Healthcare Costs Take Big Bite From Economy

Times Staff Writer

Increased spending for healthcare is gobbling up about one-quarter of the growth in the economy, and health-related items now amount to more than three times the defense budget and twice what the nation devotes to education, a report released today concludes.

The study by researchers at the Boston University School of Public Health comes as the Bush administration and lawmakers of both parties cautiously are trying to restart a national debate on how to rein in costs and cover an estimated 45 million Americans who lack health insurance.

President Bush has outlined a strategy under which individuals would assume control of their own costs, but the report questioned whether that would be feasible.

“The rapid rise in health spending has been absorbing nearly one-fourth of the economy’s growth, a very disproportionate share,” wrote co-authors Alan Sager and Deborah Socolar.


“That limits the ability of the nation’s families, employers and government to pay for education, housing, new machinery ... cleaning the environment, improving criminal justice, vacations or anything else they might hope to afford.”

Spending on healthcare will grow to $1.9 trillion this year, an increase of $621 billion from 2000, the report estimated. That would account for a little over 24% of the expected increase in the nation’s gross domestic product from 2000 to 2005. Increased defense spending, by comparison, would only account for 10% of the growth in GDP over the same period.

The report also found that U.S. health spending per person is twice the average of such spending in Canada, France, Germany, Italy and Britain -- countries that guarantee healthcare for all their citizens. “Current U.S. spending should be adequate to cover all Americans,” it said.

In Washington, the debate over healthcare reform virtually shut down after the implosion of President Clinton’s complex proposal in the mid-1990s. For a time, policymakers hoped that health maintenance organizations and other forms of managed care would put the brakes on spending. But continued cost increases have prompted renewed calls for tackling an overhaul of the healthcare system.


Health and Human Services Secretary Mike Leavitt has asked lawmakers of both parties to join him in a broad dialogue.

In a few weeks, David M. Walker -- comptroller general of the United States -- will appoint a 15-member commission established by Congress to hold hearings around the country on balancing healthcare needs and costs. Legislation to create the Citizens’ Health Care Working Group was co-sponsored by Sens. Ron Wyden (D-Ore.) and Orrin G. Hatch (R-Utah).

Meanwhile, Bush is urging consumers to tackle costs directly by becoming managers of their own healthcare dollars. The president is promoting tax-sheltered health savings accounts, which are available to consumers who sign up for high-deductible health insurance to cover “catastrophic” costs. Patients would pay for routine services from their health accounts, while relying on insurance for serious illnesses.

The Boston University researchers, however, questioned whether that strategy would work.

In the first place, said the report, about 70% of healthcare spending is done by 10% of the patients -- those who are the sickest and who may be in no position to judge the costs and benefits of treatment options.

Meanwhile, healthy consumers worried about costs might forego needed care, the authors warned. Putting patients in charge “is a little like asking them to serve as untrained kamikaze pilots in the war on health costs,” the report said.

The researchers found that doctors, not patients, determined how healthcare dollars were spent -- by deciding which tests to order, what drugs to prescribe and whether to keep patients in the hospital or send them home.

Doctors receive or control 87% of healthcare spending, the report said. Hospitalization, diagnostic tests and other services ordered by physicians account for 66% of healthcare spending, while fees paid to doctors comprise 21%.


Sager and Socolar, directors of the university’s health reform program, said the key to controlling costs in the future may lie in changing the ways doctors make decisions. But they cautioned that before that could happen, physicians needed more information on the relative costs and benefits of different treatments.

Sager supports the concept of national health insurance along the lines of the Canadian or European systems, but he does not think the United States is ready for such a change.

“The U.S. is a nation of incrementalists and tinkerers, not of ideologues,” said the report. “We need a great variety of new approaches and techniques -- a decentralized market of practical ideas and careful tests.”

The report is available on the Internet at