Why high health care costs hurt the economy

updated 7:07 p.m. ET June 18, 2009

In pushing for health care reform, President Barack Obama has said problems with the current health care system are a big cause of our economic troubles. He's even called the system, with its spiraling costs and inconsistencies in the amount and quality of care people get, a "ticking time bomb" for the federal budget.

Just how serious is the problem? How big a role does health care play in the nation's economy?

Here are some questions and answers about the economic impact of health care.

How big a part of the economy is health care?

It accounts for about one-sixth of the entire economy — more than any other industry.

Spending on health care totals about $2.5 trillion, 17.5 percent of our gross domestic product — a measure of the value of all goods and services produced in the United States. That's up from 13.8 percent of GDP in 2000 and 5.2 percent in 1960, when health spending totaled just $27.5 billion — barely 1 percent of today's level, according to the Kaiser Family Foundation, a nonpartisan health policy group.

What's included in that spending?

It covers money paid to health care providers — hospitals, outpatient centers, Veterans Affairs and other clinics, doctor and dentist practices, physical therapists, nursing homes, home health services and on-site care at places such as schools and work sites.

Also included are retail sales of prescription and nonprescription drugs, premiums paid to health insurers, and revenues of makers of medical devices, surgical equipment and durable medical equipment such as eyeglasses, hearing aids and wheelchairs.

It also counts out-of-pocket payments by consumers for health insurance premiums, deductibles and co-payments, along with costs not covered by insurance and "medical sundries" like heating pads.

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Why does Obama say the health care system must be fixed first to repair the economy, and is it true?

It's absolutely correct, for a host of reasons, experts say.

"Health care is the economy," and fixing it would free up money for other priorities, such as education and industrial innovation, said Meredith Rosenthal, a Harvard University professor of health economics and policy.

The health care system is dysfunctional and full of waste — as much as 30 percent of all spending, she said. Unlike most other markets, consumers rarely know which doctors, drugs or treatments are best for them, don't price shop and, if they're insured, don't know the full cost of care. That all can lead to unnecessary spending.

Kaiser's president, Drew Altman, said health care costs have become pocketbook issues for businesses and both insured and uninsured Americans. Kaiser's periodic polls on what consumers worry about find the cost of health care and insurance are equal with job security, gas prices and being able to pay the mortgage.

"People make the link, not just the president," he said, adding that they're most concerned with how reform will affect them personally.

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