Cost and Efficiency

Ezra Klein offers a nice distinction:

When talking about costs, folks need to distinguish whether they're talking about getting more value for each dollar or reducing total spending. The two might not be the same. Prevention, for instance, gets far more value out of each dollar. But if it keeps people alive a whole lot longer, that's more time for them to contract various illnesses, and when they grow old, to die from something expensive. So though prevention may mean our health dollars are doing a whole lot more good, it may not mean we're spending less as a total percentage of GDP.

Right. Nothing saves money like swift death at a relatively young age. Conversely, if you're healthy and live a long time, you'll likely wind up needing long-term care which is hugely expensive. Everybody gets sick and dies at some point, so any successful medical treatment merely ensures that future treatments will be needed. But even though you sometimes see scary charts, there's really nothing wrong with the share of GDP that goes to health care increasing if we're getting good value for that money in terms of longer, more capable lives.

Photo by Flickr user waldoj used under a Creative Commons license

Comments

Good to see you finally coming out for Clinton for the nomination, Matthew. I was beginning to have my doubts that you'd ever see reason.

Posted by Petey | March 20, 2008 3:47 PM

" if we're getting good value for that money in terms of longer, more capable lives."

The metric we should use for "longer, more capable lives" is longer working lives, raising the retirement age for social security/Medicare.

Posted by Adam | March 20, 2008 3:49 PM

This is a good point. I wish the insurance companies would get it. They want to charge me more because I'm a smoker. But because I smoke, I'll die younger and quicker, and therefore save them money. I should get a discount.

Posted by fostert | March 20, 2008 3:51 PM

But nothing builds GDP like a long-lived, healthy, larger citizenry. We'll spend more in gross dollars but still potentially less in percentage of GDP.

Posted by jhupp | March 20, 2008 3:55 PM

So, even though other countries (with single payer) live longer AND spend a smaller % of their GDPs on health care, if we tried single payer and rational health care in this country, we'd catch a funny bounce from the accounting gods and our expenses would actually increase?

Posted by Jeffrey Davis | March 20, 2008 3:59 PM

So though prevention may mean our health dollars are doing a whole lot more good, it may not mean we're spending less as a total percentage of GDP.

It's not necessarily how much we're spending, but where we're spending it. For example, if you have a gym membership in order to work out on a regular basis, then we can assume you are in good physical shape, which has a whole host of medical benefits. Regular excercise could prevent, say, heart surgery.

Although the gym membership over ones lifetime is expensive, probably more so than one heart surgery, we're spending that money in another sector of the economy -- presumably a good thing for growth and ingenuity.

Posted by BCM | March 20, 2008 4:01 PM

"This is a good point. I wish the insurance companies would get it. They want to charge me more because I'm a smoker. But because I smoke, I'll die younger and quicker, and therefore save them money. I should get a discount."

Ah, but if you die young from smoking-related causes, this increases the likelihood that you will get to enjoy your terminal illness on a private insurer's dime.

If you live a long time and die after an extended age-related illness, you'll probably be on the government's dime.

Posted by Joe | March 20, 2008 4:04 PM

"Ah, but if you die young from smoking-related causes, this increases the likelihood that you will get to enjoy your terminal illness on a private insurer's dime.

Good point, Joe. I hadn't thought of it because nobody in my family ever got Medicare. And our insurance companies have paid through the nose on end-of-life treatment. But the smokers died quicker, which may be the most critical issue. When you're spending $3,000 per day, a quick resolution sure saves money. My mom and dad were diagnosed in the same week with their respective cancers. My dad, the smoker, lasted 8 months. My mom lasted more than three years. Guess who spent more money?

Posted by fostert | March 20, 2008 4:16 PM

Be advised that "[p]revention, for instance, gets far more value out of each dollar" isn't always true. Many prevention strategies save money relative than paying for treatment, and sometimes the opposite is true. And it is possible for preventive health care to do more harm than good.

Posted by Bill Gardner | March 20, 2008 4:26 PM

"So, even though other countries (with single payer) live longer AND spend a smaller % of their GDPs on health care..."

Worth noting that non-single payer countries with universal healthcare like France and Japan get even better life expectancies than single-payer countries like Canada and Great Britain...

Posted by Petey | March 20, 2008 4:27 PM

Worth noting that non-single payer countries with universal healthcare like France and Japan get even better life expectancies than single-payer countries like Canada and Great Britain...

No, that's not worth noting. Unless you control for all the other variables that influence life expectancy--most obviously diet and exercise--comparing different nations' life expectancies tells you absolutely nothing about the relative merits of their health care systems.

Posted by Mixner | March 20, 2008 4:58 PM

Prevention, for instance, gets far more value out of each dollar.

not necessarily true if you're talking about actual preventive treatments. Trivially true if you mean that magically preventing getting a disease is cheaper in the short run than getting it.

Posted by mq | March 20, 2008 5:05 PM

"Worth noting that non-single payer countries with universal healthcare like France and Japan get even better life expectancies than single-payer countries like Canada and Great Britain..."

Also worth noting that this stat is relatively useless unless you control for per capita spending, lifestyle, etc.

(Not attacking you, just saying.)

Posted by Joe | March 20, 2008 5:11 PM

But even though you sometimes see scary charts, there's really nothing wrong with the share of GDP that goes to health care increasing if we're getting good value for that money in terms of longer, more capable lives.

But what constitutes "good value for money?" How do you measure it? In general, health care spending is subject to diminishing returns. You get much more bang for the buck in terms of improved health and longer lives from cheap, basic measures like vaccines and antibiotics than you do from sophisticated, expensive measures like MRI scans and advanced pharmaceuticals. But that doesn't mean the latter are not "good value for money." It depends on how much money you have, and what you could get by spending it in other ways. In general, the richer a country is, the larger the share of its wealth it is likely to spend on health care. In wealthy nations where people already live in conditions of relative material luxury, there are few things they can spend their money on that would bring them more benefit than improved health and longevity, even if the cost-benefit ratio of those improvements is high in comparison to basic health care. As Hyman Roth said in The Godfather, "I'd give four million just to be able to take a piss without it hurting."

Posted by Mixner | March 20, 2008 5:11 PM

there's really nothing wrong with the share of GDP that goes to health care increasing if we're getting good value for that money in terms of longer, more capable lives.

Which is the part of the discussion no one ever wants to touch.
If we're leading longer, more productive lives, why are we still retiring at the same age?

If we're spending more on maintaining a healthier population longer, we should be getting something back in terms of a longer *productive* life.

But we aren't.

A longer productive life might even stabilize the percentage of GDP going to healthcare.

Posted by flory | March 20, 2008 5:17 PM

Which is the part of the discussion no one ever wants to touch. If we're leading longer, more productive lives, why are we still retiring at the same age?

So we can spend a larger share of our lives on leisure and recreation rather than working. And by the way, we're not retiring at the same age. The average retirement age is declining.

Posted by Mixner | March 20, 2008 5:22 PM

"Also worth noting that this stat is relatively useless unless you control for per capita spending, lifestyle, etc."

No doubt.

I think the one item that really is incontestable is that the USA's current non-universal system is significantly worse than both single-payer and non-single-payer universal systems.

Posted by Petey | March 20, 2008 5:31 PM

Re: But if it keeps people alive a whole lot longer, that's more time for them to contract various illnesses, and when they grow old, to die from something expensive.

Most of us will probably die from something expensive regardless of whether we die at 60 or at 90. Very few people just up and die suddenly, and when that happens it's usually due to auto crashes, suicide, murder etc. Now I suppose one could make a (grim) point that people dying at 60 will save Social Security money, but it won't save the healthcare system any money.

Re: For example, if you have a gym membership in order to work out on a regular basis, then we can assume you are in good physical shape, which has a whole host of medical benefits.

Yes it does, but it's not a panacea and there's a whole array of expensive illnesses exercize does nothing to prevent. There's plenty of gym bunnies fighting HIV or heptitis C, and eventually we'll have a load of old GYM bunnies witless with Alzheimers.

Posted by JonF | March 20, 2008 5:56 PM

I think the one item that really is incontestable is that the USA's current non-universal system is significantly worse than both single-payer and non-single-payer universal systems.

Not only is that assertion contestable, I think it's nonsense.

But then, until you define and justify your criteria for "better" and "worse" with respect to health care systems, you're not really saying anything very meaningful anyway.

Posted by Mixner | March 20, 2008 6:15 PM

Slightly OT:

My mom is 5'2" and about 200lbs. She is a hazard to her own health. Her obesity is just as much of a threat and a liability as smoking is or alcoholism. Does anyone know what the Obama or Clinton plan has to say about situations like that? Or what some of the univ. health care countries do about that?

Posted by big mom | March 20, 2008 8:21 PM

Don't waste your breath, Mixner, anything Petey says is incontestable.

Posted by heedless | March 20, 2008 10:50 PM

I can't believe those doctors in the photo can't find the white bag. They're all just standing in a circle saying, "What the hell happened to that white bag? It's baffling." Is the short guy in the back freaking blind? Stephen Fry is holding it behind his back right in front of his face. You know they all had a good laugh at the bag-behind-the-back gag.

Posted by jim | March 21, 2008 1:48 AM

I think the best statistic for the value of universal access to primary care is that we here in Canada have an additional two years of healthy productive life. I hate to put a monetary value on any kind of human life but I am sure two productive years are worth more to society's economic well being then two years of dependence regardless of the numbers employed in the caregiving business.

Posted by Moe in Montreal | March 21, 2008 2:03 PM

I love debating the merits of other countries’ health care systems as much as the next guy, but if we want to find out whether we’re getting good value for our health care spending, we don’t need to argue about Canada & France. We can look within the United States. There’s a group of researchers from Dartmouth Medical School who’ve been investigating for years why Medicare spending in certain regions is so much higher than in other regions. To summarize the research:

Investigating staggering differences in how much Medicare spends on patients in various parts of the country, the Dartmouth team has discovered that in Manhattan and Miami, chronically ill Medicare patients receive far more aggressive care than very similar patients in places like Salt Lake City, Utah, and Rochester, Minn. Their research reveals that Medicare beneficiaries in high-cost states are likely to spend twice as many days in the hospital as patients in low-cost states and are far more likely to die in an intensive care unit. The odds are higher that patients in high-spending regions will see 10 or more specialists during their final six months of life. These facts alone aren't terribly surprising. But here's the stunner: Chronically ill patients who receive the most intensive, aggressive, and expensive treatments fare no better than those who receive more conservative care. In fact, their outcomes are often worse.

What's more:

But of course Dartmouth's researchers had considered the possibility that patients in some regions of the country might simply be sicker. So, over the decades, they have bent over backwards to adjust for differences in race, age, sex, and the overall health status of each community…Nevertheless, even after factoring in these differences, Medicare expenditures are still twice as high in some regions as in others.

What’s driving these variations is a type of Say’s Law: The more specialists, hospitals, and doctors you’ve got access to, the more surgeries, medicines, and treatments you’re likely to undergo.

By the way, I think this research cuts both ways for advocates of universal health care. On the one hand, it shows there is the potential for huge savings which would allow us to cover everybody and reduce health care spending without suffering a decline in health care quality. On the other hand, it makes clear (since the study is of Medicare) that moving in the direction of a single-payer system will not, in and of itself, significantly reduce the cost of health care unless the incentives to provide excessive care are addressed.

Posted by Peter H | March 21, 2008 2:54 PM

Matt: "Everybody gets sick and dies at some point"

Even as I recover from my cold, I say, "Speak for yourself, chimpanzee."

Posted by Richard Steven Hack | March 21, 2008 7:02 PM