It's an article of faith across the political spectrum in the United States: health spending has accelerated out of control. What you hear less often is the inevitable corollary, that health spending thus ought to be curtailed. (Tell that to a parent whose child has cystic fibrosis.) What's rarely mentioned is that a) health spending is largely voluntary, b) the parts that aren't voluntary are often under the aegis of government agencies that have little incentive to cut costs and c) "health spending" is at best an ambiguous phrase. (For related reading, see Fighting The High Costs Of Healthcare.)

SEE: Estate Planning

How Much?
The New York Times cites a recent Organization for Economic Co-operation and Development (OECD) study which claims that in 2010, Americans spent about $8,000 per capita on healthcare. That's the highest figure listed among the several countries in the study, again with the implicit understanding that the number is somehow too high.

Is it? To draw a comparison, "education spending" is a category that many would argue is underfunded. Tell a typical man on the street that not enough money is being spent on education in this country, and chances are fairly good he'll agree with you. Yet, we're to believe the opposite applies regarding health spending. But isn't health a more fundamental necessity than education? After all, you can't learn when you can't function.

Swaziland wasn't one of the countries included in the OECD study, but it can illustrate a point: it's safe to assume that healthcare spending there is a tiny fraction of what it is in the U.S. Does that mean the Swazis have successfully "reined in" health spending? Far from it. With an abysmal average life expectancy of around 48 years, not to mention that around every 4th adult Swazi is believed to be HIV-positive, the conclusion seems to be that some nations' citizens could afford to spend more on health care. Much more.

But how much more? Or in the case of the U.S., how much less? Ask that same passerby (or a journalist) if health spending in the U.S. is too high and public perception presumes that he'd again answer "yes." Then ask him what a reasonable per capita number for health spending should be, if not $8,000. Make sure you check the box next to "blank stare."

How's It Figured?
There isn't a simple answer, and we've just proven that there's little correlation between dollars spent and benefit rendered. The aforementioned OECD study gives only slight details as to how it calculates its figures, breaking healthcare spending down into four categories: public health and administration, ambulatory, hospitals and nursing homes and pharmaceuticals. So if, say, a perfectly chipper American woman decides to purchase breast implants, she'd be adding to the totals for the 2nd, 3rd and 4th categories: she'll spend money on initial consultations, on the hospital stay for the surgery itself and on promethazine for any post-surgical pain.

And that kind of surgery is a multibillion-dollar industry in the U.S. The American Society for Aesthetic Plastic Surgery's own literature points out that such discretionary spending is increasing at 9%, annually – more than four times faster than the rate of increase in other health care costs. Still, poorer nations presumably have their laser skin resurfacing and chemical peel expenditures "under control." Only a nation that's already advanced past the rudiments of how to maintain health – with a clean water supply, dentists who recommend fluoride, etc. – can accommodate a market for unnecessary cosmetic surgery.

That doesn't mean that the $8,000 per capita figure is necessarily a positive, either. Let's look at how much it costs to keep ourselves insured. Of course there's a tremendous variance among patients, from Olympic decathletes to TV documentary subjects who undergo bariatric surgery, but the average is worth noting. The Kaiser Family Foundation estimates that an employer-sponsored health insurance policy for a typical individual runs $5,429 a year. That's not even counting user deductibles. And that figure has doubled in the last decade. If an average citizen can pay that much (indirectly via an employer, but still) without ever setting foot in a hospital nor seeing a specialist, is there sufficient incentive to even get insurance? Or ever visit a doctor? (For additional reading, see 20 Ways To Save On Medical Bills.)

Studies and public perception notwithstanding, there isn't a generic "health spending" account that these dollars go toward, either. Do over-the-counter cough drops count as a health expenditure? The OECD doesn't give a conclusive answer. Emergency surgery for traumatic construction accidents neither does nor should fall into the same category as methadone for heroin users. Better we spend on the former than the latter, but better still if ironworkers don't balance themselves on I-beams hundreds of feet in the air in the first place.

American expenditure on health care follows, more or less, from the principle of limited government: that a nation's taxpayers should only collectively foot the bill for public goods whose benefit is enjoyed by society as a whole, and which private enterprise couldn't reasonably turn a profit on (e.g., roads and armed forces). Healthcare can obviously be provided by the private sector, as a look at any Health Maintenance Organization's balance sheet will tell you. Health itself necessarily differs from person to person – it's pretty much the one thing each of is individually most responsible for – thus making it the ultimate private good.

The Bottom Line
What about the results of that $8,000 per capita? What data would indicate a healthy population, i.e., money well spent? High life expectancy is just one bellwether, but the others are obvious –low obesity, average resting heart rate in the prescribed range, etc. That data is nigh impossible to collect in a nation of 300 million, and it wouldn't count the people who voluntarily reduce the nation's overall health. The same newspaper that cited the OECD study tacitly acknowledges that the money spent on drug and alcohol treatment in the U.S. reaches well into the billions of dollars, too. This would be filed under "voluntary." In a society of people who choose not to abuse drugs, spending on this particular subsection of health care would dwindle to nothing and, one hopes, give the OECD cause to rejoice.

While waiting for per capita health spending in the United States to reach whatever the optimal level is, it might be time to update the old aphorism: a penny of prevention is worth a dollar of cure. (To learn more, check out How To Avoid Medical Debt.)

Related Articles
  1. Insurance

    What's The Difference Between Medicare And Medicaid?

    One program is for the poor; the other is for the elderly. Learn which is which.
  2. Economics

    Understanding Donald Trump's Stance on China

    Find out why China bothers Donald Trump so much, and why the 2016 Republican presidential candidate argues for a return to protectionist trade policies.
  3. Economics

    Will Putin Ever Leave Office?

    Find out when, or if, Russian President Vladimir Putin will ever relinquish control over the Russian government, and whether it matters.
  4. Financial Advisors

    Breaking Down Medicare Open Enrollment for Clients

    For financial advisors, open enrollment is an important opportunity to be of service to clients, especially when it comes to reviewing Medicare options.
  5. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  6. Retirement

    Top Signs You Aren’t Ready to Retire Yet

    Think you are prepared to retire? These warning signs may indicate otherwise.
  7. Markets

    Will Paris Attacks Undo the European Union Dream?

    Last Friday's attacks in Paris are transforming the migrant crisis into an EU security threat, which could undermine the European Union dream.
  8. Insurance

    Health Open Enrollment: Read This Before You Renew

    Time to renew your health plan – or shop for a new one for 2016. Here's how to get the most from marketplace open enrollment for the Affordable Care Act.
  9. Insurance

    5 Ways to Ace 2016's Health Insurance Marketplace

    Not sure how the Health Insurance Marketplace/Exchange works? Here are 5 ways to avoid frustration when enrolling through the federal or state exchanges.
  10. Insurance

    Avoid the Obamacare No-Insurance Penalty by Jan. 31

    If you don't have health insurance, act NOW or you could owe penalties on your 2016 taxes, in addition to this year's.
  1. Is dental insurance tax deductible?

    Dental insurance premiums may be tax deductible. To be deductible as a qualifying medical expense, the dental insurance must ... Read Full Answer >>
  2. Are Flexible Spending Account (FSA) contributions tax deductible?

    The contributions you make to your Flexible Spending Account (FSA) are not tax-deductible because the accounts are funded ... Read Full Answer >>
  3. Does a Flexible Spending Account (FSA) cover massages?

    Flexible Spending Accounts (FSAs) cover massages for certain medical treatments. These treatments must be approved and prescribed ... Read Full Answer >>
  4. Does a Flexible Spending Account (FSA) cover Lasik?

    Flexible spending accounts (FSA) can be used to pay for qualifying LASIK procedures. LASIK is not the only laser eye surgery ... Read Full Answer >>
  5. Are Flexible Spending Account (FSA) expenses tax deductible?

    Flexible Spending Account (FSA) expenses are not tax deductible. The U.S. Internal Revenue Service (IRS) states you cannot ... Read Full Answer >>
  6. Does a Flexible Spending Account (FSA) cover acupuncture?

    A Flexible Spending Account (FSA) covers acupuncture. The Internal Revenue Service (IRS) has defined acupuncture as a qualifying ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center