WSJ: Health Costs are the Real Deficit Threat (Peter Orszag)

I had inkling that health care costs were going to be a problem, but I did not realize that they will be biggest deficit threat. According to Peter Orszag (director of White House office of management and budget):

" If costs per enrollee in Medicare and Medicaid grow at the same rate over the next four decades as they have over the past four, those two programs will increase from 5% of GDP today to 20% by 2050. Despite the attention often paid to Social Security, spending on that program rises much more modestly -- from 5% to 6% of GDP -- over the same time period. Over the long run, the deficit impact of every other fiscal policy variable is swamped by the impact of health-care costs"

My question is how healthcare has gotten as expensive as it has? Why is healthcare ruining the American economy but not that of other countries?

What is even more odd is that regions with higher Medicare costs do not have better outcomes. In other words, money that is being spent by Medicare on fancy tests and procedures may not be doing much to improve the general health of patients. Orszag claims that the health industry is on the problem though, and that health representatives in a meeting with President Obama pledged to cut the current projected growth of healthcare spending by 1.5 percentage points each year for a decade. Unfortunately, many of these health care representatives have denied such a promise...stating instead that they had simply said that would try to slow down the growth of healthcare spending by 1.5 percentage points within 10 years. There seems to be no easy solution.

However, the Obama administration has a couple of suggestions as to how to move towards a higher quality, lower cost system:

"There are four key steps: 1) health information technology, because we can't improve what we don't measure; 2) more research into what works and what doesn't, so doctors don't recommend treatments that don't improve health; 3)prevention and wellness, so that people do the things that keep them healthy and avoid costs associated with health risks such as smoking and obesity; and 4) changes in financial incentives for providers so that they are incentivized rather than penalized for delivering high-quality care."

I think those all sound good and well, but if it were that easy I kind of get the feeling that someone would have already tried it before. My question still remains: why exactly is healthcare so expensive today? If we can see where all the money is going, I feel that we would be in a better position to cut unnecessary spending or at least come up with a better system for managing costs.

Health Costs are the Real Deficit Threat