The Enlightened Despot

One 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.