How much does health care cost?

John Lott has some numbers...

A number frequently tossed around is that a 1/6th of our nation's income is spent on health care. That number comes from $2.2 trillion in reported health care spending out of an almost $14 trillion economy. The President cites those statistics as evidence that the government needs to step in and keep health care spending under control. Yet, there are problems with both claims: The health care costs used in the debate have been inflated by double counting and further distorted by price controls, and the recent growth in U.S. health care expenditures has actually been less than in countries where the government pays for most health care.

First, take the double counting. The $2.2 trillion number includes not only the direct spending by insurance companies, individuals, and the government on health care, but it also includes the spending on buildings and medical equipment for doctors and hospitals. As should be obvious, you can't count both the money paid by patients for using an MRI and then also count the money that the hospital pays for the MRI. After all, payments for MRI scans typically cover the costs for purchasing the machinery.

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There are also accounting problems with the money spent on research. The total health care cost figure includes the entire National Institute of Health budget and a large percentage of the National Science Foundation. But much of this money has nothing to do with health research and some is recouped through the products the research creates.

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This double counting adds up -- about $363 billion. Rather than about 1/6th of GDP, or about 16 percent, going to health care expenditures, the right number is closer to an 1/8th, about 13 percent of GDP. Suddenly the gap with other countries doesn't seem as large. Take France, which spends about 11 percent of its GDP on health care.

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But beyond the level of costs and how quickly they are increasing, there is another larger question: why should we really care? As we get wealthier, why should Americans avoid spending more on bigger houses or nicer cars or better health care? Why not be happy that we can now afford hip replacements in old age and diagnose cancer earlier? During many recent years Americans have spent even more money on housing than on health care, but, by itself, that doesn't show that too much money is spent on housing.