Rauch: If air travel worked like health care

Jonathan Rauch makes a sad point in a very funny way.

The health care market is full of market imperfections and inefficiencies. Airline travel may be annoying, but just imagine if the airline market worked the way that health care does. You wouldn't find out the price of your trip until after you traveled. There would be lots of cumbersome and redundant paperwork everywhere. And more. Improving efficiency won't solve all the problems of health care, but it would surely lessen the growth in costs.

Rauch's article is thought-provoking and highly recommended reading:

If Air Travel Worked Like Health Care
FASTEN YOUR SEAT BELTS -- IT'S GOING TO BE A BUMPY FLIGHT.

Do Americans spend more on pharmaceuticals or pro sports?

By Dean Kamen's accounting , last year Americans spent:

$260 billion on pharmaceuticals
$88 billion on tobacco
$90 billion on alcohol
$121 billion on soda
$409 billion on sports

Kamen: We spent on all pharmaceuticals in the United States last year $260 billion. That means all those vaccinations to prevent diseases, all those pills to treat diseases, all those pills to cure them so we don't have to treat them anymore. We spent in all branches of all our pharmaceutical suppliers, $260 billion.

That's certainly way up from what it was in the early days of the world, but we also spent way more money on computers and other things that didn't exist back then, either, and we don't claim we have a computer crisis. We spent more money on our iPhones last year than we did ten years ago cause there were no iPhones. But let me compare $260 billion to other things. How much did we spend in the United States last year on tobacco? $88 billion. That's a significant piece of 260. It's the reason we spent some of that 260. How much did we spend last year on alcohol? The government doesn't subsidize that, you don't have a right to it, it's discretionary spending and if you were really in trouble you would probably spend a little less on alcohol. We spent $90 billion.

Last year what did we spend in the United States on soft drinks? $121 billion. Nearly half of what we spend on all of our pharmaceuticals, on soft drinks. I'm not against soft drinks—I think you ought to buy all the soft drinks you want.

Last year what did we spend supporting professional sports? $409 billion.

Now if somebody in this country wants to explain to me that we ought to be spending about twice as much supporting sports as on all of our pharmaceuticals, then stop spending. You don't like that drug? You don't want to cure this disease? Don't buy it. But don't make villains out of people so that we can turn what is a real social responsibility issue into a political debate.

Is fixing health care good for business?

Gary Locke, the US Secretary of Commerce, says the answer is yes. Here are excerpts from his op-ed in today's Wall Street Journal:

There has been a lot of talk about the 47 million Americans who do not have health insurance. But health-care reform is just as important to the majority of Americans who have health insurance now. Absent reform, the price of an average family's insurance will nearly double over the next decade—to $25,000 from $13,000.

...

In 1960, U.S. firms spent 1.2% of their payroll on health insurance. In 2006, they spent 9.9%. Costs rising at this rate are unsustainable and put U.S. firms at a competitive disadvantage to foreign companies that almost universally have lighter health-care burdens. It also destroys U.S. jobs.

...

These escalating costs have been passed on to the middle class in the form of higher prices and flat wages. Money that would have gone to raises has instead been spent on health-care premiums that have doubled over the past nine years.

The cost pressure is particularly acute for small businesses, which, on average, pay 18% more per worker than large firms for the same health-insurance policies. They pay more because they have a smaller risk pool and have to absorb higher broker fees and administrative costs per worker. As a result, many small businesses don't offer health coverage. Just 49% of firms with three to nine workers and 78% of firms with 10 to 24 workers offered health plans in 2008, while 99% of firms with over 200 workers did.

...

The pernicious price of runaway health-care costs also has a dampening effect on entrepreneurship.

How many aspiring owners of businesses are locked in jobs they don't like for fear that striking out on their own would cause them to lose their health insurance? The Small Business Majority, a national advocacy group, estimates there are as many as 1.6 million.

In the short term, health-care costs pose a major problem for companies and their employees. In the medium and long-term, these costs pose serious challenges to our economy. This year, health-care expenditures are expected to account for about 18% of our GDP. Without reform, that share is projected to rise to 28% in 2030 and to 34% in 2040. When one out of every three dollars is spent on health care, we will face a situation in which companies can no longer provide insurance. At the same time, if we don't address rising federal health-care costs, we will likely face either much higher taxes or unsustainable deficits that could spike interest rates and threaten capital formation.

Although I have a lot of concerns about the exact form of health care reform, I strongly endorse Secretary Locke's overall message. Doing nothing at all is a sure prescription for disaster.

The percentage of GDP spent on health care in this country has been rising, rising, rising steadily and insidiously over time. Like lobsters in a pot whose temperature has been gradually rising, most of us have not paid a lot of attention to this increase on a day-to-day basis. But the demographic reality of aging baby boomers is about to bring the pot to a furiously rolling boil, and--I repeat--the consequences of doing nothing at all is a prescription for disaster.

Why health care cost trends are not sustainable

The picture above shows the difference between health care expenditures by the elderly and the non-elderly.

The dynamic picture at this Census Department link shows how demographic trends are expected to change in the future with a larger and larger population of the elderly.

Put the two pictures together, and you can see that the country will be spending more and more on health care in the future.

And that's even before we take into account the explosive trends in expensive new technologies.

hat tip: Calculated Risk