The Washington Post on Paying for Health Care

There’s a Washington Post editorial board op-ed on Bernie Sanders’ “Medicare for all” proposal. I’m going to work on just a fragment of the first paragraph of it.

IMAGINE A world in which the rosy assumptions Sen. Bernie Sanders (I-Vt.) makes on behalf of his “Medicare for all” health-care plan turn out to be true. That is what Charles Blahous, a professor at George Mason University’s libertarian-leaning Mercatus Center, did in a paper released last month. He found that the government would expand massively — by a whopping $32.6 trillion over 10 years, gobbling up an additional 12.7 percent of gross domestic product by 2031.

The Gross Domestic Product is defined as the sum of all economic activity in a country. Investopedia puts it like this:

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well (in the United States, for example, the government releases an annualized GDP estimate for each quarter and also for an entire year).

GDP includes all private and public consumption, government outlays, investments, private inventories, paid-in construction costs and the foreign balance of trade (exports are added, imports are subtracted). Put simply, GDP is a broad measurement of a nation’s overall economic activity – the godfather of the indicator world.

GDP includes economic activity involving government. So the question becomes, how would “gobbling up” be applicable to a situation in which government expands to be the conduit by which health care is purchased in the USA?

First, let’s make something clear. There is a figure for the amount of money that is spent on health care in the USA. It includes what is paid to private insurers, what is paid into government programs like Medicare, Medicaid, and the Veterans Administration. It also includes all the co-pays, deductibles, and direct payments people make to health care providers. When you sum that number up, especially if you do so for projections going out another ten years, you will arrive at a truly large number, that $32.6 trillion dollar figure mentioned by WaPo. I’ll just assume that number is right. Well, it isn’t just an assumption. You see, I’m familiar with such things as the California proposed single-payer health care plan. When you look into the details on that, you find cost estimates between $320 and $400 billion per year. Divide the higher figure out by California’s population, and you get an estimate of per-capita health care spending under a single-payer system (a bit over $10K/year). Multiply that by the US population, and you get a figure for a yearly cost for a single-payer system nationally, which is in the ballpark of $3.2 to $3.3 trillion dollars. Multiply that by ten, and the WaPo-reported ten-year summation looks like it is accurate. People exclaim over the largeness of the number. It’s like folks idly nibbling this and that at the sushi bar getting gobstruck when someone presents the entire bill for payment. No, there wasn’t some mathematical error, it is just that you did run up that bill. So we are talking about a consilience of what various sources say the total annual US health care bill comes to. Let’s call it $3.3 trillion annually as a close-enough figure that isn’t some extreme or the other.

The $3.3 trillion isn’t something representing new spending. We the people of the USA are paying that much *right now* in order to get the health care that we do get. The health care that is notable for how it gives us worse health care outcomes than in other developed nations for much more than is paid in those other nations. It’s also part of our economic activity *right now*. It is already a part of our GDP. Until such time as prices are reduced for health care, it will remain part of our GDP at approximately that same order of magnitude.

And (here’s the tricky part, or at least the part that seems to elude many otherwise apparently-numerate commentators), that is the amount we expect to be part of the GDP going forward whether it is the government paying it out after having collected sufficient funds from us in tax, or whether we pay it out individually in our patchwork of payment systems. The only way that its contribution to GDP changes is if the total bill itself changes. That is, that the total amount spent on health care has to change to make a change in GDP.

Now that we have that in mind, what does it mean that government would be “gobbling up an additional 12.7 percent of gross domestic product by 2031”? We already know that it can’t refer to a change in GDP; it would simply shift where we source economic activity, not that the economic activity changed in magnitude. And since government expenditures are part of GDP, on that interpretation the WaPo remark seems pretty banal: this part of the economy would be sourced in government activity rather than its current state. But even that isn’t right, because government paying for health care doesn’t mean the government is providing the health care. So the economic activity due to private health care providers will continue on just the same; it’s just getting its money through a third-party source that is the government rather than any of a plethora of third-party sources that are private health insurers or a plethora of individuals trying to get by with fee for service care.

It seems obvious that the WaPo editors are not asserting that the government will have reduced total health care costs by the indicated amount, which could have been another interpretation of “gobbling up” GDP, by reducing it in sum. But the editorial is all about how things are uncertain and could just as easily get more expensive, so that does not appear to have been an intention.

So it appears problematic to use the “gobbling up” phrasing to refer to a segment of GDP that is expected to remain at the same level or even, indeed, increase in size.

This is a case where we would actually like to see a reduction in GDP. We’d want to see how much we pay for all health care in the country go down while all of our citizens get health care, and for that health care to yield improved health outcomes.