U.S. Health Care Costs

In today’s WSJ, Justin Lahart observes that the United States spends a much larger portion of its GDP on health care than other countries, yet seems to get little for its extra spending. I wonder whether this is true, which is not to say that I disagree with his larger point: that we are spending too much on health care for what we get.

But here are some thoughts:

1. Lanhart points out that both infant mortality and life expectancy are higher in Japan and France, which spend (on average) approximately 55% of what the United States spends on health care. But critics of our system have noted that a large part of what we spend money on is spent on expensive care for people during the very last part of their lives. So a relevant question might be: do people who reach, say, age 60 in the United States live longer and/or more comfortably than members of their comparable cohort in Japan and France. And we can refine that question bit more by limiting the comparison to people in the United States who have access to good health care.

Is there a free-rider problem here? Some have argued that drug costs are high in this country to pay for research, which produces important advances in medical science. Do Americans thus fund new medications (and other medical technologies) whose value other nations can import without paying their share of developing these technologies?

What is the infant mortality rate and the life expectancy rate for people in this country who have access to good health care, and how does that compare to the infant mortality and life expectancy rates to people in Japan and France? Do we know if our insured, or at least those of our insured who have good coverage, fare as well or better than the Japanese or French participant in the national health care systems in those countries?

There are certainly other questions we can ask along these lines and the answers might show that we are getting something for the extra resources we expend. It might not be purchasing what we should be purchasing, and our choices might be critiqued on moral grounds (as the folk song goes, if religion were something that money could buy, the rich would live and the poor would die), but I would be hesitant to conclude that we don’t get much for our extra spending.

And of course, there is the extraordinarily important point Frank Cummings makes on his recent post, that the employer system has faults of its own, apart from aggregate costs and quality of medical delivery. Making some employers bear the costs of our imperfect system is itself a serious imperfection in our system.

I intended to end the post two paragraphs up, but let me make two additional points related to the employer system. Two related arguments for the system are: 1) the employer is an efficient purchasing agent for its employees; and 2) the employer pools risk (which is part of the reason it might be an efficient purchasing agent for its employees). But national health care pools risk far more effectively than individual employers and can anybody seriously argue today that the employer has been a good purchasing agent except for its ability, though risk pooling, to create access to the health care market for its higher risk employees? Well I suppose you can say that the employer forcing employees to take part of their compensation in health care coverage is good, but national health care also takes care of this problem.

Comments

[Don Levit]

Roy:
I am in complete agreement with you.
Not only are Medicare and Social Security in financial trouble, the continuance of the plans is also in doubt.
The federal government has complete control, in that it can demand contributions, while also have the discretion to modify, terminate, or amend the plans (similar to what employers can do now).
So, not only would we get away from an employer-based system through universal health care. We also would allow the government to take even more of our liberties away from us than what employers do, in regard to benefit continuation and solvency standards.
Don Levit

[Roy Harmon]

Norman,

We have several broad social programs that are on life-support. Before we start yet another, we need to think carefully about finances. I know you know this, but the public is easily drawn to the idea that Uncle Sam will fix it for us just like we look to our parents when we are young. We are all adults now and we know every expense has to find a paycheck some where to cover it. I love this country, but it is foolish to think that even our huge wealth can cover all that is demanded of it in this economy. Before we abandon the market principles that have brought America to the dominance we enjoy, I simply urge caution and careful attention to what a private sector approach could contribute. For those still left needful, then sure, let's find a public sector solution. At present, we have the worst of both worlds when we could seek the best.

Roy

[Norman Stein]

Roy, I was not suggesting that larger pools create important new efficiencies; once a pool is large enough, presumably any further efficiency is trivial. I was obsrving that one of the orthodox arguments favoring employer-provided health care is that employers facilitate pooling risk and that this is good. But this is certainly not an advantage that employer-sponsored health care has over a national health care system. I do not think that creating a nation-wide risk pool can impact health care cost as a percentage of gdp.

And I agree with you that to cut costs we have to ration. A bit earlier in the history of this blog site (is that what this is, generically speaking, a blog site, or is there some other way cooler name?--have to ask my 14-year old), I suggested that one thing we might start doing is redirecting research dollars away from research that, if succesful, will promise expensive new treatments. Instead, perhaps, we should be focusing on research that will reduce the cost of current treatments, that will cure diseases that primarily afflict the young, and that will reduce suffering for people suffering terminal illnesses late in life. It is a lot easier to justify rationing of research dollars than it is to ration expensive, life-extending treatments that are already in our medical arsenal.

And I realize that real rationing of such treatments is necessary if we are truly going to cut costs and that the debate over rationing will be a difficult national experience.

[Roy Harmon]

Norman,

The concept that a larger pool of covered individuals somehow leads to economies of scale simply because it is a larger pool takes some liberties with logical progression. On the other hand, what we have in the U.S. is not really entirely a market-based system. To set it up as such and compare to a "national system" creates a false dichotomy, and neither approach offers much assurance for the long term.

At some point, resources will be rationed under a national health program. That is the pressing issue, particularly in view of our demographics, that is usually unaddressed. If government-provided services are not as competitive in resource allocation as the private sector (I will spare you the examples for now), the consequences of whether we improve our system or abandon it should be of great significance to our aging population.

Roy Harmon