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Does the US Not Spend an Exorbitant Amount on Healthcare?

phattonez

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I stumbled upon this blog post (sorry for its length) that discusses the issue of US health spending. The conclusion is that healthcare spending is not exorbitant, but rather a reflection of our relative wealth and so it's about what you would expect. I'm still reading through it myself but thought that this would be interesting for discussion. Enjoy!

https://randomcriticalanalysis.word...ined-by-its-high-material-standard-of-living/
 
I stumbled upon this blog post (sorry for its length) that discusses the issue of US health spending. The conclusion is that healthcare spending is not exorbitant, but rather a reflection of our relative wealth and so it's about what you would expect. I'm still reading through it myself but thought that this would be interesting for discussion. Enjoy!

https://randomcriticalanalysis.word...ined-by-its-high-material-standard-of-living/

The government spent only a little more per covered beneficiary before ACA than almost every social democracy. The other part that makes it so high is private spending. That is a private affair.
 
The government spent only a little more per covered beneficiary before ACA than almost every social democracy. The other part that makes it so high is private spending. That is a private affair.

Okay? What does that have to do with anything that's in the blog post?
 
This is an interesting note from the blog post:

rcafdm_34_hospital_price_index_by_aic_index.png


rcafdm_35_hospital_volume_index_by_aic_index.png


RCA said:
The plot above (volume) strongly suggests that the volume of health goods and services is much higher in the United States. This data argues pretty strongly against the popular notion that it’s prices that drive US health care expenditures (presumably due to lack of market power on part of payers) above trend, i.e., this data suggests costs are actually below what you’d expect with AIC and volume significantly above what you’d expect with AIC (note: it would also help explain why US spends more than average on administrative costs).
 
Okay? What does that have to do with anything that's in the blog post?

It has to do with the title question. The public spending is little more than others and the other is by private decision. The latter is like the rich buying Ferraris.
 
I stumbled upon this blog post (sorry for its length) that discusses the issue of US health spending. The conclusion is that healthcare spending is not exorbitant, but rather a reflection of our relative wealth and so it's about what you would expect. I'm still reading through it myself but thought that this would be interesting for discussion. Enjoy!

https://randomcriticalanalysis.word...ined-by-its-high-material-standard-of-living/

It is a long blog, indeed, but it seems to argue that in the US, since we spend too much for everything, it is OK that this trend continues with our spending on medical care. In other words, since we have more expensive X it naturally follows that we would have more expensive Y. Tossing out GDP in favor of creating (making up?) some other index to use to prove what they wanted to prove is, IMHO, ridiculous. Saying that your rent is not too high because your personal spending (which includes that high rent) is also high is what I get as the basic premise.
 
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The government spent only a little more per covered beneficiary before ACA than almost every social democracy. The other part that makes it so high is private spending. That is a private affair.

That is simply not true. The government only "insures" a small fraction of the population. The actual per beneficiary costs for both Medicaid and Medicare are substantially higher than the same for private insurance overall and much higher than total NHE throughout the OECD.
cms_per_beneficiary_cost_estimates_small.jpg

https://www.cms.gov/research-statis.../nationalhealthexpenddata/nhe-fact-sheet.html

Now it may be true that this comparison is "unfair" because Medicare is mostly elderly and the Medicaid is mostly poor and/or sick, both of which are higher cost populations, but it certainly means that you cannot make this claim.

P.S., I wrote the aforementioned blog post.
 
It is a long blog, indeed, but it seems to argue that in the US, since we spend too much for everything, it is OK that this trend continues with our spending on medical care. In other words, since we have more expensive X it naturally follows that we would have more expensive Y. Tossing out GDP in favor of creating (making up?) some other index to use to prove what they wanted to prove is, IMHO, ridiculous. Saying that your rent is not too high because your personal spending (which includes that high rent) is also high is what I get as the basic premise.

But you're not paying for the same thing. As you get more disposable income, you're able to pay for more of it and get higher quality of what you buy. That's true especially of housing, but it's also true for healthcare.
 
That is simply not true. The government only "insures" a small fraction of the population. The actual per beneficiary costs for both Medicaid and Medicare are substantially higher than the same for private insurance overall and much higher than total NHE throughout the OECD.
View attachment 67216576

https://www.cms.gov/research-statis.../nationalhealthexpenddata/nhe-fact-sheet.html

Now it may be true that this comparison is "unfair" because Medicare is mostly elderly and the Medicaid is mostly poor and/or sick, both of which are higher cost populations, but it certainly means that you cannot make this claim.

P.S., I wrote the aforementioned blog post.

Nice to meet you! I've been fascinated by your blog posts lately, and every new one that I find is another gem.
 
But you're not paying for the same thing. As you get more disposable income, you're able to pay for more of it and get higher quality of what you buy. That's true especially of housing, but it's also true for healthcare.

That is true only for those with more disposable income - there is not a discount cancer center (or ER) for use by the poor. The poor can (and do) find lower rent (and generally smaller) places to live but I have yet to find a discount vascular surgeon practicing in my "trailer park". ;)
 
It is a long blog, indeed, but it seems to argue that in the US, since we spend too much for everything, it is OK that this trend continues with our spending on medical care. In other words, since we have more expensive X it naturally follows that we would have more expensive Y. Tossing out GDP in favor of creating (making up?) some other index to use to prove what they wanted to prove is, IMHO, ridiculous. Saying that your rent is not too high because your personal spending (which includes that high rent) is also high is what I get as the basic premise.



I wrote the aforementioned blog post. While I personally do not to share the moral panic over this issue, my point is not so much that it is "OK" (that's really a normative question), but that this is largely caused by higher real incomes in the long run, i.e., even if you might prefer NHE to be lower it's probably not caused by US idiosyncrasies in its reimbursement systems, unusually high medical wage premiums, etc. Put differently, if what you care about is actually reducing NHE you would be well served to actually understand what drives NHE higher because merely copying the sorts of systems found in Europe/Anglosphere will likely not deliver the results you presumably want.

Incidentally, AIC is not a "made up" stat. It (1) constitutes vast majority of GDP in most countries (2) can be derived directly from national accounts data and (3) is regarded by many other people as being a superior indicator of actual living conditions in a country (i.e., how wealthy the people really are). However, if you don't like AIC similar results are obtained with household disposable income (yes, US also has much higher disposable incomes and these incomes constitute a larger fraction of GDP than most other rich countries...)

https://randomcriticalanalysis.word...o-explains-us-health-expenditures-quite-well/
 
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The author of the blog post, despite a great deal of sophistication, somehow didn't seem to account for the fact that AIC in the US includes health care spending. And by definition, this will be excluded from almost every other nation in the list, where most of the health care costs are paid by the government.

Ooops.

I do agree that nations spend more on health care as they become wealthier. What I don't agree with is his position that the higher costs of care in the US are explained by the alleged higher standard of living or GDP per capita. It may be a small contributor, but it doesn't explain the massive discrepancy -- which is hidden in some charts by using log instead of linear scales. I.e. the US isn't twice as affluent as nations like Italy or France or the UK, yet we still spend twice as much as they do on health care as a percentage of GDP.

health-care-spending-in-the-united-states-selected-oecd-countries_chart02.gif

(2008 figures, as a typical example)

We should note that the additional spending doesn't improve outcomes. Compared to the rest of the OECD, US infant mortality rate is much higher; life expectancy is slightly lower; the US has more chronic diseases and higher obesity rates; we do well with cancer care, but poorly with heart disease and diabetes; much of our spending is on the elderly, for care that neither extends life significantly or improves quality of life. Despite the myths, the US has wait times nearly the same as the rest of the OECD. Just because we don't have to wait as long for an MRI doesn't mean that the shortage of GPs, or delays in other types of care, or inability to afford procedures or pharmaceuticals, does not exist.

Now, we do know (from other studies) that Americans do consume more pharmaceuticals and use certain services far more than other OECD nations. E.g. we get twice as many MRIs and CT scans than the OECD median. Ironically, this flies in the face of many conservative critics who assert that socializing care will result in an increase in frivolous use of health care services.

And.... We know that medical costs are a significant factor for US bankruptcies. That's far less of an issue in other OECD nations.

This is not to say that socialized or single-payer systems are all hugs and puppies. They have their own issues and challenges. The US system, however, seems to be much worse on nearly every count and measure, including cost. Massaging statistics and making nice charts ultimately can't obscure that issue.
 
The author of the blog post, despite a great deal of sophistication, somehow didn't seem to account for the fact that AIC in the US includes health care spending. And by definition, this will be excluded from almost every other nation in the list, where most of the health care costs are paid by the government.

Ooops.

I do agree that nations spend more on health care as they become wealthier. What I don't agree with is his position that the higher costs of care in the US are explained by the alleged higher standard of living or GDP per capita. It may be a small contributor, but it doesn't explain the massive discrepancy -- which is hidden in some charts by using log instead of linear scales. I.e. the US isn't twice as affluent as nations like Italy or France or the UK, yet we still spend twice as much as they do on health care as a percentage of GDP.

health-care-spending-in-the-united-states-selected-oecd-countries_chart02.gif

(2008 figures, as a typical example)

We should note that the additional spending doesn't improve outcomes. Compared to the rest of the OECD, US infant mortality rate is much higher; life expectancy is slightly lower; the US has more chronic diseases and higher obesity rates; we do well with cancer care, but poorly with heart disease and diabetes; much of our spending is on the elderly, for care that neither extends life significantly or improves quality of life. Despite the myths, the US has wait times nearly the same as the rest of the OECD. Just because we don't have to wait as long for an MRI doesn't mean that the shortage of GPs, or delays in other types of care, or inability to afford procedures or pharmaceuticals, does not exist.

Now, we do know (from other studies) that Americans do consume more pharmaceuticals and use certain services far more than other OECD nations. E.g. we get twice as many MRIs and CT scans than the OECD median. Ironically, this flies in the face of many conservative critics who assert that socializing care will result in an increase in frivolous use of health care services.

And.... We know that medical costs are a significant factor for US bankruptcies. That's far less of an issue in other OECD nations.

This is not to say that socialized or single-payer systems are all hugs and puppies. They have their own issues and challenges. The US system, however, seems to be much worse on nearly every count and measure, including cost. Massaging statistics and making nice charts ultimately can't obscure that issue.

Actually he addressed this.

RCA said:
Even if we remove HCE from AIC, to preemptively address complaints that the vast majority of HCE is allocated to AIC (and thus mechanically contributing to this relationship), we find much the same result!
 
The author of the blog post, despite a great deal of sophistication, somehow didn't seem to account for the fact that AIC in the US includes health care spending. And by definition, this will be excluded from almost every other nation in the list, where most of the health care costs are paid by the government.

Ooops.

No, wrong. AIC very much includes in-kind transfers from government and non-profits like health and education. In other words, AIC should fully reflect (current) NHE equally well everywhere and differences in how countries provision and/or pay for health care should have little to no effect on these calculations. I also produced these estimates by backing out NHE out of AIC and still found (adjusted) AIC is a much stronger predictor than GDP [it's not a mechanical effect]. Similar results are also obtained with gross adjusted household disposable income [which also includes in-kind transfers].

https://randomcriticalanalysis.word...o-explains-us-health-expenditures-quite-well/
 
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We should note that the additional spending doesn't improve outcomes. Compared to the rest of the OECD, US infant mortality rate is much higher; life expectancy is slightly lower; the US has more chronic diseases and higher obesity rates; we do well with cancer care, but poorly with heart disease and diabetes; much of our spending is on the elderly, for care that neither extends life significantly or improves quality of life. Despite the myths, the US has wait times nearly the same as the rest of the OECD. Just because we don't have to wait as long for an MRI doesn't mean that the shortage of GPs, or delays in other types of care, or inability to afford procedures or pharmaceuticals, does not exist.

Several points here:

1) Health outcomes are determined by many other factors than health systems and they are significantly endogenous.
2) There is virtually no correlation between NHE and life expectancy amongst developed countries (despite some very large differences in NHE.... even excluding US)
3) ....and yet NHE keeps on rising and rising throughout the developed world (faster than GDP, disposable income, etc everywhere).

I take the "outcomes" angle on at some length here:

https://randomcriticalanalysis.word...s-mostly-because-it-economically-outperforms/
 
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I wrote the aforementioned blog post. While I personally do not to share the moral panic over this issue, my point is not so much that it is "OK" (that's really a normative question), but that this is largely caused by higher real incomes in the long run, i.e., even if you might prefer NHE to be lower it's probably not caused by US idiosyncrasies in its reimbursement systems, unusually high medical wage premiums, etc. Put differently, if what you care about is actually reducing NHE you would be well served to actually understand what drives NHE higher because merely copying the sorts of systems found in Europe/Anglosphere will likely not deliver the results you presumably want.

Incidentally, AIC is not a "made up" stat. It constitutes (1) vast majority of GDP in most countries (2) can be derived directly from national accounts data and (3) is regarded by many other people as being a superior indicator of actual living conditions in a country (i.e., how wealthy the people really are). However, if you don't like AIC similar results are obtained with household disposable income (yes, US also has much higher disposable incomes and these incomes constitute a larger fraction of GDP than most other rich countries...)

https://randomcriticalanalysis.word...o-explains-us-health-expenditures-quite-well/

The point that I am making is that while a typical low to median income person might be able to easily find a $10 haircut they easily cannot find a cheaper dose of drug X or a medical specialist willing to treat them for a discount. Sure those that are poorer can buy a used car/truck instead of a Cadillac or BMW to get to and from the hospital but they get the same bill, for the same treatment, once they get treated there.
 
Now, we do know (from other studies) that Americans do consume more pharmaceuticals and use certain services far more than other OECD nations. E.g. we get twice as many MRIs and CT scans than the OECD median. Ironically, this flies in the face of many conservative critics who assert that socializing care will result in an increase in frivolous use of health care services.
Yes, there is no question in my mind that US NHE volumes are much higher than average and much of this is found in areas with limited effects on mortality rates and the like (e.g., extra scans, diagnostics, elective surgeries, etc). However, we find that these patterns correlate well with how wealthy a country truly is, i.e., with better income measures/proxies than GDP, and that these generally explain the US quite well, i.e., the amount of technology in medicine, the volume of elective surgeries, and the like are almost entirely product of high and rising wealth. As we get richer as a society (not so much an individual-income effect) our willingness to chase diminishing returns increases because the marginal utility of extra consumption falls and we attach higher and higher value to human life. Some of this may be arguably irrational, but it certainly does not look like other health system configurations produce generally more rational decisions along these lines (for some definition thereof). Put differently, save for the rare regime like England's NHS of old (it's much less true these days and increasingly less so), which embraced top-down rationing and the like, there is very little to suggest that other systems actually change the relationship between wealth and NHE (or how NHE is allocated) -- their slopes, intercepts, etc are virtually identical and many even quite a bit worse.

https://randomcriticalanalysis.wordpress.com/2017/04/17/on-popular-health-utilization-metrics/
 
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The point that I am making is that while a typical low to median income person might be able to easily find a $10 haircut they easily cannot find a cheaper dose of drug X or a medical specialist willing to treat them for a discount. Sure those that are poorer can buy a used car/truck instead of a Cadillac or BMW to get to and from the hospital but they get the same bill, for the same treatment, once they get treated there.

I get what you're saying, but.... several points:

1) These high expenditures really are not individual income level effects.

https://randomcriticalanalysis.word...ditures-quite-well/#income_inequaliy_response

Contrary to conventional wisdom, the poor actually tend to spend a bit more because they're still mostly insured (especially if they get sick enough to quality of Medicaid), with roughly similar types of coverage, and they tend to be quite a bit less healthy (in all countries-- not just the US). Adjust for sickness, age, and enough other confounds and you might show the rich spend slightly more in the US, but these differences still won't be very large overall.

2) These expenditures probably don't have much to do with unusually high prices (i.e., as a residual of average wages in the US). Instead the cost of health care has much to do with the volume of care -- the raw quantities and the allocation of quantities towards areas of medicine that are inherently more expensive than basic medicine as it was practiced in, say, 1950.

####

The major issue shared by essentially all developed nations is that almost all costs are paid for by third parties (if we had to pay for all of this out of pocket we'd probably be considerably more cost sensitive even if we could afford it). Baring some sort of major transition along these lines, i.e., major move away from 3rd party payers, we would probably be better off if we embraced considerably more "inequality" and more heterogeneity in health care preferences, as in, that certain types of care have at best marginal ROI and that less affluent people or people that are simply more bottom line oriented may actually prefer to have more cash in hand as opposed to more and more comprehensive/more generous health care coverage. There are a variety of laws and policies in effect, not to mention public attitudes, that make this sort of differentiation fairly negligible today. If we really want to reduce NHE substantially we must largely accomplish this through reductions in volume and (IMO) we can better do this if we allow for people to express more of their individual preferences (as in, choosing different tiers of coverage with substantial differences in what is actually offered). This need not have large effects on, say, life expectancy, but that doesn't mean there aren't any actual tradeoffs involved.....
 
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I stumbled upon this blog post (sorry for its length) that discusses the issue of US health spending. The conclusion is that healthcare spending is not exorbitant, but rather a reflection of our relative wealth and so it's about what you would expect. I'm still reading through it myself but thought that this would be interesting for discussion. Enjoy!

https://randomcriticalanalysis.word...ined-by-its-high-material-standard-of-living/

this seems eerily familiar.

Oh wait.. I have made these arguments! :mrgreen:

just to add.. that its interesting how we lament how much of a percentage of GDP that we spend on healthcare.. and don't reflect that healthcare is a LARGE PART OF GDP.. and it stays largely right here in the US in the form of salaries, etc. How many communities have a hospital that's a major employer.? How many are NON PROFITS.. where the money doesn't go to shareholders but back into salaries, jobs and the purchase of goods?

ITs something that no one seems to consider.
 
That is simply not true. The government only "insures" a small fraction of the population. The actual per beneficiary costs for both Medicaid and Medicare are substantially higher than the same for private insurance overall and much higher than total NHE throughout the OECD.
View attachment 67216576

https://www.cms.gov/research-statis.../nationalhealthexpenddata/nhe-fact-sheet.html

Now it may be true that this comparison is "unfair" because Medicare is mostly elderly and the Medicaid is mostly poor and/or sick, both of which are higher cost populations, but it certainly means that you cannot make this claim.

P.S., I wrote the aforementioned blog post.

Thx for the link.
Actually, I was lumping all non private persons into the public sector and not only formally there insured. But you are right. That is not really admissible.
 
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