I’ve been wanting to post something on this subject for some time and with what I’ve been hearing today it seemed like the right time. The graph above illustrates the effects of government subsidies on prices, particularly when the supply of whatever is being subsidized is limited or otherwise does not respond to increases in demand by increasing the supply. In this context I use “subsidy” I was taught, as economists do. It means when the government spends money on something. Full stop.
As you can see the effect of a subsidy is to increase willingness to pay. Although consumers spend less out-of-pocket than they otherwise might, demand increases and, since the supply doesn’t increase, the price goes up.
That’s what we’ve been seeing for the last 60 years and, particularly, since 2014 in healthcare.
Since 2014 the price of a Big Mac has increased by about 35%; the price of healthcare insurance has rising by about 80%.
As you can see from the above we’re in a positive feedback loop. We spend more on healthcare; the price of healthcare goes up; we spend still more on healthcare. And around and around.
That’s not a workable situation. Right now there are only a handful of solutions to our problem. The federal government can spend less which means that poor people and old people will get less healthcare and prices will be raised on healthcare insurance to take up the slack. The supply of healthcare could be substantially increased. That would require major changes in how healthcare is provided and who does the providing. Or prices in healthcare could be regulated.
Or another option is to regulate and ration access, like a lot of socialized systems do.
Whatever the case, there are always tradeoffs, and the fundamental problem is that Americans don’t want any tradeoffs. We want all healthcare decisions to be made only by us and our doctor, we want timely and quality healthcare services, and we want someone else to pay for it.
Unfortunately, that’s not possible.
I think there is another option: reduce regulations and government mandates in healthcare. One of the big problems we have with healthcare is how much we are spending on healthcare that is not actually healthcare. There are so many levels of bureaucracy and waste in our system. Here is a few that I can think of immediately:
Zero out of pocket for Medicaid – My friend is a PA that works at a local hospital in the emergency room. He tells about how many people on Medicaid (TennCare) who go to the ER even when the walk in clinic is open across the street. Why? the expense paid by the individual is the same at both locations. The difference is how much the government is paying.
Guaranteed care for those who can’t/won’t pay. By law, show up an at emergency room, and they have to treat you. A lot of people realize this and make no effort to pay any of their medical bills. Those costs role back on those actually paying their bills.
HIPAA – This creates a lot of waste in dealing with insurance companies and doctors for the person seeking care as well as the doctor’s staff.
Company provided healthcare (US) vs. private healthcare (Switzerland). My health insurance sucks because I am not the customer, my employer is. I can’t fire my health insurance provider and go to another one for poor service. With my employer as the customer, their goal is to frequently deny service/claims, delay treatment (prior authorization requirements), etc. This goes back to our tax laws from WW2. My daughter who has a number of health issues has to go to some providers who do not accept health insurance. She says the places that don’t take insurance are far better in service and care than the places that do. They can focus on the patients, and not on the health care bureaucracy.
Our system is not set up to streamline service and care. It is set up with layers of ways for companies to skim a portion of profit. I think back to when my daughter needed prescription breathing treatments. This required a doctor’s visit as well and getting the prescription filled. In a normal world, if I need a product, I go and buy it at the best combination of price and service. In the medical world, It required a doctor’s visit that required them to perform additional paperwork to file the insurance. Once the breathing treatment is ordered, the pharmacy gets the prescription from the middle man after approval from the pharmacy benefits manager. The middle man gets it from the drug company. Again, the insurance company reviews the claim and pays a part if i have reached my deductible. In one of these steps, there is a decent chance the insurance company decides to reject one of the claims which requires additional work from me and the doctor/pharmacists.
Total US health care spending was 17.2% of GDP in 2010. It was 17.6% of GDP in 2023. (It spiked higher during covid but back on trend now.) That’s the number I look at most closely.
Dont know where you got your 80% number. Kaiser has it increasing by about 80% for private insurance from 2008-2023, Medicare by 50% and Medicaid by 30%. Inflation was roughly 50% over that period. So note that if you want to have healthcare costs grow slower than inflation put everyone on Medicaid. If you want it close to inflation choose Medicare. Choose private insurance if you want faster than inflation.
Anyway, it’s a huge topic and there is no simple answer. I would note in response to the above that there are inefficiencies from a patient perspective. From my POV this was most often due to insurance company requirements. Private insurers probably have less fraud than Medicare. * However, a lot of time and money is spent in trying to avoid fraud and, frankly, trying to avoid paying anything at all. That results in the cumbersome pre-approval process, out of network fees and denials of payment for care.**
There are predictions that costs are going to rise faster now. Since I am retired I am not following this as closely but I do know that personnel costs are increasing pretty fast. If I hadn’t retired I would be making a lot more now. With the shortages of key personnel we had during covid there was a lot of movement amongst staff, especially nurses, going to the place that paid the most. A lot of that has persisted even with covid gone. We also saw retirements accelerate after covid and more people leaving medicine. Link to article about this below.
Anyway, we could control costs if it were actually important enough to do so. I cant think of any plausible market mechanisms that would really work and still leave us as a first world country. That leaves some sort of govt involvement and AFAICT the GOP doesnt care much about the topic and the Dems ideas are either demagogued as socialism ro sometimes actually are socialism. I think it’s one of those issues like our national debt, and the two are tied together, that will just have to get worse before people get serious about it. The ACA was an OK first step and it led to our first real slowdown in spending in ages but it was only a start.
https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/#Total%20national%20health%20expenditures,%20US%20$%20per%20capita,%201970-2023
Steve
https://www.npr.org/sections/shots-health-news/2025/03/14/nx-s1-5327425/covid-shortages-doctors-nurses-iowa-rural-hospitals-burnout-health-workforce
Steve
Forgot to add that the percentage of people over 65 increased from about 9% in 1960 to about 18% now. That alone was going to drive up costs.
Steve
steve,
I’m seeing the provider shortage here. I loved my primary care doctor at the VA, but she moved to a different state, and the VA told me they could assign me a new one in a few months. When they eventually did, it was someone who only did virtual appointments – so I’d still go into the VA for an appointment, but instead of seeing the doctor, they’d sit me at a computer to video conference with one instead.
I’m very fortunate in that I have access to both the VA and Tricare. I opted to find a private practice doctor who takes Tricare instead. I pay copays for visits, but it’s well worth it considering the alternative. Even there, most practices seem to be at or near capacity.
Andy- Telemedicine really improved during covid. My old network is using to try to give better coverage to our rural areas. Rural areas have been short for a while and it’s getting worse. One of my former partners is married to a pediatric infectious disease specialist. Her parents were living with them to help care for the kids but one died and the other is now in a nursing home. She was going to quit working for a while but the network set up a deal where she can do all telemedicine from home and she can choose her days and hours, including cancelling the day before. This lets rural people in our area have access they would otherwise never see.
I haven’t looked at VA pay scales in years. They used tp pay a lot lees than private practices but hours were much better. More specifically, pay for PCPs was close to private pay but for everyone else was much less. So you could find decent PCPs in the VA but specialists, unless the VA had an academic affiliation, were hit and miss.
Steve
Steve
I’ve had a lot of telemedicine appointments – I think they are fine for some things, but to me it makes little sense to drive to the VA clinic to sit in front of a computer for a telemedicine appointment. Especially considering I have to go in a week earlier to get the labs done. If I could do the appointment at home, it would be fine, but they said I have to go in and do the telemedicine appointment at the clinic.
And since I have the option of Tricare, albeit at a higher cost, I’d rather do that and free up a little bit of capacity for vets who don’t have another option.
Totally agree on doing it from home. Suspect the VA IT support is behind the curve. A little surprising as my understanding is that they used a lot of telemedicine during covid. For my pediatric ID friend, I have done babysitting for her a couple of times when she needed help. Her kids are fun. Anyway, she does most fo her telemedicine visits with the family from their homes. Occasionally if they have trouble getting high resolution pictures of a rash she has a child taken to the clinic or hospital so she can get a better look.
Steve
There is no law of physics or economics or government institutions that suggests health care spending should remain a relatively constant percentage of GDP. Alternatively, a n aging baby boom bulge is a classic reason for a surge in health care spending. It should have been proactively financed, (it’s called structured finance) but of course Medicare is a government program. Fuggetabiutit.
Enjoy your new Obamacare premiums..,,