I've read some stuff lately about the rising cost of health care. As I understand it, health care has been getting more and more expensive for quite a long time now. It's share of GDP increases by a good chunk each year. Governments have been troubled by this, and one of their solutions is to introduce private health care to reduce costs. The beauty of this solution is that even if costs per person aren't reduced, it will kind of look like it's worked because a whole lot of poor people will no longer be able to afford to get some sorts of health care. So the share of GDP dedicated to health care drops, government expenditure drops, taxes drop, the rich get richer, the poor get a little richer and a lot sicker.
It's very hard to see if costs are dropping or not. So it's very hard to see if health care is good value. It's changing so fast that you can't compare costs across time. Just like with inflation - when the things people are buying improve dramatically in a short space of time it's basically impossible to even measure inflation. Maybe the government is actually doing a bang up job of health care investment and expenditure. The rising share of GDP is a complete red herring. Who cares if it goes up? Who cares if it goes to 50%? What else are we going to spend it on? If 10% of our GDP (or something like it) is keeping us fed and housed who really cares what we spend the 90% on? If we spent a whole bunch of money keeping people alive until they're 150, then they'll probably stop wanting to run off to war and die at 20. So defence spending can drop.
Life expectancy in the US is expected to drop in 2006 for the first time. If life is valuable then that suggests to me that it wouldn't be so terrible if the US spent a little more on health. A lot of economists have done research suggesting that private health insurance is unfair to the poor and reduces overall health outcomes. And it may not even be that efficient. The default response to these economists usually involves pointing at the rising complexity of health and rising costs of health. I personally think that government is done a marvellous job of something that was always incredibly complex.
I think my basic point is that there's absolutely no reason why health care should be a constant share of GDP. There's no magic number somewhere between 10% and 20% that represents the optimal share for all eternity. And there's no reason why now is the time for the government to step aside and let the market rush in to fix everything up.
I'm obviously biased, because I'm opposed to private health care entirely on equity grounds. But I can see a good argument for efficiency at the expense of equity when I see it. And right now, if you ask me, no one is making one.
A far better solution to rising inefficiency in a market with loopy elasticities (like health and medicine)