Multiple readers want to know why US health care costs so much. A complicated and fascinating question on which agreement across ideological lines is extremely limited.
Proponents of national healthcare prefer to blame the administrative costs of private health insurance, the bad incentives of private health insurers which cut corners on preventative care, greedy providers (drug firms especially), and excess reliance on emergency rooms.
Perhaps predictibly, I find this unconvincing. Since private insurance covers about 36% of health care expenditures, it's hard to imagine how the savings could possibly be that big. And indeed, it seems that the net cost of private insurance accounts for about 7.3% of healthcare spending, which itself is about 16% of GDP--about 3-4 percentage points higher than our nearest competitors. So we might save a little over 1% of GDP if we got rid of those parasites--but it wouldn't make up the difference between us and high-rent systems like France and Switzerland, much less lower cost providers like Britain.
And as Arnold Kling points out, it's not that easy to get rid of the private insurers:
Suppose we were to abolish private health insurance tomorrow and put everybody on Medicare. Here are the things that would happen.
1. You could get rid of everybody in the private health insurance industry. That would save at most 15 percent of health care spending.
2. There would no longer be a private-sector benchmark for Medicare to use in pricing. You would need to hire a lot of those former private health insurance folks to work for Medicare to figure out what every medical service is worth, to negotiate prices with doctors, hospitals, and so on.
3. Medicare would have to process more claims, which means you would have to hire back some more of those former insurance workers.After (1)-(3), costs might be less than the existing system. By a small amount.
Likewise, drug industry profits were a tiny portion of healthcare spending. If we eliminated all profits--hell, double it to account for the much maligned "marketing costs"--we'd possibly push down expenses by another 0.5% of GDP. But as with insurance administrative costs, it's more complicated than that. Without profits, no one would do R&D--and on net, drugs save us money, because they often replace expensive procedures. Years of statins are still cheaper than one hospital stay for a heart attack or stroke. And about half the marketing cost is free samples, which most people would agree are a good and useful device for letting patients see whether a drug works for them.