Health care costs over time--how the US became so different & why conservatives can't fix it

by: Paul Rosenberg

Sun Feb 21, 2010 at 08:00


A Comparative International History in Graphs

A couple of weeks ago, in "The REAL causes of the long-term federal debt crisis", I argued that "The long-term federal debt is basically due to two things: Republican fiscal irresponsibility and the extreme costliness of the American health care system as a whole." And I presented several charts showing (a) how much Medicare & Medicaid costs increases had paralleled general medical costs increases, (b) how much MORE their projected costs increaeses were due to costs themselves, rather than demographics, (c) how much less our debt burden would be in 2050, if we could slow the growth of medical costs and (d) how much higher our costs than other countries many of which have much older populations than we do.

On the flip, I'll republish those charts, just to refresh people's memories.  But the purpose of this post is to provide another perspective on what's gone wrong with American health care--a historical perspective showing just how it is that US costs have grown so far out of whack with everyone else in the industrial world. It's this vast departure from the cost structures everywhere else in the world that are at the root of virtually all our long-term public debt problems circa 2050.  That's not to say there aren't other important issues--such as the need to repair and rebuild infrastructure--particularly in a much more energy-efficient way.  We also need to stop squandering vast sums on the military, and invest heavily in a post-carbon economy. But the overwhelming problem of debt that politicians blame on "entitlements" is actually predominantly a result of our deeply dysfunctional health-care system, which will barely be touched by reforms that have been discussed this past year.

All the figures are from the most recent OECD database of health-related statistics, and are denominated as percentages of GDP.  The first chart compares the US to other Anglophone countries--those whose welfare state systems are most similar to ours, as they all derive historically from British culture, and tend to reflect a common attitude that tilts more heavily to reliance on markets and away from government programs.  Nonetheless, all the other Anglophone countries eventually accepted that health care was different, and that government needed to play a much more active role in making sure the workforce--as well as the citizenry as a whole--was healthy.  This is how their costs changed over time:

As you can see, the US costs began pulling away from the cots levels of the other Anglophone countries around 1970, as our costs continued growing at about the same rate they had been from 1966 onward, while other countries' costs grew at a slower pace.
Charts for other groups of countries compared to the US on the flip, along with a reprise of the charts mentioned above.

Paul Rosenberg :: Health care costs over time--how the US became so different & why conservatives can't fix it
Recap

Here are the charts from 2 weeks ago referred to in the introduction.  First, showing (a) how much Medicare & Medicaid costs increases had paralleled general medical costs increases:

Next, showing (b) how much MORE their projected costs increases were due to costs themselves, rather than demographics:

And showing (c) how much less our debt burden would be in 2050, if we could slow the growth of medical costs:

And finally, showing (d) how much higher our costs than other countries many of which have much older populations than we do:

This last chart presents a static picture in terms of costs in 2004.  The new charts in this diary show the changes in costs over time.  We now continue looking at different groups of countries.

The US, UK, Japan & Central Western Europe

First, let's look at the heart of Western Europe, plus the UK and Japan--the largest industrial powers spanning the most of the period covered by these charts, plus two smaller countries--Austria and Switzerland--with strong geographic, economic, cultural and historical ties with France and Germany:

US costs clearly diverged from the other countries in this group after 1978, when Germany's costs stopped roughly tracking ours and converged with France, Austria, and Switzerland at a more modest rate of growth.

The US & Social Democratic Northern Europe

Next, let's compare the US to the social democratic welfare states of Northern Europe (The Netherlands are included because in addition to geography, they've become more like these other states over time):

Here we see US costs diverge just after 1980, with the Northern European nations very close to one another throughout the entire period thereafter.

The US & Diverse Smaller European Economies

We now look at the US compared to a diverse array of smaller Western European industrial powers:

US spending was always higher than in these nations, but the growth rates were roughly parallel until around 1980, after which the same pattern of divergence seen elsewhere occured.  There was a much greater degree of cost variations within this group than seen in some others.

The US & Group Averages

Finally, we compare the US to the averages of all the previous groups we've considered:

Using group averages, the pattern more closely replicates that seen in the last previous chart: the US rate was always higher than the rest, but growth rates were roughly parallel until the late 1970s.

Summarizing what can be seen from the charts above, it's obvious that the US health care system began spiraling out of control a long time ago--roughly around the time that Reagan came into office.  This was same period of time that the first massive wave of deindustrialization hit the US, and the American political system failed to respond.

This is yet another indication that the period of rising conservative hegemony in the US corresponds to an increasing disconnect from reality, and solving the problems that can only be addressed by society as a whole, at least party through the instrument of government.

The idea that either health care or the federal debt can be dealt with by compromising with the very ideologues whose benign neglect at best was responsible for these problems emerging in the first place is a proposition that defies all logic.

The presumption that we must compromise with these ideologues, regardless of whether the results solve these problems or not can best be described as not just illogical, but delusional.

Here is a chart from my late-January diary, "Everything Versailles says about the debt is wrong", to remind you of how the debt problem follows roughly the same trajectory of worsening problems after 1980--excepting only that Clinton was able to make progress with the debt, while he was stymied with respect to health care:

I believe that the charts in this diary show quite clearly that it's objectively foolish to expect any pragmatic solutions from conservatives and national GOP polticians.  It's not a matter of opinion.  It's a matter of cold, hard, numbers, cold hard facts.

Reality really does have a left-wing bias.

A well-founded left-wing bias.

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Health care costs over time--how the US became so different & why conservatives can't fix it | 14 comments
what crisis? (0.00 / 0)
what fed debt crisis? what is the evidence that there is one?

Time to Throw Some Water on The Deficit Hysteria Fire: CAN OR SHOULD THE FEDERAL GOVERNMENT BALANCE ITS BUDGET?, by Yeva Nersisyan and L. Randall Wray

There seems to be a deficit mania cycle with hysteria arriving after every recession (because, as we show below, recessions always generate big deficits), only to recede when economic growth resumes and deficits fall.

[...]

Conclusions: the federal government budget cannot be balanced or turned into surplus without killing the economy and causing another Great Depression, which again, will automatically cause the budget to turn into the negative territory. With the loss of 8 million jobs, and given the private sector's unwillingness to go further into debt (it is now, finally, spending less than its income) there is no way that the federal budget can be balanced, unless the US becomes a net exporter, which is highly unlikely. So if a politician tells you that she is going to balance that budget, she either doesn't understand what she is talking about or is trying to fool you to get elected.

Why Do Progressives Claim that Deficits Today Mean More Pain Tomorrow? (0.00 / 0)
Why Do Progressives Claim that Deficits Today Mean More Pain Tomorrow?, By L. Randall Wray

Somewhat ironically (at least from my point of view) the shrillest critics come from the left. When I try to explain how government "really" spends, or why government is not like a household, or why the focus on budget deficits is misplaced, the loudest objections come from those who claim to be progressives. Indeed, on the matter of deficits, the only discernable difference between the "progressive" position and the "deficit hawk" position of a Pete Peterson is over the short run. Both agree that deficits today mean higher taxes and less government spending in the future-more burdens for our grandkids. Both agree that spending more now to relieve the pain of unemployment only means more pain in the future.

[...]

Progressives are supposed to be, well, progressive. But almost all of them constrain progressive policy to a Puritanical trade-off: anything that leads to improvement today is bought by more suffering later. They are far worse than the conservatives because no one who wants to improve the position of the average American would ever take the deficit hawk position of Pete Peterson seriously. We all know what he stands for. So the position of the progressives on deficits, which is identical in all important respects to that of the deficit hawks, is far more dangerous precisely because they appear to prefer progressive policy but warn that in the long run it will bankrupt us.

Why do they adopt a position that is fundamentally inimical to the progressive agenda?

Let me proffer an informed hypothesis. It is all politics.


[ Parent ]
I'm Not Making That Claim, BTW (0.00 / 0)
That should be obvious. I've argued against it repeatedly.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3
[ Parent ]
A Manufactured Crisis Is STILL A Crisis If Perceptions Matter (4.00 / 1)
and when it comes to economics, perceptions matter a great deal.  If folks lose confidence in a currency, then inflation accelerates, and quickly become hyperinflation.  There doesn't have to be a rational cause.  Right now, partly because of the financial crisis and how poorly it was handled (no disciplining whatsoever of the financial system, or even the principle bad actors involved), there's a global skitishness that could become focused on the US.

We're a good ways off from that right now, but this does constituted a real constraint on the US, as it does on all sovereign governments.  As the world's reserve currency, we have an extra layer of protection, but we are not invulnerable, and the longer conservatives talk this up, and the longer Versailles echoes it, the more of a real crisis it could become.

But if we simply dealt with the underlying realities described here, then there wouldn't be anything for them to get all worked up over, and use to manufacture a crisis, which could then go on to become real.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
loss of confidence (0.00 / 0)
paul, i can not think of one example of hyperinflation in a country with a non convertible currency and floating exchange rates such as ours due to a "loss of confidence" because of a fed budget deficit as you claim . (i can think of some other potential causes where the risk seems to me much more concrete and worrisome).

has it ever happened? if so, can you please provide some historical evidence (theoretical argument would be nice in addition) to support your assertion:

If folks lose confidence in a currency, then inflation accelerates, and quickly become hyperinflation.

[ Parent ]
the crisis is not the deficit, it's the debt (4.00 / 2)
it doesn't matter if you run short run deficits.  But if you continue to run massive deficits over many years while not even using those deficits to invest in economically productive activities and do so on top of a massive debt, you get the chart above, which shows a best case scenario in terms of health care reform in whcih the U.S. still ends up with a debt at over 100% of GDP, all else equal.  All else might not be equal - but you'd have to be an optimist to believe that the problem is going to take care of itself (i.e. through greater revenues from productivity increases or whatever else).

That's why it matters, in the long term and not to the exclusion of all else, and that's why it's foolhardy not to keep an eye on it, in my opinion.  To give some perspective, Greece's debt right now, which has triggered a crisis that involves the total loss of autonomy over their policies, is at soemwhere over 100% to 120% of GDP based on the articles I read.  Obviously the two countries occupy very different positions in the world, but I'm just saying - would you really want to be living in a world where the United States is a massive military machine is now broke and recently economically dethroned and now vulnerably has to figure out how to get an increasingly angry population to stop being angry?  That sounds like a recipe for palin^5th power, whuich is pretty damn near the nazi line if not well over it.

i do agree that the mania over the deficit and the misunderstandings of the debt vs. the deficit are a huge problem and largely not driven by anything remotely sound (in my opinion).

[ Parent ]
greece (0.00 / 0)
the european monetary union is a big problem for greece. so it's a completely different situation, and not just because of different positions in the world.

http://bilbo.economicoutlook.n...

would you really want to be living in a world where the United States is a massive military machine is now broke and recently economically dethroned

of course not. which is why i'm making such a big fuss about progressives perpetuating the false "fiscal crisis" frame -- because that frame is part of what prevents us from taking the actions we need to in order to have a strong economy. instead, we appear to be in the process of self-destructing and it's not because our fed deficit is too large.

[ Parent ]
i agree with you - basically - that there isn't a fiscal crisis now (4.00 / 1)
but if you look at the long run numbers, even in the chart above, it has to be dealt with.  it's an issue.  you're right that greece faces different problems because of it's inability to devalue its currency or other steps it could take without the euro, but the point is that a certain point debt gets unmanageable.  the next time something like last year's financial crsiis happens, countries like japan, china, and many oothers probably won't have as much invested in propping up the u.s. economy.  i don't think americans, because the u.s. has been economically dominant for so long, realise what it means to lose your policy autonomy because of debt / lack of currency reserves / etc.

in 1990s, i think your argument that it's nto just blown out of proportion but a nonissue had much more salience (much more!) but 8 years of republican profligacy with democrats rolling over for huge tax cuts for the rich has, imo, allowed them to make their false problem a little more real.  we can agree to disagree about this because i think on the core issues - that you need an economy that's broad based, helps people first and foremost, and that long term issues are taken into consideration - i think? we agree.

[ Parent ]
core issues and policy autonomy (0.00 / 0)
we can agree to disagree about this because i think on the core issues - that you need an economy that's broad based, helps people first and foremost, and that long term issues are taken into consideration - i think? we agree.

i completely agree re core issues - the problem i have is that the so-called "fed deficit crisis" is being used to prevent movement on our core issues, by scaring people that we're creating a debt burden for our children or something.

i also agree completely about the need for policy automony. but i don't see what fed deficits have to do with that. resource constraints (oil), the dollar losing reserve status. imo those would be very big deals.

where i disagree is first about greece - it's not just that it can't devalue it's currency, it's that it can't create it's own currency. all members of european monetary union gave that up, without creating a european central bank to take up that function. it is madness. fortunately, that is not an issue for us.

the second issue i disagree about is this statement: "if you look at the long run numbers, even in the chart above, it has to be dealt with.  it's an issue." why is it an issue? i'm pretty sure that the debt the usa fed gov takes on is a political decision, not an economic one other than to manipulate short term interest rates. iow, not to fund spending.

i really do want to understand this, and every "fed deficit crisis" explanation i read makes no economic sense to me. surely if it really is a crisis, someone can explain why without resorting to unsupported assertion of hyperinflation? as result, so far i've concluded it's nonsense. if it's not nonsense, then i hope someone will be willing to explain, but cries of "crisis" don't cut it.

[ Parent ]
for me "crisis" means "there will be a much restricted scope of policy space, to the point of losing control of it altogether." (0.00 / 0)
i'm not an expert, so take this as an amateur take on this:

1. So this could start economically - e.g. if the debt burden is so high that the government that interest payments mount hgiher and higher (e.g. through health care costs, massive defense spending, idiotic wars, etc. that increase faster than gdp and certainly the tax base).

2. at this point, the government has less and less creditworthiness which makes it harder and more expensive to raise debt to pay for current expenses.  the amount that it can spend declines - especially if such problems are left to a late point like in greece and the choices become politically difficult.  essentially, it has left its choices about spending to the market / geopolitics.

3. the government tries to devalue the currency, which raises the costs of basic goods for ordinary people (as well as reduces their large personal debts, but that's small consolation because you can't eat debt reductions).  especially imports.

4. if the u.s. domestic market is not the market of last resort anymore (which it won't be in a couple decades - maybe more), countries like china and india will not have as much of a geopolitical interest to bail anyone out in the u.s. - but the point being that it depends on if they decide if it's in their interests.  

5. eventually, the u.s. government is forced to go with hands out to the imf.  which subsequently sets conditions - which then, if it decides to, poses the political limits on your policy space.  you know - what the u.s. has been doing to other countries for a long time - but this time in reverse.  

there is the argument that if you let it all go to hell, the people who will really suffer are primarily the elites and ordinary people will end up better off, but i want to be convinced of that with more than a blind faith argument before walking down this kind of path.

another alternative is if you remember that u.s. MILITARY strength and conservatism / stupidity might outlast its economic strength and then you replace step 5 with war with china or World War III.  To be followed by World War IV?  World War V?  with domestic politics dominated by (glenn beck and sarah palin) x 5.

another alternative that could begin to develop at some point along the way is a massive shift towards social democracy with the still sizable resources of the u.s.  but right now, i can name a prominent rightwing faux populist demagogue (in fact, i can name five or six).  I can't name a social democratic one.  so that's what makes me worry.  and although things are changing (fairly quickly) there still does't seem to be much of an understanding that you need an entire social infrastructure - and one that might have to be ready not just to manage things, but to actually fundamentally reshape them.

i don't know if that helps - just random thoughts / fears / etc. with what little i know.  would be interested in your thoughts.

 

[ Parent ]
Correlation is not causation (0.00 / 0)
The reason why the article misses the point is prominently featured in the very article: Automatic stabilizers. Their existence means that

a) recessions create budget deficits, and
b) booms create budget surplusses (or at least smaller deficits).

With the data in the article you could also argue that because every recession preceded a budget surplus or a deficit reduction the best way to get to a balanced budget is to create a recession.

If you want to argue that balancing the budget would lead to economic problems you would have to separate the automatic stabilizers from the "structural deficit".  

[ Parent ]
thanks for this post (0.00 / 0)
it's really helpful in understanding (or remembering) why the obama administration chose health care reform as an issue.  it's perfect because the main battle is between the extent to which the health care reform is fiscally conservative and to which it is pro-people, where the two diverge (e.g. lowering insurance company profits from medicare and medicaid patients is one area where they overlap).  which is what we argue about the administration about, those of us who have any interest in doing so :)

it was pretty clear this would be the battle a few years ago when even the political elite (again) noticed that system was not just morally and politically broken, but breaking the economic system as well.

on a second point, this comment is intriguing:

"The presumption that we must compromise with these ideologues, regardless of whether the results solve these problems or not can best be described as not just illogical, but delusional."

Is the implication that the Obama Administration or Democrats are operating on this philosophy?  I should probably wait to see what's in the health care bill or get a better understanding of it before I comment, but based on the way Obama answered questions at the House GOP Caucus, I don't think the administration is fully delusional.  I do think they're conflict averse and wedded to a big-tent philosophy, but Obama was quite clear that he would take on republican ideas in the spirit of working with them but ONLY if they could demonstrate how those ideas worked and stopped boxing themselves in.

I think this makes sense because an overly partisan approach would probably lead to a continuation of long term highly partisan politics that would reinforce the ideologues that you're referring to.  it makes it easier for them in a polarised environment - it makes it harder for them when you extend a hand (in front of cameras) and explain clearly and loudly that you're willing to work with them but only on the basis of evidence.

Yes, I Think Obama & Co Are Delusional (4.00 / 1)
He talks a good game, as you describe.

But the realities he faces (or, rather, refuses to face) are at least an order or two of magnitude larger than the best possible outcome of what he's playing for could possibly hope to match.

"You know what they say -- those of us who fail history... doomed to repeat it in summer school." -- Buffy The Vampire Slayer, Season 6, Episode 3

[ Parent ]
Awesome article (0.00 / 0)

Health care costs over time--how the US became so different & why conservatives can't fix it | 14 comments
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