National Debt: Skyrocketing Healthcare Costs Adding Fuel to the Fire

March 25th, 2023

Thanks for joining us this Saturday morning. We’ll dive right into it.

America’s health care industry is an unmitigated disaster, and it’s driving our national debt crisis.

U.S. per capita health care spending is $12,318 – more than double the average of other wealthy countries:

America’s per capita health care spending as a percentage of per capita health care spending in…

• Germany: 167%
• Switzerland: 172%
• Sweden: 197%
• Canada: 209%
• France: 225%
• United Kingdom: 229%
• Japan: 264%
• South Korea: 315%

In 2021, health care expenditures accounted for 18.3% of GDP. For every dollar in American economic activity, then, more than 18 cents is directed to the health care industry. In 1960, health care expenditures accounted for just 5% of U.S. GDP.

And despite our unrivaled health care expenditures, Americans are no better off than their peers in terms of health outcomes. In fact, we’re quite a bit worse in life expectancy, infant mortality, and diabetes.

Not surprisingly, general health care costs also impact the federal budget. Federal health care programs account for about 6% of GDP. The Congressional Budget Office expects that to increase to 8.4% of GDP by the 2050s, when federal health care spending will eat up fully 40% of the federal budget – far more than discretionary programs like defense and education, not to mention interest payments on the massive national debt.

And as we explained last month, current debt projections don’t fully account for future liabilities, which are largely unfunded.

Put all this together, and the picture becomes clear: Health care expenditures are already at unsustainably high levels, they’re likely to grow even more, and there is already not enough room in the federal budget to accommodate the growth.

Why is this so?

The Peter G. Peterson foundation, whose board includes former U.S. Treasury Secretary Richard Rubin and former U.S. Sen. Bill Bradley, lists several drivers:

• The U.S. population is aging, and older people require more health care services. This is a baseline reality that cannot be changed.
• Health care consumers are not usually price sensitive because they pay, out of their own pocket, far less than the actual cost of health care (insurers or employers pay the rest).
• Employers and insurers usually pass on higher health costs to customers and employees and so do not have much incentive to force cost containment.
• Providers operate under a fee-for-service model that rewards volume rather than outcomes.
• Technology improvements often make health care more expensive, not less.

State-level policies also push health care expenditures far higher than necessary, even when accounting for an aging population and costly technological advances.

In North Carolina, large incumbent health care providers benefit from protectionist “certificate of need” laws. Under the current regime, a would-be entrant into the marketplace requires government approval to offer any of a broad array of health care services. State regulators must provide a “certificate” showing there is in fact a “need” for the envisioned health care service in the area.

Of course, incumbent providers who do not wish for a competitor to open up shop down the street attempt to influence regulator decisions, and they spend heavily to do it.

The result? Would-be health care providers must spend large sums beating back their rivals to obtain government permission to open, and even then success is not guaranteed. This scheme artificially restricts the supply of health care services, driving up costs. It benefits incumbent providers, harms competitors, and forces consumers to pay more because of the lack of competition.

The General Assembly reformed some of the status quo in a negotiated deal as part of Medicaid expansion, but plenty of certificate of need laws still remain on the books.

And then there’s the issue of Advanced Practice Registered Nurses (APRNs). They’re health care providers with extensive post-secondary education, but not PhDs. APRNs offer an array of primary care services and can prescribe medication.

North Carolina law, though, requires APRNs to operate under the “supervision” of a physician, which often only involves twice-yearly phone calls. Still, that “supervision” costs APRN practices thousands of dollars, which unnecessarily inflates the cost of primary care.

And none of this analysis even touches on prescription drug costs.

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It’s seems clear, then, that the national debt cannot be contained without containing health care expenditures, and health care expenditures cannot be contained without radical changes to the entire industry.

Health care is replete with perverse incentives, impossibly vague cost structures, and an inflationary regulatory environment.

How, or even if, it can be fixed is an open question. But fixed it must be if we’re to change our trajectory towards the current collapse that we seem to be fast approaching. As our state and national leaders embark on various fixes to reign in our debts, they’ll need bold and visionary leaders to support, and challenge, their plans – and we believe if you are reading with us this morning, you are willing to step up and engage.