Arnold Kling has a new article up on techcentralstation.com entitled
"The Myth of Massive Health Care Waste". He argues the that "conventional" explanations for the high proportion of GDP spent on health care in the US are lacking, and rather than spending on excessive waste, Americans are receiving better health care outcomes than other industrialized countries.
According to those who subscribe to the myth of massive waste in health care spending, the large discrepancy in the share of GDP devoted to health care (15 percent in the United States, compared with less than 10 percent in many other developed countries) reflects the inferiority of our system. They take our higher spending level as irrefutable proof of the inefficiency of our system of private and public financing relative to a more socialized approach.
Instead, I am prepared to make the following bet: ten years from now, it will be objectively clear that the United States provided significantly better health care to its citizens between 1990 and 2005 than did other developed countries. From the vantage point of 2015, the policy blunder of the past fifteen years will not be that the United States spent too much on health care, but that other countries spent too little. The socialized systems, forced to ration health care because tax revenues are not sufficient to pay for state-of-the-art care, are constraining their citizens from being diagnosed and treated as well as Americans.
I think Kling does a poor job of supporting his prediction.
The first "myth" is wasteful spending in the final year of life.
An urban legend has it that close to half of all health care spending comes in the last year of life. The facts are somewhat different. The most thorough study, by Donald Hoover, et al, finds that 27 percent of Medicare spending takes place during the last year of life.
Overall, 22 percent of health care spending on people over 65 takes place in the last year of life. However, only 1/3 of U.S. health care spending is for people 65 and older. Thus, as a percentage of overall U.S. health care spending, spending on the last year of life amounts to about 7 percent. That is high, but not staggering.
Obviously something is wrong with his calculation. According the the numbers he gives, 7 percent of healthcare spending occurs on people over 65 in their final year of life. People still die under the age of sixty, and when they do they do have medical expenses in their final year of life. Therefore, the actual amount spent on the final year of life I is much higher. Then he asserts:
Contrary to myth, the magnitude of what the United States spends on patients in the last year of life is not a factor in our excessive spending relative to other developed countries.
This without any comparision to what other countries spend during the last year of life!
His other "myths" of waste are excessive profits in the pharmaceutical industry, malpractice premiums and defensive medicine, and overhead and efficiency. Against these he argues they are too small to affect overall healthcare spending. Thus, taken alone they are not "magic bullets". Taken together though, they might represent 3 of GDP which would go a long way in bringing health care costs in line with other industrialized countries.
He contends physician pay and the utilization of high-tech procedures better explain why our health care costs are different from the Europeans, but reducing our spending on these would decrease the quality of our care.
So if your premise is that Americans don't spend more on health care because a lot of that spending is wasteful it would be nice to show that American receive better health outcomes than other countries. But proof of this is elusive. Americans have similar health outcomes to much of Europe. Kling's response is that the common measures of health outcomes: infant mortality and longevity are poor statistics.
Most health care spending is not focused on reducing infant mortality. Infant mortality is very low in all industrial countries, so any differences across countries are of little significance. It is questionable whether differences in measured rates of infant mortality are due to differences in definition. The United States attempts to save most premature infants and counts the failures as infant mortality. In some other countries, deaths of premature infants may be treated for statistical purposes as incomplete pregnancies, which takes them out of their infant mortality statistics.
Longevity calculations are not a sensitive measure of improvement in medical care. In my essay on lifespan, I showed how the longevity number is calculated as a peculiar weighted average of the survival rates for different population cohorts. I produced a simplified example in which the longevity number came out to be 68.9 years. In that example, suppose that 10 percent of the people who otherwise would die at age 60 instead receive treatment that allows them to live at least to age 80, when they die at the rate of other 80 year-olds. In that case, the overall longevity number would increase by less than 1.5 years, to 70.3 years. In international comparisons, such an increase easily could be swamped by other demographic and genetic factors.
I guess my main problem with Kling's essay is that he presents it as a defense of American, market-style health care. Kling supposes there are only two hypothesis why Americans spend more on health care while maintaining similar health to Europe. Either that spending is wasteful and socialized health care is more efficient or Americans will eventually achieve better health outcomes.
But health in a society depends on many things, only part of which is the quantity and quality of health care. Americans might spend more on health care simply because we are unhealthy.
Via
Margin Revolution.
