No Evidence That ObamaCare Will Bring Down Health Care Costs

As the liberal talking points on ObamaCare dictate, once ObamaCare is fully implemented, more people will contribute to the insurance pool and rates will stabilize and perhaps come down.

Sounds nice in theory, but does it work in practice?  Is this revealed as just a utopian fantasy not grounded in empirical evidence when we examine what has occurred in other nations?

The liberal premise for ObamaCare can be distilled into a couple of key hypotheses regarding health care costs: (1) health care costs are being driven up at rapid rates because of the high private-sector profit-driven component of the American health care system, and (2) increasing public-sector involvement in the health care system and government regulation will stabilize or decrease costs.

If these foundations for justifying ObamaCare were true, what we should find when we compare trends in American health care costs to those of other nations with socialized medicine/universal health care coverage is that American health care costs are increasing at a more rapid rate than those of all these other countries. Such is most definitely not the case.

Multi-national health care expenditure data in the World Bank database begins in 1995, so that will be the datum for our studies. The following figure shows per capita health expenditures since 1995 in constant dollar purchasing power parity (PPP) terms for the USA, along with the Netherlands, Norway, the UK, Canada, and Australia -- as well as the OECD members average and the World Bank high-income non-OECD category.

The USA has the second-lowest per-capita health expenditure cost increase rate among these countries/groups.  Since 1995, American per-capita health expenditures have risen 130% on a constant-dollar basis -- a substantial increase, no doubt, as I previously noted.  But this rate of increase is below the OECD average during the same timeframe (136%), well below the high-income non-OECD increase (261%), and also significantly lower than the increases seen in the socialized medicine/universal health care coverage domains of the Netherlands (185%), Norway (163%), and the U.K. (146%), and about equal to that of Australia (131%) and Canada (120%).  Sweden's increase has been 122%, Finland is at 126%, Belgium at 141%, Denmark and New Zealand at 144%, Spain at 155%, Luxembourg at 217%, and Ireland at 227%.

This plot undermines much of the ObamaCare cost argument.  If the large for-profit private-sector component of the American health care system is a primary factor behind increasing health care costs, and increasing government intervention in the American health care system will stabilize/lower costs, then why have American per-capita health expenditures increased far less than many other nations with socialized medicine/universal health care coverage over the past two decades?

Committed ObamaCare proponents will counter that the increase in health care spending normalized to the economy has been higher since 1995 than these other nations.  Yes, that is true -- with the increases as a percentage of GDP equal for both the private and public sectors.  But the erroneous interpretation is that, when compared to nations with socialized medicine/universal health care coverage, American health care spending is increasing more rapidly.  As I showed above, this is not what is happening.

There are two terms in the metric of health care expenditures as a percentage of GDP: the health care expenditures themselves, and the GDP.  The ObamaCare boosters generally fail to look at the second term when explaining the cause of rising GDP normalized health care costs in America.  To emphasize, the USA's rapidly rising health care costs as a percentage of GDP when compared to nations with socialized medicine/universal health care coverage are not due to the USA's anomalously higher health care expenditure increases (these increases are actually below average -- as illustrated above); they are due to the USA's poor GDP performance over the past decade.

Between 1995 and 2000, health expenditures as a percentage of GDP actually declined in the USA by 0.2%.  Compare that to the increases seen in the OECD membership (0.5%), high-income OECD members (0.6%), Sweden (0.2%), the U.K. (0.3%), New Zealand and Denmark (0.6%), and Australia (0.8%).  The recent rise in American health expenditures normalized to GDP began in 2000.

Between 2000 and 2011, American per-capita GDP in constant 2005 international dollars on a PPP basis rose only 7%.  The OECD average was 10%.  High-income non-OECD nations increased their per-capita GDP by 50% over this period.  The constant-dollar per-capita GDP increases in some representative nations with socialized medicine/universal health care coverage?  Australia, 19%.  Belgium, 9%.  Canada, 10%.  Finland, 17%.  Ireland, 10%.  Luxembourg, 12%.  The Netherlands, 10%.  New Zealand, 12%.  Sweden, 21%.  The United Kingdom, 13%.

From 1995 through 2011, America's per-capita GDP increased by only 25% in real-dollar terms.  Compare that to corresponding increases of 73% in the high-income non-OECD nations, 38% in Australia, 29% in Canada, 46% in Finland, 41% in Luxembourg, 30% in the Netherlands, 28% in Spain, 43% in Sweden, and 33% in the U.K.

The take-home message is that the American problem with rising health care expenditures as a percentage of GDP is more a problem of economic underperformance than of unusually rapid health care cost trends.  The answer to bending this curve back down isn't ObamaCare (rather, that will likely make the problem worse -- either by further increasing costs or decreasing quality, or both); it is to take concrete measures to stimulate the private sector economy.  This includes less regulation and taxation -- which ObamaCare, by definition, fails to do.


Dr. Sierra Rayne writes regularly on environment, energy, and national security topics.  He can be found on Twitter at @rayne_sierra.