Health Care Regulation: A
$169 Billion Hidden Tax
by Christopher
J. Conover
Christopher J. Conover is an
assistant research professor with the Center for Health Policy, Law and
Management in the Terry Sanford Institute of Public Policy at Duke University.
Executive Summary
Students of regulation have
known for decades that the burden of regulation on the U.S. economy is
sizable, with the latest figures suggesting this cost may approach $1 trillion
in 2004. Surprisingly, given that the health industry is often viewed as among
the most heavily regulated sectors of the U.S. economy, previous estimates
generally have ignored the cost of regulating health care services.
Using a “top-down”
approach, one can arrive at a “back-of-the-envelope” estimate that health
services regulation imposes an annual cost of $256 billion per year (with a
range of $28 billion to $657 billion), suggesting that health services
regulations could increase estimates of overall regulatory costs by more than
25 percent.
A far more accurate
“bottom-up” approach suggests that the total cost of health services
regulation exceeds $339.2 billion. This figure takes into account regulation
of health facilities, health professionals, health insurance, drugs and
medical devices, and the medical tort system, including the costs of defensive
medicine. Moreover, this approach allows for a calculation of some important
tangible benefits of regulation. Yet even after subtracting $170.1 billion in
benefits, the net burden of health services regulation is considerable,
amounting to $169.1 billion annually. In other words, the costs of health
services regulation outweigh benefits by two-to-one and cost the average
household over $1,500 per year.
The high cost of health
services regulation is responsible for more than seven million Americans
lacking health insurance, or one in six of the average daily uninsured.
Moreover, 4,000 more Americans die every year from costs associated with
health services regulation (22,000) than from lack of health insurance
(18,000). The annual net cost of health services regulation dwarfs other costs
imposed by government intervention in the health care sector. This cost
exceeds annual consumer expenditures on gasoline and oil in the United States
and is twice the size of the annual output of the motion picture and sound
recording industries.
Finding ways to reduce or
eliminate this excess cost should be an urgent priority for policymakers. It
would appear from this preliminary assessment that medical tort reform offers
the most promising target for regulatory cost savings, followed by FDA reform,
selected access-oriented health insurance regulations (e.g., mandated health
benefits), and quality-oriented health facilities regulations (e.g.,
accreditation and licensure).
Full Text of Policy
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