How Much Should We Spend on Healthcare ?

May 2, 2012
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I recently attended a conference on the healthcare insurance industry in India. Everyone agrees that this is an industry which is poised to grow rapidly over the next few years. One of the points every speaker emphasized is that while the US spends over 14 percent of its GDP on healthcare , India spends only four percent, and that this gap suggests that there is a lot of room for healthcare expenditure to grow. While these are interesting numbers, one thing which still confuses me is what the optimal proportion of GDP spending on health care should be?

I recently attended a conference on the healthcare insurance industry in India. Everyone agrees that this is an industry which is poised to grow rapidly over the next few years. One of the points every speaker emphasized is that while the US spends over 14 percent of its GDP on healthcare , India spends only four percent, and that this gap suggests that there is a lot of room for healthcare expenditure to grow. While these are interesting numbers, one thing which still confuses me is what the optimal proportion of GDP spending on health care should be? Does a country which spends more on health care services care more for its citizens , because it wants to keep them healthy ? Is this therefore is a better government? Do countries which spend more on healthcare expenditure have healthier and therefore more productive citizens? Is increasing healthcare expenditure justified because it provides a better return of investment? Or is it that countries which spend more on healthcare find they are wasting a lot of their precious money on futile treatments , which do not serve any useful purpose?

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How does one look at healthcare expenditure ? Is this expenditure a waste , because it consumes valuable resources ? Or is it something which is good , which we should be happy to be spending money on , because it helps our citizens to be healthier? What is the optimum proportion of GDP expenditure on healthcare? And how do we arrive at this particular figure?

One way of doing so would be to compare expenditure on health care with other sectors . If we spent 10 percent of our GDP on growing enough food for our citizens, are we better than a country with spends 20 percent of its GDP on the agricultural sector? If you need to spend only 10 percent , and still keep your citizens well fed , doesn’t this mean that you have a more efficient agricultural system ? Or should we aim to increase our expenditure to a hypothetical gold standard of 20 percent, because if we can produce more food , we will have happier citizens?
Healthcare is a service industry , and it might be useful to compare the proportion of GDP expenditure on healthcare with how much we spend on entertainment . Does a country with spends more on entertainment mean that its citizens have additional discretionary income , which they can choose to spend on keeping themselves entertained and happy ? Or is this a sign of decadence which signals that the society is headed towards doom , because it wastes precious resources on “ unproductive “ assets?

The other way of looking at this is to compare a country with a family. Is a family with spends more money on keeping themselves healthy consider itself to be better off as compared to one which spends more of its money on entertainment or junk food?

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If healthcare is considered to be good, then isn’t it logical that one of the aims of the government should be to increase its proportion of healthcare spending? And that is the case then why is the US so worried that it spends 14 percent of its GDP on healthcare?

Exactly the same argument applies to the number of hospital beds per thousand patients. Is it better to have a lot of hospital beds , because this means that you have a lot of medical care facilities? Or is it actually a bad sign , because this means that a lot more of your citizens are ill and require medical care ? Isn’t it true that the more the hospital beds you have , the more doctors are likely to want to fill these hospital beds, resulting in inappropriate medical procedures and wasteful medical expenditure?

These are fascinating questions , and I’ll be very happy to hear from readers as to how we can go about finding answers to these !