Wednesday, April 22, 2009

The Costs Of Health Care. Part III. Keeping Up With The Joneses

Play a little game with me. Imagine the countries of the world as families living in your neighborhood. Some are wealthier than others but all these families get a paycheck (or two) and have expenses they must cover from that paycheck. (The 'paycheck' countries get is called the Gross Domestic Product (GDP), being the value of all production by that country in a particular year, and health care expenses of a country can be expressed as percentages of that GDP.) Here's a picture of the neighborhood (click on it to make it bigger):

Out of each dollar some family takes home, a certain number of cents goes to health care. In the family called the United States, that number of cents was roughly fifteen in 2005*. Yet a family up the street, called the United Kingdom, spent then only eight cents out of those dollars, and the Canadians, round the corner, got by with ten cents. At the same time, a poorer family called India spent a mere pittance of five cents out of each dollar**, but then there were fewer dollars to spend there.

You walk around the whole neighborhood and find out that nobody else spends as much as the Murkan family on health care. Nobody. The U.S. Is Number One!

What's going on here? Most of us can figure out a few possible answers when we replace countries with families.

First, poor families are not going to spend as much on health care, because their smaller incomes must first go to the most essential necessities: food and shelter. Wealthier families can spend more, just as they can spend more on housing and education. Perhaps the United States spends so much simply because it can? A cursory look at a few articles studying this topic tells us that this indeed partly true. It is the affluent countries which spend the higher percentages of their GDPs on health care. But those same articles also tell us that the U.S. is still an outlier: its higher spending cannot be completely explained by its higher income. At least a few of those seventeen cents out of each dollar remain unexplained.

Second, it makes sense that families with more health problems would spend a higher percentage of their incomes on medical care. Could this explain what's going on in the U.S.? This argument has been made many times, most recently by using the U.S. excess obesity rates as the explanation. We are fat! It's Our Fault! Repent!

But obesity doesn't cut it, because this country has been spending proportionately more than other countries for many, many years, including during the era when obesity wasn't the health problem of the day.

What about the age pyramid, then? Perhaps Americans are, on average, older than people in other countries and it's the more expensive care of the elderly which is to blame for the higher health care costs here? But then how do we explain the lower health care costs of Japan, say? Or the European countries who, according to wingnuts here, are refusing to breed just so that they can lumber the system with their high geriatric maintenance costs? In short, having an aging population does mean higher health care costs, but this explanation doesn't tell us why the other aging and affluent neighbors do so much better.

Third, it could be that the U.S. spends more because it gets so much more out its health care system. It's worth it to spend on something like higher quality health care, longer lives, less pain and suffering, right? Just as it may be worth to pay a lot more for a house in a nice, safe neighborhood with good schools and parks and clean air.

This is the most common argument you hear when opponents to Obama's health care policy explain their arguments, though you won't usually hear it in this form but the reverse: If we follow the pattern of those other countries who spend less we will all live under a socialist system (gray walls, clanking tin cans, long lines in cold corridors, military personnel giving you vaginal exams but only every hundred years). You will find an accountant (with dandruff) next to your hospital bed calculating your value of life to see if it's worth to save you, and you might then be allowed to die! Is that what you want?

In any case, some of the arguments about the higher quality of the U.S. health care system are worth examining in more detail. For example, it's certainly true that the medical research in this country is first-class and probably the best in the world, and that the fruits of that research (paid by Americans) will ultimately help people all over the world. But the costs of that medical research cannot explain the higher health care expenditure in the United States in the sense of the direct expenditures being so humongous, though pharmaceutical prices are higher here than elsewhere, and if they were not we might see less research into pharmaceuticals.

It's also true that the quality of medical care in this country can be truly first-class, in some areas and for patients with adequate funding. But not for everyone, and certainly not for those 40-50 million uninsured. Other countries manage to cover everyone for a smaller percentage of their GDPs.

Could it be that this is because they don't have as much advanced technology in medicine, not as much access to imaging machines and scans? Perhaps. But note that it's not access to high-tech diagnostic equipment that we really want. We want good health outcomes, and the two are not necessarily the same thing in every single instance, just as spending more money on particular groups of patients may not always provide higher quality care.

What about general health outcomes? Recent research has compared the treatments patients get for particular conditions in different countries, to see if the U.S. indeed provides superior quality of care. The results suggest that this is the case for some conditions but not for the majority of them, even among the group of life-threatening illnesses.

On a more aggregate level, the United States does not fare well in international comparisons of that cruelest of all health indicators: mortality. Various mortality figures can be seen as reverse overall measures of the outcomes of a country's health care system, especially if we focus on those indicators which are known to be affected by health care. Infant mortality rate is one such measure. Here's a table of data on it:

In 2008 these figures for the U.S., Canada and the U.K. were, respectively, 6.3, 5.1 and 4.9 (expressed as number of deaths in children under one per 1000 live births in a calendar year). Note that a lower figure is desirable in that list, which is bad news for the U.S.***

Similar stories are told when we analyze other measures of mortality or morbidity. But it's always possible to argue that the health care system cannot be seen as solely responsible for the worse health outcomes in the United States. For example, the general life expectancy rate is severely reduced whenever more people die at young ages, and that's exactly what the American excess rates of deaths from traffic accidents and violence cause.

It leaves you a bit breathless, this study of international comparisons. But we need to look at one more possible explanation, the fourth one: Perhaps the American family buys its health care from a different provision system than the other families on the same block, a system which is not based on central price controls or the ability to demand price concessions for bulk purchases? Perhaps it is the relatively market-oriented aspect of the American health care provision that is the fundamental reason for the high health care costs?

After all, no other country is quite as wedded to the idea of swim-or-sink in the wonderful morass of the free health care markets, and neither does any other country offer quite the same profit- or money-making opportunities as the U.S. does. This possibility will be the topic of my next post in this series.

Parts I and II of this series can be found here and here, respectively.
*The latest figure is 17% for the U.S..
**The Indian figures are for 2002.
***The U.S. rate is higher partly because of higher infant mortality rates among the racial minorities who have, on average, lower incomes and less access to medical care. But even the white rates have traditionally been higher than in other comparable countries.