More on health care costs

I posted previously that the rising cost of health care may not be a bad thing if it ends up providing jobs for the bulk of the population.  The Economist magazine blog Free Exchange had an interesting piece on how health care can become both more expensive and more affordable simultaneously. The argument comes from William Baumol of Baumol’s cost disease, (of which I posted on previously here). In simple terms, Baumol’s argument is that as society gets more productive and richer the salaries of everyone goes up including those in professions, like art and health care, where productivity does not increase. Now, given that the bulk of costs of most sectors are salaries, productivity increases generally imply decreases in the number of people in that economic sector. At current rates of growth, health care expenditures will be 60% of US GDP by 2105. However, as long as the economy as a whole grows faster than the rate of increase in health care costs then we will still have plenty leftover to buy more of everything else. If we make the simple assumption that contribution to GDP is proportional to population then an increase in health care’s share of GDP simply means that the share of the population working in health care is also increasing. Basically, at current rates of growth, we will all become health care workers. I don’t think there is anything intrinsically wrong with this.  How a nation’s wealth is distributed among its population is more important than how it is distributed among sectors.



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