An economist explains health spending

Charleston Daily Mail
Charleston, WV
Thursday September 10, 2009

Robert Fogel won the Nobel Prize for Economics in 1993. He wrote a piece last week in which he explained the two reasons why Americans spend more money on health care than everyone else in the world.

First, Americans have had more money to spend.

“Between 1875 and 1995, the share of family income spent on food, clothing, and shelter declined from 87 percent to just 30 percent, despite the fact that we eat more food, own more clothes, and have better and larger homes today than we had in 1875,” Fogel wrote.

If we limit the basics to these three items, that means spending on non-basic items rose from 13 percent of income in 1875 to 70 percent in 1995.

That is a fivefold increase.

Some of it went to entertainment, some of it went to government (taxes are much higher), and the rest went to other things, including health care.

So we have had more money to spend on health care.

The second reason we spend more is because spending more money on health care works.

“It is important to emphasize that medical interventions have not only contributed to the decline in prevalence rates of chronic conditions but also to the reduction in their severity,” Fogel wrote.

“Advances in both surgical and drug therapies have significantly reduced the rate at which chronic conditions turn into disabilities that severely impair functioning.

“Such interventions have been especially effective in genitourinary, circulatory, digestive, and musculoskeletal conditions.

“However, many of the surgical procedures are quite expensive, and the cost of the new and more effective drugs is increasing sharply, mainly because of the large investments in developing these drugs.”

The United States, overall, has both the most expensive and the best health care in the world.

The socialist argument that somehow spending more on health care makes our health system inferior is absurd.

This argument is based on life expectancy tables.

Surber’s article continues here.

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