Sunday, February 03, 2008

Aha! Sovling the US healthcare paradox

The US spends twice as much per capita on healthcare (Americans devote about 1/6 of our annual income each year to healthcare) than the rest of the developed world. The US healthcare-industrial complex depending on how you measure things, probably spends more each year than the rest of the world combined. Yet it lags way behind in measures like life expectancy.

No one up until now has given me a good answer as to why. I have asked many health economists. I devoted two lectures to the class I taught trying to figure it out. I explored many possibilities, though none really seemed to explain it. Krugman claims it is administrative burden from having a private system (those his numbers don't really add up). Some cite lawsuits. Some cite immigration and inequality. Some cite the excessive cost of the uninsured. Some cite the excess cost we spend on end of life care. Some cite obesity.

But most of these don't add up. Despite media fear mongering, our obesity rates are not far off from other countries, (and are now on the decline). Our ratio of end of life spending is comparable to the UK and elsewhere. Medical equipment in the US is in the end comparable with other countries.

Lawsuits and inequality may be part of the story. Transaction costs from a private system may also be part of it. Higher doctor salaries are also part of it. But total numbers for each are small. They can't explain what we are getting by spending double, however.

So here's a factor no one's ever mentioned before that I heard from John Stossel. Controlling for violent deaths from transportation and homicides which are much higher in the US than elsewhere, a U of Iowa study find that life expectancy in the US is the highest in the world (they also note substantially higher survival rates for various cancers).

So the reason the US spends so much on healthcare is because healthcare is a luxury good, and as a country gets wealthier, it consumes more of it. Not because of waste.

Of course that doesn't explain why car accidents and homicides are higher in the US, but car accidents are easy: More cars and more roads (one estimate is that more people died after 9/11 due to excess traffic fatalities caused by people who chose to drive because they were afraid of flying than from people who died in the plane crash). And homicides is a totally separate problem. A lot can be explained by inequality and diversity. The mortality risk from homicide is 6 times higher for blacks than for whites in the US. A big problem, yes, but not a problem with the healthcare system.

This is important because most of the presidential candidates are maintaining that healthcare in the US is broken. The data suggest otherwise.


James said...

The U.S. health care system might not be completely broken in comparison to many other nations, but there's still vast room for improvement. When I broke my leg, the system seemed grossly inefficient.

I'm not sure that you can conclude that the U.S. health care system isn't broken from just life expectancy data anyway. Although they're correlated, life expectancy is dependent on other factors too (for example, AFAIK smoking is more common outside of the U.S.).

HoBs said...

ok fair enough. not completely broken. And certainly I agree there is plenty of room for reform.

Just not as bad as it is typically portrayed.

Mostly, always bugged me that the US spends so much, but always got lagging results.