The Costs of Healthcare
May 8th, 2009 by Nick SaintOne irritating feature of public discourse on the state of our healthcare system is the near ubiquity of lumping private and public spending together. How much our society spends on healthcare as whole is certainly a useful piece of information, but for many, if not most, policy questions, combining the two is absurd. This is especially true when our system is being compared to that of other countries, most of which have far more government control over healthcare. Take, for instance, the ever-widening gap between the US and the rest of the world in healthcare spending per capita:
Socialized healthcare advocates are often pointing out that our spending is spiraling out of control, while that of other countries’ increases steadily and manageably. And since our results aren’t any better, a lot of this money is being spent very inefficiently.
But it’s important to ask by whom this money is being spent. Public spending on healthcare is also spiraling out of control, which is certainly very bad and needs to be addressed. But for the part of this gap that is made up by private spending, one needs to know a lot more to conclude that rapid acceleration and alleged inefficiency are problems at all. So this chart - which got a lot of play from the left - isn’t very helpful.
Spending lots of money trying to extend the lives of the very old and/or sick is a notoriously expensive proposition. If you are evaluating a public health program, it makes a lot of sense to look at the high costs of these efforts and the relatively small gains in lifespan they achieve and conclude that they are inefficient. On the other hand, when we consider the spending of people who are rich, sick, and old, the calculation is very different. It no longer makes much sense to measure the efficiency of caring for these folks against other sorts of healthcare, because we aren’t deciding how this money gets spent - if it didn’t go toward marginal increases in the life expectancy of the wealthy, it would go towards, say, marginal increases in the yacht-sizes of the wealthy. When individuals choose to spend lots of their own money trying to stay alive, the statistics people keep throwing around make our system look more costly and inefficient, but this spending isn’t doing anyone any harm, even though, as the chart below shows, it’s ultimately a losing proposition:
UPDATE: Just to be clear, I’m not suggesting that rising private sector spending on healthcare is never problematic, merely that it isn’t all problematic, and that the some of the arguments like the one above really only work for public sector spending, so it makes sense to seperate the two far more often than is actually done. Lumping them together always makes the numbers look scarier, but is not usually informative. See (slightly) more in the comments.
May 8th, 2009 at 10:19 pm
It’s fine for rich people to spend out-of-pocket money on healthcare rather than yachts. But for ordinary people with health insurance, much of the fees they pay go towards sustaining the elderly and the seriously ill. If that spending is inefficient, then that *is* a broader social problem.
May 8th, 2009 at 10:34 pm
That’s absolutely true. That’s why I say “one needs to know a lot more” to conclude that private sector spending is a problem. That is, there are things which drive up private spending that are problematic, and things that drive it up which aren’t. In either case, the quick argument for inefficiency that works for public spending doesn’t apply. That’s why I think it’s important to look at the two seperately, rather than as an aggregate, as if we were already on a fully socialized system.
May 8th, 2009 at 10:49 pm
Just to build on that, spending can obviously also be driven up by higher costs. If we are paying more for the same care than Europeans, that is a prima facie problem regardless of whether it is the government or individuals paying for it. But, again, this has to be unpacked with the private sector spending. If *all* spending were public, you wouldn’t need to do this for these purposes - if we’re spending more and getting less, then something is wrong, period. This argument simply doesn’t make sense when you include private sector spending.
May 9th, 2009 at 12:21 am
Fair enough. I agree that it is worth considering the two separately. The distinction between out-of-pocket and insured expenses seems like another relevant distinction, perhaps even more so. I suspect that the valid, slower argument would have a similar conclusion to the invalid, quick one. Then again, all I know comes from reading blogs.
May 9th, 2009 at 7:03 am
I think you’re probably right about the importance of distinguishing between insurance and out-of-pocket, but you’re somewhat missing my point in the following sentence. I’m not *just* quibbling about the proper argument for establishing something that is obviously true. Even if we all agree that there are terrible inefficiencies in our healthcare system, the problem I’m pointing to doesn’t go away, because what’s really at issue is not the existence of that problem, but rather the scale and nature of it. The argument I’m complaining about (though it does more or less make sense for purely public spending) doesn’t just cheat to come up with a conclusion that is true anyway, it exaggerates the scale (by including the out-of-pocket stuff we shouldn’t be worried about) and conflates distinct issues (there are substantively different things to be said about inefficiencies within the private insurance system and inefficiencies within the public healthcare system).
May 10th, 2009 at 1:43 pm
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