Beat the Press

Dean Baker's commentary on economic reporting

5/14/2006

Two Points on Health Care

Since questions continually arise on my health care postings, I will make a couple of points here that do not directly relate to the news coverage.

First, health care costs have posed a problem everywhere, but nowhere do they pose as much of a problem as in the United States. If we look at the OECD data, in 2003 (the most recent year available) the United States spent 15.0 percent of its GDP on health care. The next three countries ranked by expenditure as a share of GDP are Switzerland, Germany, and Iceland at 11.5 percent, 11.1 percent and 10.5 percent, respectively. Canada clocks in at 9.9 percent of GDP, Sweden at 9.4 percent, and the United Kingdom at just 7.7 percent.

The comparison of GDP shares actually understates the gap in expenditures. Per capita GDP is more than 20 percent higher in the United States than in Europe, primarily because we work more hours.

The difference in current expenditure levels is attributable to much more rapidly growing costs in the U.S. than elsewhere. In 1970, the United States was tied with Sweden and the Netherlands for 3rd place in the rankings, behind Canada and Denmark. The story in other countries is that health care costs have somewhat outpaced the growth in per capita GDP (this is partially due to aging – most of these countries have a considerably older population than the U.S.), it is only the U.S. where health care spending is exploding relative to GDP.

The other point is that the projected cost explosion for our public sector health care programs (primarily Medicare and Medicaid) over the next two decades is grounded in projections of exploding private sector costs. I don’t make these projections – they come from the Centers for Medicare and Medicaid Services (CMS). The projections may well turn out to be too pessimistic (we should all hope that they are), but it is ludicrous to make plans to only deal with the public side of the problem and not address the problem of health care costs in the private sector.

The CMS projections imply that the average cost of health care for a person between the ages of 55 and 65 in the year 2025 will be almost $18,000 (in 2005 dollars). These are the 10 years before people reach the age of Medicare eligibility. How do we think that these people are going to pay for their health care in 2025? Anyone who is serious about tackling the projected explosion in Medicare and Medicaid costs better have a plan to deal with the explosion of private sector costs, otherwise, they are not being serious.

37 Comments:

  • At 8:07 PM, Anonymous James Schipper said…

    Dear Mr Baker
    I see no reason for questioning your figures. The US doesn't seem to get anything for its greater health care expenditures in terms of life expectancy. However, might Americans, at least those that have insurance, get something in terms of faster treatment? In Canada, there are long waiting lists for non-life-threatening conditions. Such long waits for non-emergency operations don't affect life expectancy, but they do affect quality of life.
    Also, on average, Americans may have less healthy lifestyles and therefore require more medical attention.
    Regards. James

     
  • At 9:52 PM, Anonymous Anonymous said…

    How do we think that these people are going to pay for their health care in 2025? Anyone who is serious about tackling the projected explosion in Medicare and Medicaid costs better have a plan to deal with the explosion of private sector costs, otherwise, they are not being serious.

    Well, the dire projections simply aren't serious either. They are an extrapolation based on current trends adjusted for demographic change. The projections do not consider the impact of rapidly changing technology. And so by 2026, we get a silly cost number.

    One can see a similar type of projection repeated by Bill Clinton with his war on obesity. He argues that children today will likely have a shorter lifespan than their parents due to health problems associated with obesity.

    Is he serious? Current diet pills are finally becoming somewhat effective, and we certainly can expect them to improve sgnificantly over the next decade to say nothing of the next 20 years

    Having only 1% of the population overweight changes nothing with respect to the scarry $18,000 figure?

    I guess one can repeat the $18,000/yr projection, but it would be nice to add "this does not take into consideration several medical breakthroughs over the same time period."

    This does not mean that we do not need to address structural issues today, only that the fear of $18,000/yr is the result of ignoring major technological changes.

     
  • At 8:01 AM, Anonymous Mcwop said…

    Those are nice questions, but the biggest question is what type of system do you propose (basic details of such a system required)? I think many (even anti-single payer folks) will acknowledge that there is a problem. Most people that make the point that we spend more than other OECD countries, with little added health benefits, probably want a government financed single payer system. But I need details - under such a system will private insurance be illegal (i.e. Canada)? How much will I pay compared to what I pay now? Will the system kill innovation? Will I wait in line for elective procedures?

    Jane Galt, at Asymmetrical Information, has been one of the few to be clear on what the system should and should not do.

    http://www.janegalt.net/blog/archives/005736.html

    Lastly, the discussion needs to be repositioned from "All other OECD countries are Better" to "What Can The US Do To Better Our Health System for all without killing innovation and freedom".

     
  • At 9:04 AM, Anonymous Erik L said…

    Is that $18000 over 10 years or $18000/yr for ten years?

     
  • At 10:53 AM, Blogger Dean Baker said…

    A few quick comments:

    1) the CMS projections imply that by 2025, people in the age group from 55 to 65 will be spending $18,000 (in 2005 dollars) PER YEAR on health care.

    2) the CMS projections correspond to a broad consensus on future health care costs among experts in public health. These people can be wrong (economists seem to specialize in being wrong), but I don't feel that I have the evidence to challenge their projections -- to date they have been reasonably accurate. If health care costs are about to stop rising because of technology, we don't really see much evidence of a turnaround yet.

    3) I have ideas about how to reform the health care system (see the Conservative Nanny State), but it is far more important to inform the public about the basic facts than my ideas. People should know that the United States spends more twice as much as the average of other wealthy countries, and that it has shorter life expectancies. People should also know that all the horror stories about the impact of aging on the budget are driven by projections of exploding private sector health care costs.

    My experience in speaking around the country leads me to believe that almost no one knows these basic facts. In fact, I suspect that many people who in are in the middle of the policy debate on these issues (e.g. Tim Russert, the Washington Post editorial board) do not know these basic facts. I'm not shy about giving my opinions, but let's first focus on getting the basic facts straight.

     
  • At 11:06 AM, Anonymous vtconomist said…

    I think james' assertion that Americans have much less healthy lifestyles hits the mark. And that leads to anon's post. It doesn't seem like diet pills address the underlying causes, of which obesity is a symptom. Unhealthy lifestyles won't be changed by better diet pills, but rather by education.

    I may be wrong on this point, but aren't technological innovations that make more health problems treatable one of the factors that is driving the cost explosion?

    Mr. Baker, can you recommend any books or papers which compare health care costs and services across nations? I have become convinced that the US system isn't working but I don't know enough about other systems to make an intelligent argument.

     
  • At 11:40 AM, Anonymous Anonymous said…

    2) the CMS projections correspond to a broad consensus on future health care costs among experts in public health. These people can be wrong (economists seem to specialize in being wrong), but I don't feel that I have the evidence to challenge their projections -- to date they have been reasonably accurate.

    Dean, could you please put up predictions they made in 1986 with respect to costs of health care in 2006? Then we can clearly see how accurate they have been.


    If health care costs are about to stop rising because of technology, we don't really see much evidence of a turnaround yet.


    We don't see evidence of a turnaround because there is obviously a lag period. Tabacco use provides an excellent lag period of a decline in smokers with a decline in lung cancer.
    The recent powerful statins are just coming into effect now with other drugs in the labs.

    Why do we believe the general concensus of CMS but not the Alzheimer's experts, the heart disease experts nor the diabetes experts actually working on cutting edge medication?

     
  • At 12:08 PM, Anonymous Anonymous said…

    People should know that the United States spends more twice as much as the average of other wealthy countries, and that it has shorter life expectancies.

    life expectancies
    --------------------
    Japan 81
    Australia 81
    Canada 80
    Italy 80
    France 80
    Spain 80
    Germany 79

    **********
    UK 79
    EU 78 <--- These seem close
    US 78 <---
    **********

    Taiwain 79
    S Korea 77
    Mexico 75
    China 73
    Brazil 72

    By the way, the US has a notably better cancer survival rate than the UK.

     
  • At 12:16 PM, Blogger Dean Baker said…

    Anonymous,

    the EU just admitted Poland, Latvia, Estonia, and several other former Soviet bloc countries that are far poorer than West Europe. If we take the former EU 15, life expectancies would be at least a couple of years higher. Perhaps this explains the U.S. drive to have Turkey admitted to the EU.

     
  • At 12:29 PM, Anonymous Mcwop said…

    Dean, I sincerely believe people do not need to know the basic facts such as how much we spend of GDP versus the EU. You said it best in Conservative Nanny State (some of which I agree and some I disagree):

    Even when progressives have won important political battles, such as the defeat of efforts to privatize Social Security, they have done so largely without a coherent ideology; rather, this success rested on the public’s recognition that it stood to lose its retirement security with this “reform.”

    With health care reform it must be put in terms of what it means to the end user, not % of GDP or life expectancy comparisons. That is why those Harry and Louise ads were so successful.

     
  • At 12:29 PM, Anonymous Anonymous said…

    Dean, I just checked. There was a big parade and momentarily Estonia (1/400 of the EU) had a brief population of zero....Apparently, they marched into Latvia and increased the population of that country 50% for a couple of hours.

    Poland, does pretty well with 75 years although is just 8% of the EU.


    At any rate, it would be great if you could dig up an old CMS forescast from 1986 or 1991 when you have time.

     
  • At 2:04 PM, Anonymous kmorford said…

    There seem to be some Pollyannas posting here who have a religious faith that technological improvements in health care will drive down health care costs in the United States in the future. Here are a couple of points about that position.
    First, a couple of anecdotes about new statins or promising Alzheimers treatments do not prove that overall health care costs will come down. A drop in one or a few areas can easily be eaten up by increases in other areas like more expensive HIV treatments or new diagnostic equipment.
    More importantly, there is no economic incentive to drive down overall health care costs. It is not an economic sector where competitive market forces tend to drive down costs on their own. Drug companies do not tend to spend money testing new treatments unless they can have a monopoly on the treatment, which keeps the prices artificially high. Consumers tend to rely upon the judgment of their doctors, and have limited options for comparason shopping, which also limits the pressure for lower prices.
    Technology is not a cure for high prices in this type of market.

     
  • At 3:17 PM, Anonymous Erik L said…

    Kmoford-

    I agree with you that it makes no sense to assume technology will drive down health care costs. New technology seems to make healthcare in aggregate, more expensive. The market, in a way, can drive down healthcare costs because once it gets so expensive that we cannot afford everything that is possible, we will have to make choices. Whether the choices come at the government level, the private insurer level or the personal level somehow the choice to spend less will be made.

    This is why the future projections are going to prove wrong at some point. If you draw a straight line through the future, and currently healthcare costs are rising more rapidly that GDP, mathematically at some point in the future healthcare costs must become larger than GDP.

    Clearly this can't happen so at some point that linear relationship has to break down.

     
  • At 3:27 PM, Anonymous Erik L said…

    Dean- my apologies for taking issue with your life expectency as measure of quality of healthcare system again but one of you comments inspires me.

    Doesn't the figure shown have the UK life-exepectancy at 79? That seems statistically indistinguishable from the US.

    For you idea to be born out shouldn;t you do a comparison of life expectencies to healthcare spending per GDP (leaving out drug costs because price controls on drugs is a separate issue).

    In fact shouldn't you compare life expectencies for people who have already reached adulthood? If you want to do a separate comparison of infant mortality that's fine but I don't think lumping them together is fair because they are probably influenced by different things.

    You should probably take out really obvious voluntary behaviors like smoking too. Maybe compare life expectancy of 20 year-olds and 50 year-olds (to separate preventive medicine from treatments for existing disease) who don;t smoke to healthcare spending per 20 and 50 year old.

     
  • At 4:13 PM, Blogger Dean Baker said…

    Those interested in a new piece comparing the health of people in England and the United States can try this articlein the Journal of the American Medical Association.

     
  • At 5:00 PM, Anonymous Erik L said…

    Dean-

    I haven't finished reading the study yet but based on the Results section I think it may show the opposite of what you think:

    "...To illustrate, among those aged 55 to 64 years, diabetes prevalence is twice as high in the United States and only one fifth of this difference can be explained by a common set of risk factors. Similarly, among middle-aged adults, mean levels of C-reactive protein are 20% higher in the United States compared with England and mean high-density lipoprotein cholesterol levels are 14% lower..."

    Diabetes is treated and maintained but not cured by doctors. For Type I diabetes this is pretty much always true and for type II some people lose it when they lose weight and exercise. I don't think there is any treatment for a high C-reactive protein though there are some drugs that lower LDL...though this is of dubious value.

    So it looks as if the paper is showing that Americans are sicker that the English in ways unaffected by the healtcare system.

    It seems to me that if this is true we would expect higher healthcare spending in the US, wouldn't we? Or am I missing something?

     
  • At 8:05 PM, Anonymous James Schipper said…

    Dear mr Baker
    Cost = quantity x price. It is doubtful that Americans receive much more health care than foreigners in developed countries. The higher costs are therefore due to price. The higher prices of medical services in the US are probably caused by greater administrative costs and higher remuneration of health care professionals. I wouldn't be surprised if the US had the highest-paid doctors in the world, not only in absolute terms but also relative to per capita income.
    Regards. James

     
  • At 8:14 PM, Anonymous Dale said…

    Marmot and his associates tell us that social-economic inequalities, in and by themselves, regardless of the health care system, will predict illness, shorter life spans, etc.

    Of course, in modern societies, one of the indicators of social-economic inequality is the lack of health insurance. So, its funny that the lack of health insurance as an indicator of low social status will bring about negative health outcomes somewhat independantly of the actual denial of healthcare services, or getting a lower level of services via charity or emergency room care, etc.

     
  • At 10:39 PM, Blogger Joe said…

    Under the current patent system, the new technologies described by Anonymous and others -- technology developed, in part, as always, by the public-financed universities and with grants from NIH and NSF --will be put in the hands of for-profit corporations with monopoly pricing rights. How this will mitigate the effects of rising health care costs is unclear, to say the least.

    I'm grateful that they keep coming out with newer and presumably more effective prescriptions, but not so grateful that taking them will cause me to get evicted from my apartment after I'm unable to come up with rent.

     
  • At 11:22 PM, Blogger Dean Baker said…

    Erik,

    I guess I'm missing your point. The study tried to control for socioeconomic conditions and identifiable risk factors and found that people in the United States were still less healthy than people in England by several important measures. I would see this as a measure of the quality of the health care system. If this is not, what would be?

     
  • At 6:42 AM, Anonymous Anonymous said…

    First, a couple of anecdotes about new statins or promising Alzheimers treatments do not prove that overall health care costs will come down. A drop in one or a few areas can easily be eaten up by increases in other areas like more expensive HIV treatments or new diagnostic equipment.

    These are not anecdotes but careful studies that show recent statins reduce plaque by around 8%. Any cardiologist will tell you this is a tremendous breakthrough, and the pills will get better.

    It is very unlikely that had Bill Clinton been on the latest statins that he would have required his very expensive heart surgery. And Alzheimer's experts are very optimistic with respect to significant improvements by just 2010 to say nothing of 2020.

    HIV drugs? Those drugs that didn't work in 1990 cost over $25,000 a year. Today they are saving millions of lives for about 1/10 the cost.

    In fact, that was the early 90s prediction "AIDS is going to bankrupt the healthcare system." Of course, innovation producing effective loewr cost drugs prevented that. I'm sure very few making this prediction later recanted.

    I'm not saying costs won't rise for a few more years, but there is no mythical future "health care crisis." Rather , there is a near term problem.

     
  • At 9:02 AM, Anonymous Erik L said…

    Dean-

    Well, the results section (once again I haven't read the whole report yet) says that controlling for all the other known factors, more people in the US have diabetes. They didn't say "uncontrolled diabetes", just "diabetes". There is nothing the healthcare system can do to cure diabetes. Therefore if more people in the US have diabetes it cannot be because of inferior healthcare. Therefore, for some unknown or unexamined reason people in the US just happen to have more diabetes than the UK.

    If this is the case one would expect the US to spend more on diabetes treatment, wouldn't he?

     
  • At 2:28 PM, Anonymous Anonymous said…

    You don't need to go outside of the US to demonstrate that expenditures are not correlated to quality. There is plenty of data to show that Medicare per capita expenditures vary widely across states (even when normalized for age distribution and health status) and that the high cost states do not deliver better outcomes. If memory serves me correctly, high costs tend to be correlated with a higher ratio of specialists to primary care physicians. There are lots of "new and improved" treatments which, while new are not necessarily improved; however, the docs and other providers are well compensated for providing them.
    The economics team at Dartmouth has done exhaustive research in this area, and anyone truly interested in the topic should give it a read.

     
  • At 3:15 PM, Blogger Dean Baker said…

    Eric,

    I guess I'm missing the logic here. The study looked at incidences of 7 different chronic health conditions. It controlled for socioeconomic status (these are all white people) and obvious risk factors like smoking and heavy drinking. The U.S. still does worse in every category.

    If we have a better health system, but we don't live as long as people in England (or Canada, France, Sweden etc.) and we are sicker when are alive, exactly what do we think we are buying with our money?

     
  • At 3:15 PM, Blogger Dean Baker said…

    Eric,

    I guess I'm missing the logic here. The study looked at incidences of 7 different chronic health conditions. It controlled for socioeconomic status (these are all white people) and obvious risk factors like smoking and heavy drinking. The U.S. still does worse in every category.

    If we have a better health system, but we don't live as long as people in England (or Canada, France, Sweden etc.) and we are sicker when are alive, exactly what do we think we are buying with our money?

     
  • At 4:53 PM, Anonymous Erik L said…

    Dean-

    I think you are confusing two concepts. There are some diseases that a doctot can cure. There are some diseases that a doctor can treat chronically (such as diabetes). Almost no chronic diseases can a doctor prevent you from getting in the first place. A doctor cannot prevent you from getting diabetes so it is not fair to credit the UK health system with being better at preventing diabetes (because this is impossible).

    Now if the study was actually comparing rates of sequelae of diabetes, such as renal failure and blindness (I didn't read the whole thing so maybe they were using "diabetes" as shorthand for "sequelae of diabetes") then the quality of healthcare might have some influence...though not total because a great deal of prevention of the nasty sequelae of diabetes has to do with how devoted the individual is to his own care.

    Does that help?

     
  • At 9:49 PM, Anonymous Anonymous said…

    If we have a better health system, but we don't live as long as people in England (or Canada, France, Sweden etc.) and we are sicker when are alive, exactly what do we think we are buying with our money?

    I think the answer is complex (beyond the obvious 'we aren't getting enough').

    We do get notably better cancer survival rates than compared to the UK and I suspect many other countries.

    There is something nice about living in a country where if one is confronted with cancer you know you will have the best chance of survival in the world. Even an extra year of life could prove critical as it buys time possibly get a better drug.

     
  • At 10:50 PM, Blogger Dean Baker said…

    I'm afraid that a health care system that is associated with shorter life expectancies and more sickness doesn't rate high in my books -- sort of like a car that gets bad mileage but is also uncomfortable and drives badly.

    Of course, chronic diseases can be prevented. The incentives in our current system are skewed both in treating patients and in research so that little effort is focused in this direction. Drug companies would much rather develop drugs that patients will need indefinitely to treat a chronic illness than develop a cure or preventive vaccine.

    The Times had a very good series a few months back that reported on how almost no money is devoted to efforts to prevent diabetes (e.g. paying for visits to nutritionists) while vast sums are spent on the treatment of diabetes.

     
  • At 12:08 AM, Anonymous Anonymous said…

    Drug companies would much rather develop drugs that patients will need indefinitely to treat a chronic illness than develop a cure or preventive vaccine.

    Yet this is a vast improvement over what we saw just 15 years ago:

    1)98% died if they contracted HIV when drugs didn't work. Now 98% live with far cheaper drugs.

    2)Heart disease is a top killer and the new statins will significantly erode this.

    3)lower 5 year cancer survival rates in 1990 than today. The cures Dean and others would certainly like are apparently very challenging to produce.

    The Times had a very good series a few months back that reported on how almost no money is devoted to efforts to prevent diabetes (e.g. paying for visits to nutritionists) while vast sums are spent on the treatment of diabetes.

    We live in the google age. People need to pay to go to a nutritionist to be told not to eat BigMacs and fries 4 times a week?

    That there are vast sums spent on diabetes has been my point. In 10 years, there is a very high probability that there will be essentialy no obesse people. (Those who think this is science fiction havent investigated the science side of this issue )That saves a lot of money as far fewer develop diabetes in the first place.

    The life expectancies in the EU , the US and Britain are essentially the same. And look at Japan, 3 years longer life expectancy....why? Might it have to do with very little obesity?

     
  • At 7:57 AM, Anonymous Erik L said…

    Dean-

    of course chronic diseases can be prevented. the word "can" just means it is possible someday. This doesn't mean that it is possible for doctors to do this today. Sure, you can say it is possible to cure diabetes some day but the big mean drug companies are against it (although if that were the case I think we would know about it because academic researchers would continue to work on it).

    That has no effect on your basic point. There is no cure or prevention in the US or the UK therefore you cannot credit the doctors in either place with the rate of diabetes.

    As for you hope that lack of reimbursement for nutritionists causes the higher rate in the US (first I need to stop laughing) you would need to produce some numbers to support this highly dubious conclusion (maybe the nutritionist have a publicity firm helping with this story).

     
  • At 3:11 AM, Anonymous Anonymous said…

    Refer to Diabetes for
    useful information

     
  • At 7:45 AM, Anonymous Anonymous said…

    Beautiful Blog ! You can Discussing and Earn Stock Market at http://www.onlimoney.com

     
  • At 9:51 PM, Blogger ninest123 Ninest said…

  • At 9:54 PM, Blogger ninest123 Ninest said…

  • At 9:57 PM, Blogger ninest123 Ninest said…

  • At 10:01 PM, Blogger ninest123 Ninest said…

  • At 10:17 PM, Blogger Zheng junxai5 said…

Post a Comment

Links to this post:

Create a Link

<< Home