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OPINION

Price Controls, Publicly Funded Insurance Won't Deliver Value

Price Controls, Publicly Funded Insurance Won't Deliver Value
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Sally Pipes By Tuesday, 27 December 2022 03:30 PM EST Current | Bio | Archive

On Dec. 14, the Centers for Medicare and Medicaid Services (cms.gov) released their latest estimate of the country's annual healthcare tab.

For the second straight year, U.S. healthcare spending topped $4 trillion. In 2021, health spending accounted for more than 18% of U.S. GDP.

Progressives tend to cite numbers like these when making their case for greater government involvement in healthcare — or even a government takeover of the health insurance system, a la Medicare for All.

But the government's existing interventions in the healthcare market aren't working so well. And the United States gets quite a good high return for its healthcare dollars -- especially given how much wealthier our nation is than other countries with government-dominated healthcare systems.

Medicare and Medicaid together accounted for 38% of all healthcare spending last year. Unfortunately, a substantial share of those funds was wasted.

In 2020 alone, $43 billion in Medicare spending was classified as "improper payments" -- a category which includes outright fraud and unnecessary overpayments.

Medicaid spent twice as much on improper payments that year — more than $86 billion.

That means more than 8% of expenditures in the two programs in 2020 were "improper." Not exactly a ringing example of government competence.

Democrats have also been fixated on the cost of prescription drugs. After years of trying, they finally passed legislation earlier this year — the Inflation Reduction Act — that will implement price controls on drugs.

But this fixation is misplaced. Retail prescription drug spending was just 9% of the nation's overall healthcare bill in 2021.

That's less than half what we spend on physician services and less than one-third what we spend on hospital care.

Overall drug spending did grow 7.8% last year. But that's largely a function of increased utilization — people taking more prescription drugs.

Drug prices actually increased zero percent between December 2020 and December 2021, according to the Bureau of Labor Statistics (bls.gov).

The $378 billion the country spent on prescription drugs is real money. But that spending brings incredible value to patients and the healthcare system.

By enabling patients to avoid expensive procedures and hospital stays, prescription drugs help contain the overall cost of healthcare — and keep people alive who otherwise might die. A daily pill for high blood pressure or cholesterol is far cheaper than heart surgery — and far preferable to premature death.

Consider how much more devastating the COVID-19 pandemic would have been had drug companies not been able to develop, manufacture, and distribute effective vaccines within months.

The Commonwealth Fund estimates that these vaccines prevented more than 18 million hospitalizations and more than 3 million additional deaths in the United States.

Finally, let's turn to out-of-pocket spending. It rose 10.4% in 2021 and now accounts for 10% of the nation's health tab.

Purveyors of single-payer healthcare try to attract support by promising to offload those costs to the government.

But the share of healthcare spending that comes out-of-pocket is actually higher in countries with single-payer than in the United States.

More than 17% of healthcare spending in the United Kingdom comes out of pocket. In Canada, it's nearly 15%.

The United States also has a lot more money to devote to health care. U.S. GDP per capita is one-third higher than Canada's. And it's 46% higher than in the United Kingdom.

U.S. government data show that out-of-pocket spending on healthcare just isn't a problem for most Americans.

It accounts for just 8.1% of average household expenditures, according to the Bureau of Labor Statistics. By comparison, 12.4% of household expenditures went to food last year, while 33.8% went towards housing.

Surely food and housing are every bit as critical to human flourishing as healthcare — if not more so.

Yet no progressive if proposing to nationalize the housing market or the food market.

Why should healthcare be any different?

There's certainly room for improvement in our healthcare system. But price controls and publicly funded insurance won't deliver the value we seek. Market forces, on the other hand, can.

Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.

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SallyPipes
There's certainly room for improvement in our healthcare system. But price controls and publicly funded insurance won't deliver the value we seek. Market forces, on the other hand, can.
bls, cms, nationalize
721
2022-30-27
Tuesday, 27 December 2022 03:30 PM
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