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Tuesday, January 05, 2010

Small Biz Health Care Daily: Health Care Spending

The estimates on 2008 U.S. health care spending just came out from the Department of Health and Human Services. Among the topline data is that the rate of increase in spending turned out to be the slowest in 48 years at 4.4 percent. But even with that relatively small increase, health care still grew as a share of GDP from 15.9% in 2007 to 16.2% in 2008.

Contrary to the wild claims in the policy debate, there is nothing inherently good or bad about health care spending rising to 16.2% of GDP. As long as people are getting quality for their dollar – including new and improved treatments – then it can be a positive.

The problem is that so much of health care spending is now done through the government. Government spending on health care tends to ensure both higher costs, and reduced or stagnated quality of service.

Consider that in 2008, federal government spending on health care jumped by 10.4 percent, including federal Medicaid spending up by 8.4% and Medicare by 8.6%. Meanwhile, in a tough economy with job losses, private business spending on health care rose at only 1.2%, private health insurance premiums were up by 3.1%, and private health insurance benefits by 3.9%.

The current health care debate in Congress, of course, is focused on more federal involvement and spending in health care – which will make sure that costs rise quickly, with the clear risk being that greater government controls reduce the quality of care.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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