ObamaCare Is Reducing Economic Growth, Not Growth In Health Spending

One major criticism of U.S. health care is that we spend more money on health care than any other country. If health spending consumes resources that are needed elsewhere, this could be a problem. The U.S. now spends about 17 percent of its Gross Domestic Product (GDP) on health care. Canada, where government has a monopoly on essential health services, keeps spending down to about 10 percent of GDP. The conclusion, apparently, is that more government reduces health spending.

This is Obamacare’s governing principle. On the face of it, it seems to be working: The rate of growth of health spending is flat. Indeed, it may remain around 17 percent of GDP this year, and for even a few more years.

However, there is no evidence that ObamaCare’s increased regulation of health care is causing this moderation. Despite its promises (or threats), ObamaCare is not taking a hatchet to health spending. For example, ObamaCare was supposed to have a “death panel” — the Independent Payment Advisory Board (IPAB). IPAB was to cut Medicare spending starting in 2014. IPAB’s members are appointed by the President and confirmed by the Senate. However, IPAB is so politically poisonous that the president has declined to nominate even one member, so IPAB is dormant.

It is the recession, which began in December 2007, and the extremely slow recovery, that is keeping health spending down. Health spending as a share of GDP is mostly explained by incomes. As people’s incomes rise, they spend an increasing share on health care. Whether they spend this increasing share directly, through insurers, or through government is secondary.