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It is well known that the USA spends more of its national wealth on healthcare than other countries (see, for example, some of the analysis in this question: Is more than 30% of US healthcare spending waste?).

But this extraordinary claim appeared in a recently reprinted article in the Washington Post (which I quote with some context and my emphasis):

There is a simple reason health care in the United States costs more than it does anywhere else: The prices are higher.

That may sound obvious. But it is, in fact, key to understanding one of the most pressing problems facing our economy. In 2009, Americans spent $7,960 per person on health care. Our neighbors in Canada spent $4,808. The Germans spent $4,218. The French, $3,978. If we had the per-person costs of any of those countries, America’s deficits would vanish. Workers would have much more money in their pockets. Our economy would grow more quickly, as our exports would be more competitive.

There are two claims here: one is that the primary reason the US spends so much is the prices of healthcare activities, drugs and devices. I'm actually skeptical of this as the sole cause, but it probably deserves a separate question. The second claim, and the focus of this question, is that if US prices were more normal by world standards, the US government deficit would disappear.

So, is it true that the deficit would be gone if the US had more typical healthcare prices?

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matt_black
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    I am missing the leap between lowering the private health costs of individuals (and jointly, via health insurance) and the *government* deficit. I don't understand the American health system, but I didn't think the government was paying for more than a small part of it. – Oddthinking Mar 16 '13 at 16:01
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    @Oddthinking The link is the unfunded costs of medicare, a government liability. And, though indirectly, the fact that private health costs are a huge burden on corporations and individuals, damaging the wider economy. – matt_black Mar 16 '13 at 16:51
  • The specific "Workers would have much more money in their pockets" is a definite BS. Most healthcare costs are on elderly and severely ill at the end of life, who are not "workers". – user5341 Mar 16 '13 at 18:22
  • Thanks @matt. That would explain it. Sorry for being obtuse, but which link? I can't find that part. – Oddthinking Mar 16 '13 at 22:53
  • @Oddthinking I meant the "relationship between" not "hyperlink". But here is a hyperlink on the topic: http://cnsnews.com/news/article/medicare-faces-unfunded-liability-386t-or-328404-each-us-household – matt_black Mar 16 '13 at 23:46
  • Ah! That makes sense. Sorry for the misreading. – Oddthinking Mar 16 '13 at 23:51
  • On exactly what grounds is the close vote? – matt_black Mar 17 '13 at 02:13
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    @DVK. However, due to the way insurance spreads costs, the costs incurred by the elderly are, one way or another, borne by the workers. – TRiG Apr 26 '13 at 19:09
  • As for inflated price of healthcare in US, read ["Bitter Pill: Why Medical Bills Are Killing Us"](http://www.time.com/time/magazine/article/0,9171,2136864,00.html) (that's behind paywall, so here's ripped version: http://livingwithmcl.com/BitterPill.pdf) – vartec Apr 26 '13 at 20:59

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No. Federal deficits are caused by federal spending, not by personal or corporate spending, nor by spending by state or local governments. The only way the federal deficit could be eliminated due to a reduction in health care costs would be if the reduction in health-care spending by the federal government exceeded the amount of the deficit.

According to OMB (http://www.whitehouse.gov/omb/budget/Historicals), the following 2012 federal expenses might be classified as direct health care costs:

551 Health care services $308,160 M

571 Medicare $471,793 M

703 Veteran health care $ 50,588 M

Total health care: $830,541 M

2012 On-budget deficit: $1,148,876

Because the annual deficit is more than the government spends on health care, it is mathematically impossible for the federal deficit to be eliminated by any reduction in health care costs.

What was most likely intended by the original statement is that the total across-the-board amount of money that could be saved by a reduction in health care costs would equal the annual federal deficit. But it could not eliminate the deficit unless it were actually applied to the deficit (e.g., private savings confiscated by the federal government and applied to the deficit).

Pops
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    As I understand the claim, it wasn't about the spending, but about the income ($4000 per person more in economy, thus more taxes income). – vartec Apr 26 '13 at 21:01
  • I like the detail you provide which actually adresses the point about *government* spending on health. But I think you are being over literal in demanding mathematical exactitude. Healthcare, on your numbers, accounts for enough to wipe out 72% of the deficit (and it is rising quickly while the deficit is falling). I'd offer a more nuanced answer than “mathematically impossible”. – matt_black Apr 26 '13 at 22:50
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    Similar to vartec's comment, we also have staggeringly high numbers of people rendered bankrupt by healthcare costs, both necessitating government support and reducing further income. – Sean Duggan Oct 23 '17 at 12:03
  • The government, and all private businesses, spends quite a bit of money on health insurance for their employees. This is a major category of medical spending that you are completely ignoring. The federal government has over 2 million employees, and the military has another 1.5 million. How much does health insurance for these employees cost? – BobTheAverage Oct 23 '17 at 13:41
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The claim is borderline true in terms of relative magnitude. Such a reduction "woild help", but that does not mean that the defecit is the "fault" of excessive health costs. Total US debt [Wikipedia] is about 16 trillion dollars, and the additional annual US cost over the cost of health care in Canada is just under 1 trillion dollars per year. So health care "excess costs" are about 6% of US debt per annum.

Any number examples of human nature at work indicates that "living outside one's means" is unlikely to be set to rights by a one time 6% reduction in total debt - and an annual reduction of that magnitude would easily be swallowed up by a bit more partying, buying a few more imported goods or any number of ways of not setting one's house in order.

ie The figures are very large and would have a significant effect but they are not so dominant as to guarantee the elimination of the deficit if they were reduced,

In the last day or so I have seen an article suggesting that the real-world all up cost of the war in Iraq is several trillion dollars and all included is liable to be closer to $5 Trillion dollars.

(1) Here are the costs of a wide range of income and expenditure streams from XKCD. The level of detail is immense and far beyond what can be usefully portrayed here.
Poring over this page will allow the question to be usefully examined from a range of perspectives. It can be seen that health care was absolutely not the dominant expenditure.
XKCD money flow analysis - superb.

(2) A look at the magnitudes of the expenditures concerned show them not be be so much 'out of kilter' with those from other countries as to justify the claim.

Comparing the claimed US rates with those claimed for eg Canada gives $7,960 and $4,808 per capita per annum for a difference of $3152 pcpa. With a US population of about 315 million that's just under 1 trillion dollars per year (assuming that their $7960 pppa is for every person including children).

Russell McMahon
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  • I'm not sure whether you are comparing like for like. Debt *stock* is not the same as the *annual* deficit. A sustained change in the annual deficit of $1 trillion is the equivalent of somewhere between $10 and $20 trillion on the stock of national debt. – matt_black Mar 16 '13 at 15:53
  • Yearly deficit is ~1.2T, nor 16T – user5341 Mar 16 '13 at 18:23
  • And yes, healthcare is absolutely the dominant part of the budget. I have recently posted an exact breakdown on Politics.SE of what 2012 budget was spent on. – user5341 Mar 16 '13 at 18:27
  • Actually, this year's deficit is about 900 billion, last year's wasn't quite 1.1T. The 1.2T number is outdated. – Publius Mar 16 '13 at 22:36
  • Please [provide some references](http://meta.skeptics.stackexchange.com/5) to support your claims. – Sklivvz Mar 17 '13 at 14:52
  • actually, the dominant part of the budget by now is interest on loans, followed by the combined social services programs (of which medicare and medicaid are a part, but also includes things like unemployment benefits, food stamps, social security, pensions for retired government workers, etc. etc.). – jwenting Mar 18 '13 at 08:09
  • @jwenting Debt service has never been anywhere remotely close to the dominant part of the U.S. federal budget. For FY16, it was about 6% of the budget, for example. Not insignificant, but hardly the dominant factor. By comparison, social services are about 60% and military spending was around 15%. – reirab Oct 22 '17 at 00:30
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The US is champion in litigating health-care which directly and indirectly increases costs. Directly because prescription and treatment is more expensive because companies and docters have to set aside a lot of money or get expensive insurance in case they get sued. Indirectly because patients get lots of mostly unneeded tests just so practitioners can say they have done everything for the safety of the client.

http://news.heartland.org/newspaper-article/2006/01/01/litigation-raising-health-care-costs-study-says

Pieter B
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    This doesn't seem to address the question about the deficit. The reference you provide shows only partial support: "While the excesses of the litigation industry alone cannot explain America's mounting medical costs, [...]" – Oddthinking Mar 18 '13 at 10:53