The Health Care Fallacy

Debate on U.S. health care reform is dangerously skewed. Sure, the current system is expensive and inefficient. But inefficiencies of one kind or another plague all medical systems, whereas there are plenty of things the United States gets right in its health care sector.

It is a global leader in innovation, research and biotech. It develops new drugs, creates new procedures and designs equipment better than any other country. The sector is a major foreign currency earner, exporting $12.2 billion worth of medical devices last year, for instance, and running a surplus in the industry at a time when most other goods producing industries in the United States are running deep deficits.

American doctors, surgeons and other medical professionals are among the best trained, and while many Americans travel abroad in search of cheaper care, foreigners often prefer to be treated here, the high costs notwithstanding. Any change in the system, while perhaps correcting some problems, will inevitably create new ones and, worse, tinker with success.

Elephant in the Room

Nevertheless, health care does present a challenge that could undermine the competitiveness of the U.S. economy and even, under a worst-case scenario, end up bankrupting the country. The real ticking bomb is Medicare, the government-run program covering 43 million Americans over the age of 65.

Although financed by a special payroll tax and billed as single-payer health insurance for the elderly, Medicare is really an entitlement program. Unlike any private insurance, it is run mainly on a pay-as-you-go basis.

According to current calculations, the Medicare Trust Fund will run out of money between 2014 and 2028. Its unfunded liability measures over $38 trillion over a 75-year horizon, and the current recession is putting Medicare into an even deeper hole. But if the system goes bust, Washington will be implicitly expected to pick up the tab.

Most Americans — 88 out of every 100 born today — will reach the age of 65 and thus become Medicare claimants. This makes Medicare fundamentally different from auto or fire insurance, where only a set portion of the insured ever file claims. It is also different from conventional private health insurance policies, where a majority of insured are expected to stay healthy. Finally, all insured, regardless of their lifetime contribution or medical history, get needs-based coverage.

Thus, Medicare is Karl Marx’s ultimate dream. It fulfills the communist principle “from each according to his ability, to each according to his needs.” The eventual tab for Medicare is open-ended and is hostage to such factors as longevity and medical research. In fiscal 2009, Medicare spending will surpass $500 billion, measuring around 15 percent of federal outlays.

Over the next two decades, Medicare rolls will almost double, to 77 million, as baby boomers reach retirement. There have been some scary projections for the runaway cost growth of the program, with expectations that its share of GDP will almost double, from over 3 percent currently to 6 percent, but even worst-case scenarios may raise that percentage.

Every year, the death rate in the United States has been setting new record lows. But while the overall death rate declined 1.9 percent in 2006, the rate for the over-85 cohort dropped by 4 percent. Other age groups above 65 also saw declines well above average. Life expectancy continues to inch up. It stood at 77.7 years in 2006, rising to 77.9 in 2007, according to the latest report by the Centers for Disease Control.

The Research Trap

Life expectancy has increased by around seven years since 1970, nearly half of the increase occurring during the 1970s. However, we may now be on the brink of a major jump in longevity. The leading cause of death in the United States remains heart disease, while strokes are in third place.