If you build it they will come

By Megan McArdle

Arnold Kling, whose excellent book on health care I highly commend to you, has been blogging about my article. A commenter offers a perspective I hadn't seen before:


There is a perspective of the U.S. health care system that I have rarely, if ever, see applied to discussions of this subject. The U.S. health care system is currently, and has been for more than 30 years, in what could be termed a build-out mode. A great deal of national income is and has been diverted to the health care industry - both from governmental programs such as Medicare/Medicaid and from voluntary diversion of returns to labor in the form of employer paid health insurance.

The net effect is that the baby boom generation that has produced the national wealth of the last 30 years or so have also funded this health care system build-out, if only through tolerating current income diversion, in anticipation of the surge load that generation will place on the system in the future. It is now, as that generation begins to become an increased load on the health care system they've funded, that the U.S. begins to truly test whether the build-out was adequate.

The value to economists and others of applying this perspective is multi-fold:
First, the baby boom generation has already paid for the overwhelming majority of the U.S. health care system build-out, in anticipation of their own future load to the system, out of their past/current earnings. The current health care system is far more capable, in terms of capacity, quality of care and availability, than would have been the case had the baby boom generation not tolerated income diversion to that purpose.
Second, most discussions/projections anticipate that the health care system build-out phase (cost increases) will or should continue at a similar pace in the future. That is probably not the case. The current system will be transitioning from build-out to maintenance phase, which can and will be less expensive than the build-out phase. That transition may be "forced" to some degree due to the income production capacity of the younger generations and their tolerance for income diversion, as indicated by Megan and others, but I doubt that the catastrophic projections are realistic.

One of the lessons I learned from Arnold's "Crisis of Abundance" is that most of the current U.S. health care system is under-loaded at current demand. Each of the citations of excessive procedures, duplicative procedures and other apparent inefficiencies are artifacts of a current system that has excess capacity. That excess will become fully loaded and consumed as the baby boom generation retires. But it is highly unlikely that further capacity expansion will be desirable - the future income diversion will most likely only be to maintain, not expand the system.



I have no idea whether this is true or not--though I would caution that the evidence seems to be that health care capacity that is built, is used, and doctors can easily generate their own demand. But it's an interesting idea.

This article available online at:

http://www.theatlantic.com/business/archive/2008/01/if-you-build-it-they-will-come/2518/