A report released this week by Arthur Laffer and several associates spotlights a crucial problem with current health-care reform plans: the divert more resources into unproductive government activity.
All the reforms currently debated in Washington assume that the government can spend health care dollars as efficiently and even more efficiently than the private sector. This is simply contrary to empirical evidence that shows that public spending is less productive than private spending.
Laffer et al show empirically what happens when the "wedge"--the difference between public and private spending--widens and gives government the upper hand. More specifically, they find:
Specifically, the planned $1 trillion increase in federal government health subsidies over 10 years based on President
Obama’s principles will have the following consequences:
• Overall, total federal government expenditures will be 5.6 percent higher than otherwise by 2019, adding $285.6 billion to the federal deficit in 2019.
• An increase in national health care expenditures by an additional 8.9 percent by 2019.
• An increase in medical price inflation by 5.2 percent above what it would have been otherwise by 2019.
• A reduction in U.S. economic growth in 2019 compared to the baseline scenario by 4.9 percent for the nation as a whole.