Not an Unhealthy Trend

by Don Boudreaux on May 14, 2004

in The Economy

In a letter published in today’s Wall Street Journal, economist Micha Gisser reports data that contradict the claim that the percentage of Americans without health insurance is rising. Even more interesting is his conclusion (again founded on data) that the explosion in health-care expenditure during the past 40 years has not significantly reduced the rate of growth in real per-capita income spent on goods and services other than health care.

Here’s his letter.

The assertion that the number of uninsured is at an all-time high is misleading. The absolute number of uninsured is irrelevant. The relevant statistic, the percentage of uninsured of the total population, was 14.1% in 1992, reached an all-time high of 16.3% in 1998, fell to 14.2% in 2000, and was 15.2% in 2002 (Census Bureau/Current Population Reports). Health-insurance coverage reporting started in 1987, and it seems that what we observe is a cyclical behavior, rather than a trend.

Those who advocate a “slow march toward a government-driven system,” basically the nationalization of the American health-care system as in Canada, point to the historical trend of rising national health expenditures as a percentage of GDP. Let’s take a look at the data. From 1960 to 2000, health care’s share of GDP in the U.S. has increased from 5.3% to 13.2%. Rising personal income and higher-quality care as well as the increased prevalence of medical insurance that insulates individuals from the real cost of their health are the main factors responsible. From 1960 to 2000 real GDP (1996 prices) per capita rose from $13,155 to $32,670; during the same period, real GDP per capita devoted to non-medical services rose from $12,458 to $28,358. Put differently, the “explosion” in medical-care expenditures reduced the average annual rate of growth of real GDP per capita devoted to non-medical goods from a potential 2.3% to 2.08%. The comparable growth for the four decades was 148% and 128%, respectively.

Today we pay a larger fraction of GDP for medical services, but we receive better high-tech care that was not available in 1960. More to the point, American consumers are wealthier than ever: The more than doubling over four decades of real GDP per capita net of medical expenditures is reflected in real consumption. The “explosion” in medical-care expenditures ate a bite of our salad, but hardly the whole lunch.


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