Health Care: Who Is Going Broke
Pretty much everyone. Laurence Kotlikoff and Christian Hagist have looked at OECD data for 10 countries and the picture is pretty grim.
Although healthcare spending is growing at unsustainable rates in most, if not all, OECD countries, the U.S. appears least able to control its benefit growth due to the nature of its fee-for-service healthcare payment system. Consequently, the U.S. may well be in the worst long-term fiscal shape of any OECD country even though it is now and will remain very young compared to the majority of its fellow OECD members.
There is also an NBER Digest which provides further information,
In recent decades, government healthcare spending in industrialized countries has grown much faster than GDP. Although researchers have investigated a number of contributing factors, including improvements in medical technology, population aging, medical inefficiency, waste, and unhealthy behavior, relatively little is known about how much each factor contributes to overall cost growth. In Who’s Going Broke? Comparing Healthcare Costs in Ten OECD Countries (NBER Working Paper No. 11833), coauthors Laurence Kotlikoff and Christian Hagist conclude that the expansion of government benefit levels — defined as average inflation-adjusted government healthcare expenditures on people at a given age — explains three quarters of the growth in public healthcare expenditures since 1970.
The data on benefit growth suggest that healthcare is a “luxury good.” As income rises, governments, acting on behalf of the public, spend proportionately more on healthcare. The authors estimate the percentage change in government healthcare spending for a given percentage change in per capita GDP growth: they find that rates range from 1.1 in Canada to 2.3 in the United States, with a ten-country average of 1.7.
Profiles of government health spending by age show significant variability across countries. Per capita government healthcare expenditures on those over age 74 are twice as high as on people 50-to-64-years old in Austria, Germany, Spain, and Sweden. In the United States, government expenditures on the elderly are 8 to 12 times higher than on those aged 50 to 64. In Japan, Norway, the United Kingdom, Canada, and Australia, the relative spending factors range from 4 to 8.
Because “American’s elderly are politically very well organized, and each cohort of retirees has, since the 1950s, used its political power to extract ever greater transfers from contemporaneous workers,” the authors conclude that the fiscal fallout of expanding healthcare benefits is likely to be “particularly severe” for the United States, imposing “a huge additional fiscal burden on the American public. Norway is in similar shape in terms of its healthcare costs, but Norway does not have to bear the burden of paying for a large military. In addition, it has significant oil wealth to help cover its costs.
Keep in mind that Kotlikoff and Hagist are looking mainly at government level benefits. And note that the U.S. spends 8 to 12 times as much on the elderly as on those aged 50 – 64 on a per capita basis.