to health care expenditures for numerous countries around the world. In his words:
"Download the Excel file, find the "Healthcost as % GDP" tab and look for yourself at what happened to health costs after 1967, so that you can make up your own mind."
Knowing that this dude often has troubles with getting his facts straight, I decided to check out the 'Excel file' and examine the data more closely. After extracting and manipulating the data, I produced a series of graphs for your pleasure and elucidation. For this nifty analysis, I also pulled out data for a few industrialized countries for comparison purposes.
You can see the first figure here, which focuses on the U.S. and Canada:
Figure 1. Health care expenditure as a function % GDP: Canada vs US. (source: OECD)
Does the figure show that Medicare significantly increased health care expenditure? The answer is obviously No.
You'll first notice that when Medicare was introduced in 1965, the data points followed the same trend as the ones observed for Canada (same with other industrialized countries, such as Norway and France, as shown below) until 1971. If the hypothesis is true, one would expect a huge increase in expenditure after 1966, which cannot be seen in this figure. Only a very slight change in rate can be observed in 1967, but given the fact that other countries had similar changes or rates, this cannot be solely attributed to the introduction of Medicare. The changes may essentially be attributed to a more global effect.
But I'm sure some will argue that the expenditure linked to Medicare could potentially have increased drastically, which would then explain the disparity noted after Reagan took office in 1980. We'll get to the latter later, but since the Medicare expenditure has only increased from 0% to about 2% of the GDP between 1965 and 2005, this argument actually falls flat:
Figure 2. Medicare expenditure as a function of % GDP.
If you think that removing Medicare, as Paul Ryan as suggested a few months ago, and replace it with private health care accounts will save us, think again. It won't be pretty, as I discussed here.
The first figure above also shows a very interesting phenomenon. As the avid reader will notice, after the single-payer system was implemented in every Canadian province, the health care expenditure started to drop or level off for several years, before starting to increase again in the late 70s. However, the rate is much lower than the one witnessed with the U.S. data. In fact, the increase in health care expenditure in Canada is at par with other industrialized countries, as shown below:
Figure 3. Health care expenditure as a function of % GDP for a sample of industrialized countries. (source: OECD)
How is it possible that a system, which includes every citizen, reduces health care expenditures? As some of you already know, I previously discussed that the single-payer system is much more efficient to control or manage health care costs. I won't bore you with the details, but you can find my 'theoretical' posts here and here on this subject. I'm glad to see that my academic viewpoints have real practical applications.
Imagine if Nixon had put his flawed ideology aside and implemented a single-payer system (or a similar true public-private system that covered everyone), the curve may have looked like the bottom one in Figure 1.
Now that we have shown that Medicare (and Medicaid) isn't the driving factor, what can explain the explosion in health care expenditures? A potential answer can be found in the 1980-2009 time period. A closer look at Figure 1 shows that the cost has increased significantly after Reagan became President. A 'jump' can be seen in 1981-1982, which was followed by an exponential increase until about 1992, where the expenditure became leveled (the Clinton years). In 2001-2003, we saw another large leap in expenditure, which remained constant until President Obama took office. In 2009, we can yet again see another significant increase in costs. However, this could be attributed to more global effects, since all countries experienced the same pattern. The fact that the global economy almost entirely collapsed has probable something to do with this increase.
Given the people who were leading the country during that time period, one can easily speculate that budget and tax cuts, deregulation, 'smaller government', and the increasing number of people who live below the poverty line or are uninsured played a significant role in the ballooning health care costs.
Despite everything that was discussed above, we nonetheless still need to ask this important question:
Why are the trends between the U.S. and the rest of the world so different after 1980?
On a final note, looking at the last 40 years, the global trend is certainly not going down. Is the U.S. health care system on its way to bankruptcy? Experts interviewed on a PBS segment two years ago think so.