Tuesday, May 16, 2017

Eventually you’re spending a fifth of your GDP on it.

From On Health Care, Most People Don’t Know What They’re Talking About by Ben Southwood. A needlessly provocative headline but the substance of the article is, broadly, correct. The core issue is that we do not compare like-to-like. The US is a very large, very diverse country with great cultural variances. I addressed this some years ago in Americans living intensely and Our outcomes are world-class but our costs are exorbitant.

From Southwood's well linked article:
The U.S. undoubtedly spends a huge amount on health care. One popular narrative is that because of market failures and/or extreme overregulation in health care, prices are excessively high. So Americans with insurance (or covered by Medicare, the universal system for the elderly, or Medicaid, the government system for the poor) get the same as other developed world citizens, but those without get very poor care and die younger. A system like the NHS solves the problem, according to this view, with bulk buying of land, labor, and inputs, better incentives, and universal coverage.

But there are some serious flaws in this theory. First, extending insurance to the previously uninsured doesn’t, in America, seem to have large benefits. For example, a recent NBER paper found no overall health gains from the massive insurance expansion under Obamacare. A famous RAND study found minuscule benefits over decades from giving out free insurance to previously uninsured in the 1970s. In fact, over and above the basics, insuring those who choose not to get insurance doesn’t ever seem to have large gains. Indeed, there is wide geographic variation in the life expectancy among the low income in the U.S., but this doesn’t even correlate with access to medical care! This makes it unlikely that the gap between the U.S. and the rest is explained by universality.

To find the answer, consider the main two ingredients that go into health outcomes. One is health, and the other is treatment. If latent health is the same across the Western world, we can presume that any differences come from differences in treatment. But this is simply not the case. Obesity is far higher in the U.S. than in any other major developed country. Obviously it is a public-health problem, but it’s unrealistic to blame it on the U.S. system of paying for doctors, administrators, hospitals, equipment, and drugs.

In fact, in the U.S. case it’s not even obesity, or indeed their greater pre-existing disease burden, that is doing most of the work in dragging their life expectancy down; it’s accidental and violent deaths. It is tragic that the U.S. is so dangerous, but it’s not the fault of the health-care system; indeed, it’s an extra burden that U.S. health-care spending must bear. Just simply normalizing for violent and accidental death puts the U.S. right to the top of the life-expectancy rankings.


Academic papers that drill down into the detail find that the U.S. does well in cancer survival, heart attack, and stroke survival, and successfully medicating those with long-term conditions such as diabetes. In fact, when the Commonwealth Fund itself did this sort of analysis decades ago, the U.S. ranked among the best of countries. This is partly because the U.S. has much more advanced equipment, partly because it funds more costly treatments in general, and partly because it funds the newest treatments, when their marginal costs are often stratospheric. This may subsidize medical research for everyone else.

Now, this is not to say the U.S. system works well. The fact that the U.S. spends vastly more than everyone else, and does only a bit better, if that, makes the system pretty unimpressive. But it’s important to understand why. The U.K. really does have “death panels” that refuse treatments because they’re extremely costly relative to their tiny impact. The U.S. has a system where most people can buy — are even subsidized through the tax system to buy — insurance that is as extensive as they like, paying for ever more expensive and marginally beneficial therapies. Eventually you’re spending a fifth of your GDP on it.

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