Governor Shumlin: Healthcare the Most Significant Cost Driver.

I was looking at the copy of Governor Shumlin’s testimony to the U.S. House Committee on Oversight and Reform, which was sent out by e-mail from the Governor’s office.  One comment caught my attention:

“In the long term, the most significant cost driver in Vermont is health care. We spend $5 billion on health care in our small state of 620,000, and that number is growing exponentially.”

Putting aside for a moment the fact that, from a state budget point of view, education is actually more costly, it is a good idea to look at the problem of healthcare costs when examining our current policy direction.  For those familiar with the Ethan Allen Institute’s “Off the Rails” publication on the coming budget crisis, the matter of how this issue impacts Vermont’s future fiscal health is of paramount importance.  We are being fed the notion that we have to adopt a single payer approach to healthcare reform in order to get a handle of run away healthcare costs.  The questions is whether such an assumption holds water.

While it is certainly true that healthcare costs are a significant driver of our current spending crisis, it is not at all clear that adopting the “government knows best” approach to the problem will actually help.  In fact, the history of other such attempts points to the conclusion that it is likely to make matters worse.  Before Canada adopted a single payer approach to healthcare the Providences were spending an average of 18% to 20% of their budgets on healthcare.  Canadian Providences are now spending anywhere from 40% to 50% of their budgets on healthcare.  (See the movie “Sick and Sicker” for interviews with Canadian government officials on the budget crisis created by their healthcare system)  Besides the historical example of Canada, there is the common sense observation that when people are told healthcare is a human right that should be provided by government, the demand for healthcare will rise considerably.  With the rise in demand comes a corresponding rise in cost.  This is what has happened in Canada, where the budget crisis that it created has resulted in the rationing of healthcare.  What makes our political leaders think that they will fare any better?  Perhaps it is what Hayek referred to as “the fatal conceit”.