The High Cost of Health

In 1955 medical care accounted for 4.6 per cent of all U.S. spending; in fiscal year 1972 it accounted for 7.6 per cent. By 1980, if current trends continue, the figure will approach 9.8 per cent—a dime out of every dollar. Everybody talks about rising medical costs, and, lately, alert politicians have busied themselves devising solutions to the problem; but, invariably, these solutions have dealt only with how to finance medical care. They have completely ignored why medical costs are rising so dramatically. To make matters worse, these proposed solutions actually involve still more spending, either through insurance premiums or through taxes. If we continue to ignore the why of medical costs and concentrate only on how to pay them, the cost of health will continue to skyrocket.

Taxes won’t make medical care any better or any cheaper. Taxes will only guarantee payment to the providers of the medical care—regardless of how well the patient is served. But when you make a scarce and desirable service like medical care artificially cheap, you drive up costs. Then, to keep demand for subsidized services within manageable bounds, rationing devices must be employed. (At government-subsidized medical facilities, for example, there are long waiting lines and impersonal service.) There is no incentive to worry about either expenses or the desires of patients. Assured of captive customers, providers of bureaucratized services seem to concentrate on making their own lives easier by hiring surplus helpers and resisting innovation. Inevitably, expenses tend to rise quickly to the taxpayers’ limits of endurance, and quality goes down as the price goes up.

About the Author

Alan Reynolds

Alan Reynolds, National Review’s economics editor from 1972 to 1976, is a senior fellow at the Cato Institute and the author of Income and Wealth.

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In 1955 medical care accounted for 4.6 per cent of all U.S. spending; in fiscal year 1972 it accounted for 7.6 per cent. By 1980, if current trends continue, the figure will approach 9.8 per cent—a dime out of every dollar. Everybody talks about rising medical costs, and, lately, alert politicians have busied themselves devising solutions to the problem; but, invariably, these solutions have dealt only with how to finance medical care. They have completely ignored why medical costs are rising so dramatically. To make matters worse, these proposed solutions actually involve still more spending, either through insurance premiums or through taxes. If we continue to ignore the why of medical costs and concentrate only on how to pay them, the cost of health will continue to skyrocket.

Taxes won’t make medical care any better or any cheaper. Taxes will only guarantee payment to the providers of the medical care—regardless of how well the patient is served. But when you make a scarce and desirable service like medical care artificially cheap, you drive up costs. Then, to keep demand for subsidized services within manageable bounds, rationing devices must be employed. (At government-subsidized medical facilities, for example, there are long waiting lines and impersonal service.) There is no incentive to worry about either expenses or the desires of patients. Assured of captive customers, providers of bureaucratized services seem to concentrate on making their own lives easier by hiring surplus helpers and resisting innovation. Inevitably, expenses tend to rise quickly to the taxpayers’ limits of endurance, and quality goes down as the price goes up.