I'm an economic development professional. And I'd like to tell you how and why the health care industry contributes mightily to the economic crisis. To understand will take a little background on how economies grow, which I'll do in detail, but the short answer is that money spent on health care delivery does very very little to grow the productive base of the economy and in fact inhibits our ability to get back on track. Every extra dollar spent on health care is a dollar that could otherwise have been spent on research and development, on education, on hard and soft infrastructure that could really address economic development and sustainability.
Follow me below the fold.
I. How Economies Grow
A. The economy of an area (generically referred to as a "region") grows when new revenue is paid to businesses located inside the area from people and businesses outside the area ("exogenous sources"). The important sectors and businesses that bring in outside revenue are commonly referred to as the "economic base." Revenues coming into an area are referred to as "regional income." As businesses are paid revenue from exogenous sources, they in turn buy what they need to produce their output: labor (paid in wages), rent or mortgages on equipment and land, advertising and other business services, and intermediate inputs that depend upon the product they are producing (agricultural products, for example, for food processing companies; software in the case of marketing firms).
Note that a business does not have to physically export its goods or services in order to bring in exogenous regional income. All transactions may be done electronically, for example; or the business may be tourist-based so that the exogenous buyers are actually traveling to the area to spend money locally. The important determinant of regional income is that the buyer is an entity not located in the region.
So, a business sells its product or service one of two ways: they either export goods or services outside the area, or customers travel to the area and spend money inside the region on food, entertainment, or other goods or services (destination spending).
A region’s economic base is that set of industries (and specific businesses within the industries) that sells stuff and brings in the majority of regional income. These are sometimes referred to as the region’s primary sectors. Examples: The primary sectors in Chicago and the Midwest were, and to a certain extent still are, the automotive and machinery industries; the primary sector in Las Vegas is gambling and entertainment.
As regional income comes in through the sale of goods and services from regional business entities, that income is distributed to the business’ suppliers and to its workers. The workers in turn buy life’s essentials and pleasures: housing, food, clothing, heating fuel, education, doctors, dentists, entertainment, etc. Thus, the retail and consumer services sectors of an economy are tied to the health of the economic base. They are typically not base industries, they are secondary sectors.
(Note that "regional income" refers to the sum of all monies paid to businesses located in an area. It is not synonymous with what we popularly refer to as "income" when we speak about personal income (as in the income a household reports to the IRS, or family income levels reported by the federal government)).
This is a rudimentary schematic which shows the central nature of the base industries; the industries underneath them - secondary industries - are supported by the base.
The extent to which regional income supports people and other business within the region depends upon how much is available to buy locally. If profits and salaries are paid to and spent by local citizens, the new income has more effect than if the profit is sent abroad or if the income is spent on imports. If a business pays its mortgage to a local bank, employs local labor and buys all its intermediate products locally, then the regional income it brings in has a larger local impact than if it has to import goods and services. For example, if a mining company buys its equipment from a regional producer of mining trucks, or conveyor belts, etc., then its revenues support local businesses. If there is no local producer of mining equipment, and the business needs to import such equipment, then their revenue is "leaking out" of the local economy.
There is a way for economists to measure what this impact is for sectors and businesses within a sector. This measure is termed the "multiplier." Higher multipliers mean that the business is better "integrated" locally and it makes for a more robust regional economy—the "multiplier effect" is higher. Lower multipliers mean that regional income is coming in but then leaving the region.
The goal of traditional economic development is to grow the base, thus increasing regional income; and to increase a business’ integration with suppliers and buyers throughout the region, thus increasing the business’ regional impact (multiplier).
The practice of economic development has broadened in recent years to include notions of sustainability, where the point is not to grow but to maintain the base, and to recognize that long-run economic potential depends on preserving our productive assets for future generations. ("The Green Economy.") But that doesn't change the fundamental axiom that you've gotta make something in order to have income coming in.
B. Health Care
Note the place of "health care" in this theory. Health care in and of itself is NOT a primary industry. It does not produce regional income (exception: some health care specialties do attract exogenous spending, for example, specialty hospitals in Florida that cater to Central American consumers, or the Mayo Clinic in Rochester MN which is a primary/base industry for that metro area). In fact, it siphons off regional (or local, or national, at whatever level of geography you're working) income. If workers are spending their money on health care, then they are not spending money on other local goods and services. They aren't in a position to do their "consumer part" to rejuvenate the economy. They're not out buying cars or CDs or clothing or whatever else it is we are supposed to do to kick-start this recovery. They are not investing in their own educations to keep cutting-edge skills.
And the same is true for the companies. High premiums mean less money available for research and development, for investing in worker training, for investments in physical productive capital.
So it drives me crazy to hear the Health Care Industry is 20% of our GDP. Inasmuch as this number might include research and development by HC companies to make them more competitive or to create patents that might otherwise not be developed and that have commercial/export implications, great. But the sheer act of providing care does not create community wealth. Health care itself certainly keeps workers productive, and adds to quality of life, and is a necessary part of our social and economic infrastructure; but superprofit costs and expensive procedures only drain away our productive capacity.
Update: I almost deleted this diary because of the personal attacks I received in the comments, but I decided to let it stand. Think twice before making assumptions rather than asking question.