Is health care discretionary?
By Scott Sumner
The faltering doctors’ groups reflect part of a broader decline in health care alongside the nation’s economic downturn. As people put off medical appointments and everything from hip replacements to routine mammograms, health spending dropped an annualized rate of 18 percent in the first three months of the year, according to recent federal data.
This is even more shocking than it seems. The social distancing phenomenon did not even begin in America until well into March. That means spending on health care probably fell by at least 50% in late March.
I’ve long advocated a health care system where people make most purchases out of pocket. For the poor, the government might subsidize the creation of health savings accounts. Money not spent on health care could be used for other purposes. Under this sort of system, health care spending would probably fall at least in half, perhaps much more.
Critics argue that health care is a necessity, not subject to the laws of supply and demand. They mock people who suggest that buying health care is like purchasing a movie ticket or a snowmobile.
There’s no doubt that some types of health care are a necessity, say mending a broken leg or treating a heart attack victim. Presumably that sort of care continued during the lockdown. Based on the data from the first quarter, however, it seems as if much of health care is in fact discretionary spending. There is every reason to believe that paying out of pocket would dramatically reduce health care spending from the current levels of nearly 18% of GDP.
Admittedly, some of this spending is merely postponed. On the other hand, there would be much lower costs in a system where most payments are made out of pocket and the provision of health care is deregulated, as the public would be much more cost conscious.