Health Care Costs ("bending the curve")

Below is an graph of three phases of healthcare costs, from 1960-1979, 1980-1989, and 1990-2010*. The data are taken from the OECD statistics database. The red curve tracks US spending on healthcare (normalized to the beginning of each period) and the blue curve tracks the normalized spending of all other OECD countries**.



The graph represents a comparison of cost growth between the US and non-US-OECD during three unique phases. What strikes me about the plot is that the growth in costs has been remarkably similar between the two groups for forty of the past fifty years, despite differences between the systems. This indicates to me that claims that changing the system alone will "bend the curve" are ill-founded.

That's not to say the US's system is ideal, or good, or fair, or efficient, or anything else. It's just to say that inasmuch as long term costs are driven by growth, and growth seems to be relatively similar between the US and non-US-OECD countries, simply changing the healthcare system is unlikely to control long-term costs.

What I really want to know is what happened during the 1980's. Up until that point, the US costs were fairly similar to most OECD countries (again, despite differences in the delivery systems) both in terms of absolute costs and growth. But during the 1980's, the US saw healthcare spending relative to GDP grow at a similar to the previous two decades, while other OECD countries saw no appreciable growth (on average). Does anyone have a thought on why that would be? Did something change in Europe in the late 70s early 80s? Or something in the US that caused us not to realize the relative gains our industrialized brethren enjoyed?

*Note: the downtick in the blue curve at 2010 is due to sparsity of reporting. Data isn't yet available from most countries, so the final data point is largely spurious.

**The set of OECD countries expanded throughout the period graphed. So each blue data point is the average of a slightly different set of countries.

Federal budget deficits (Redux)

Given the apparent deal on raising the debt ceiling (*sigh of relief*), I've again become interested in what's driving our persistent deficits. I went back and plotted historical federal spending by subcategory [edit] and revenues by source[/edit] as a percentage of GDP (see plots below).



Spending Plot
A couple things I notice about the spending plot. First is that the major increase in social spending (as a % of GDP) happened between 1965 and 1975. I guess this was Johnson's "Great Society." It also coincides with the period of divergence in health care costs between the US and the rest of the industrialized world (something I don't really understand the causes of). The other thing is that, while social spending rose precipitously with the onset of the Recession, prior to that it was relatively flat for about 20 years. This gives me some small hope that projections of continued significant increases in social spending are not as accurate as I'd previously believed.

But really, the story of the spending plot is the inverse relation between defense and social spending. For the past 60 years we've consistently chosen to fund increased social spending through cuts in defense spending. I don't think that is necessarily bad, but at a minimum it brings up the issue of what to do when we can't decrease military spending any more.

Revenue Plot
The revenue plot shows that federal revenues have been remarkably flat (as a % of GDP) over time. They've hovered around 18% of GDP for the past 60 years. The interesting trends I see in this plot are the decrease in receipts of corporate income taxes and the rise in taxes due to social insurance (increases in FICA and so forth). Total federal revenue is at a 6-decade low, due largely to the fall in income tax receipts. This is a result both of the two recessions in the 2000s and the Bush tax cuts (particularly those for the middle class).