Chart of the Day: Health care inflation

Apropos of nothing, I offer up this:

We're not No. 1!This is the average annual increase in spending on health care per person over 30 years, drawn from data downloaded from the OECD, a consortium of the world’s wealthier nations.

In some ways, this shows how well a country has controlled its health care costs. (There are other forces driving this, notably the aging of the population.)

I look at this and see some good news.

The United States (red bar) isn’t No. 1 in a metric measuring health care spending. Costs in the U.S. have risen an average of 7.8% a year – close to the top, but not No. 1 with a bullet as we rank in most measures of health care profligacy.

And we aren’t that much higher than the 7.0% average (black bar). [Actuaries: Netherlands is the median at 6.9% a year.]

I should acknowledge we are talking about interest rates compounded over 30 years, so a small annual difference builds into a big absolute difference. So the fact that we are just 0.8% above average per year implies a 30% difference over 30 years.

Still, this implies that our system hasn’t grown bloated over the last 30 years. It was bloated to begin with, but the lack of costs controls over three decades meant our system just got crazy expensive.

Second, this tells me that over the long haul, corrections to the system don’t have to do a lot to bring costs back into line. We don’t have to halve the medical inflation rate. Just bringing it down a little more than a point will, over a couple of decades, make an enormous difference.

The bad news goes to people who think we’ll straighten out health care costs overnight. To do so – shrinking to 8% of GDP from 16%  in just a year or two – would devastate the economy, as if we had cut everybody’s paycheck around 9%.


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