Healthcare & Pharmaceuticals

Healthcare Spending Critical for U.S. Economy

The rising cost of healthcare in the U.S. represents a big threat to the competitiveness of U.S. businesses and the fiscal sustainability of government finances. Healthcare expenditure represents nearly twice the share of the U.S. economy compared to the average of spending in other developed countries. Even adjusting for the size of its economy and population, the U.S. spends far more money on healthcare each year than any other country in the world. Healthcare spending represents 16% of the U.S. economy (Gross Domestic Product) compared to an average 8.9% for developed countries. U.S. healthcare costs are rising more rapidly, which means some entity must pay for those increasingly burdensome expenses.

The public share of healthcare expenditure in the U.S. (45%) is much lower than in any other member country of the Organization for Economic Co-Operation and Development (OECD), except Mexico, which is tied with the U.S. This is because public expenditure on healthcare is higher than in most other OECD countries, due to greater overall spending per capita. For this amount of spending in the U.S., the government provides insurance coverage only for the elderly, disabled, and some poverty-stricken communities through various programs. In most other OECD countries, the provision of universal primary healthcare insurance by the government is sufficient. Accounting for 35% of total healthcare spending, private insurance in the U.S. is by far the largest share among OECD countries. Besides the U.S., and Canada, private insurance represents more than 10% of total health spending in only three other OECD countries. The essence of the problem is that healthcare costs are rising quicker than GDP, tax revenue, business sales, employee wages, or any other measure of national, public, or private income.

Under current policies, government spending on healthcare is projected by the Congressional Budget Office to rise to more than 18% of the GDP per year over the next 75 years. If unchecked, the current rate of healthcare cost inflation is estimated to have a massive impact on the growth of U.S. government expenditure on healthcare.

The current unsustainable growth in healthcare spending and its escalating share of the government budget could negatively impact the economy through higher interest rates and tax rate pressures. As healthcare costs in the U.S. rise, pressure on the government is increasing to reduce healthcare expenses.

The only solution is to reduce the rate of healthcare cost inflation. Whether the burden ultimately falls on the government, private businesses, or individuals, it represents a large expense with unsustainable inflation rates.

The public share of healthcare expenditure in the U.S. (45%) is much lower than in any other member country of the Organization for Economic Co-Operation and Development (OECD), except Mexico, which is tied with the U.S.

(Source: OECD health data 2009, June 2009 Report on www.oecd.org/health.)