Is percentage of GDP the right way to measure health care costs?

Philip Greenspun's Weblog 2014-01-06


Generally when people question whether or not our central planners are allocating the right amount of money for health care, the debate is cast in terms of percentage of GDP (given that government will spend 67 percent of health care dollars in the Obamacare era (source) it seems fair to say that the level of health care spending is now almost entirely determined by bureaucrats in Washington, D.C.). Given how capital-intensive medicine has become, however, I’m wondering if this is the right measure.

The central planners are currently spending 18 percent of our GDP on health care and they are on track to increase this spending to 25 percent. As I noted in my health care reform proposal back in 2009, the Mexicans spend 6 percent of their GDP on health care (World Bank) . So in theory we will be spending only 4X as much as the Mexicans. But measured in dollars, we will actually be spending more like 20X (since our per-person GDP is about 5X larger, according to the World Bank).

If the only cost to health care were labor maybe it would make sense to use the percentage of GDP as a comparison. But health care involves a lot of stuff that is traded on the world market and costs about the same everywhere. There is cement to build hospitals. There are pills that come from factories in Israel and India. There are machines that go “bing” in the treatment rooms. There are LCD televisions in the waiting room.

So when people say that we spend double what the U.K. spends on health care right now (18 percent of GDP versus 9 percent), despite the fact that the U.K. manages to cover all of its residents without burying them in billing and insurance paperwork, that’s understating the difference. GDP in the UK is only about 75 percent of US GDP. A comparison in terms of spending power for buying stuff other than health care would show that we are spending closer to 2.7X what the UK spends.

What do folks think? Is it more accurate to assess our government’s competence in delivering health care with percentage of GDP consumed or absolute dollars spent?