National Spending on Healthcare

America continues to be the only one of the twenty-nine industrialized countries in the world that does not offer universal health care coverage to its citizens.1 Despite the fact that the United States spends 3.4 percent more of the gross domestic product on health care than any other Western country, health outcomes are not better in the United States than in other industrialized nations. 2

Estimates by analysts in 1992 showed that without reform, technology and demographic changes would increase health care spending to about 27% of the GDP by 2020 and to about 32 percent by 2030. The low 1.1 percent growth rate used to determine this was actually much lower than that of the nation in the 1990s.3 In fact, the Health Care Financing Administration projects that national health spending will almost double - skyrocketing from $1.2 trillion in 1996 to about $2.2 trillion in 2008.2

 William Baumol, PhD, a New York University economics professor, was the first to foresee the cause behind the astronomical spending. Developed in the 1960s, the principle of "Baumol's disease" states that "because productivity in the labor-intensive service sector tends to lag behind manufacturing, costs in service-related businesses end up increasing over time".4 The advent of novel diagnostic and therapeutic approaches with increased use of established ones have always accounted for about two thirds of the real annual increase in health care spending in the United States.2 New technologies in health care, unlike those in industries such as banking, do not increase productivity - but only add to the overhead and the overall time spent on providing medical care. Quite succinctly, "Baumol's disease" explains the failures of health care initiatives despite attempts to control insurance premium rates by cutting payments to doctors and hospitals and by requiring management of expensive drugs and treatments.