Sunday, August 05, 2007


Via professor Mankiw's blog, I came across an interesting and highlighting article entitled Better red than dead by Harvard professor Kenneth Rogoff.

Among economists, there is a growing concern over the expenditure pressures in health care outlays as a share of the GDP. There are several reasons behind this long-term threat such as (1) ageing society, (2) increasingly growing dependency on PAYG health care schemes, (3) advanced technologies and rising cost pressures, (4) the lack of efficiency in corporate governance, (5) regulatory framework, (6) government involvement in the overall health care system through Medicare and Medicaid...

As we can see from the estimates, current health-care expenditures account for approximately 16 percent of the economy (the case of the U.S.). If current trends of heavy government intervention, causing price distortions, severe cost pressures and rent-seeking practices, continues, the health care outlays could grab 30 percent of the GDP by the 2030. A recent CBO testimony has shown that over the last four decades health care beneficiary expenditure increased by 2,5 percentage points faster than the per capita GDP growth accelerated.

As higher costs emerge in the health-care system, the major question is how can the rise of the costs be cured to prevent the negative scenario of demographic crisis of an ageing society. The first step would surely be the deregulation of health care systems, the enforcement of private initiative in health-care supply without the statutory burden and regulated insurance contracts.

There is also a question how much cost distorsions does the generic industry cause by building subsidy frictions in the pricing process of prescribed drugs. Also, labor costs should not be neglected from temporary observations on efficiency produced by the overall performance of the health care sector.

In the future, the question how to realize cost shocks and keep them as low as possible, will be crucial in how to avoid the scenario in which severe economic crisis could occur as a consequence of huge spending pressures on health care expenditure.

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