Fundamental flaw in health care reform
by Ravi Verma, Tue Dec 15, 2009 at 12:02:38 PM EST
Well, it appears that health care "reform" is taking a few last gasps, and what emerges from Congress will be a watered down bill that meets with Sen. Lieberman's requirements while achieving essentially nothing.
And I say... Good!!
What was being proposed, in all it's public-options and medicare-buy-in glory, was also meaningless.
Let me explain.
There are two underlying rationales for health care reform:
(a) There are too many people who cannot afford health care. There are too many uninsured moms who are scared of taking their kids to the park, for fear of the kid falling down a slide and getting hurt. A progressive can debate whether the current number of 46M uninsured is more unacceptable than the proposed (under the reforms) number of 5M, or 10M, but most heart liberals would suggest that even 1 is unacceptable, and 46M uninsured is no more unacceptable that 1 uninsured.
(b) But the stronger rationale for health care reform is basic survival (of the fittest economies). This rationale has been forgotten in the debate. Let is me illustrate with a few charts.
First, here is a chart that illustrates the % of GDP spent on health care for various OECD countries.
One can see several items right away:
(1) All the OECD countries have been spending a greater share of their GDP on health care. This is an expected trend, if you consider that the average life expectancy has been increasing, and that health care costs more for an older person than for a younger person. For instance, old men tend to die prostrate cancer (which is expensive) while men die of heart attacks (which is cheap).
(2) However, the percentage of GDP spent on health care in the US has been rising faster than in other OECD countries. This discrepancy begs 2 (or 3) questions.
These questions are:
(a) What is the US getting, in return for this increased level of spending on health care. Increased spending on health care should, in theory, result in increased health metrics (such as life expectancy at birth, and infant mortality). If increased health care spending results in a longer life, and enables a highly productive 65 yr old, then it could be a net benefit to the economy; thereby justifying an increased spending on health care. On the other hand, if increased health care spending does not result in a longer life, for instance, then that spending is wasteful. Thus, the first question pertains to the relationship between increased health care spending and the health metrics (such as life expectancy).
(b) The second question pertains to the relationship between the health metrics and the economy. From a practical viewpoint, one cannot build an economy with increased levels of health spending, even if that health spending results in longer lives and fewer dead babies, if it does not ultimately result in increased economic output.
So, let us examine these questions via some charts.
Here is a chart that shows the relationship between infant mortality and per capita health care spending ( Source: graphs.gapminder.org .
Note that there is, approximately, a "straight line" correlation (straight line only on the log-log scale) between increased health spending and decreased infant mortality (as expected); but there is also quite a bit of scatter around the straight line correlation. Countries above the median line can be said to be using their health care dollars without getting much in terms of this particular health care metric ~ these include the US, Argentina (not marked), Qatar (not marked), Iran (not marked), South Africa, Botswana, Swaziland and Eq. Guinea. Countries below the median line can be said to be using their health care dollars "wisely" (as defined above) ~ these include Singapore, Cuba, Thailand, Sri Lanka and Syria.
Another health care metric is life expectancy at birth. Here is a log-linear plot of life expectancy at birth versus health care spending. Source: graphs.gapminder.org
As expected, there is a rough correlation between increased spending and increased life expectancy; and countries that fall below the average are not using their health care dollars "wisely" (i.e., in terms of this particular metric). As before, the US is in the illustrious company of Swaziland, Botswana, Eq. Guinea, Rwanda (not shown) and other countries with near ideal societies.
Now, you might be wondering about the use of the log-linear (and the log-log) scale. Real world economies are built on the linear scale, and so let us use that for a comparison between the US, the rest of the world and it's major competitors over the next 20-30 years (i.e., India and China). Here is a chart that compares life expectancy at birth.
And a similar chart for infant mortality at birth
Now, we can ignore the bleeding heart aspect and discuss some cold hard realities. The correlation between the health care metric and health care spending is steep for about the first $1000 in per capita spending. Additional spending does not result in any additional benefits. If you think of it, such a trend makes perfect sense ~ a mass polio vaccination campaign at $0.30/shot deliver a lot more than annual physical checkups at $100/person. When viewed this way, one can see that China is almost ideally placed while India probably needs to increase it's health care spending by a little bit and that the US is at a significant disadvantage.
The cold reality is that compared to the average US worker, the average Chinese worker will require less health care spending (by about $6000/person-year), but will live just as long (and, in theory, be just as productive if other things are equal). Thus, over a 40 year productive lifetime, the difference amounts to almost $0.25M/person. This is a HUGE (note the capital letters) deal, and amounts to a tax on all items produced, or value enhanced by anyone in the US. Thus, at this point, one does not even need to ponder the correlation between longer lives (and fewer dead babies) and the economy ~ we aren't even getting longer lives and fewer dead babies.
How much worse can it get ?
Here is a forecast by the CBO
I find it impossible to believe that the US (or any country) can spend 38% of it's GDP on health care. Thus, I find this chart impossible to digest ~ I believe that the system will correct itself either via a revolution or via managed changes, or due to increased economic pressures from India and China.
Of course, I cannot end without a word on how we got here. As before, a picture can speaks a 1001 words straight out of the Arabian nights. And so, here is a detailed chart of US health care spending over time.
Note that in 1960, the US was spending about what India currently spends on health care ~ and people were generally happy (I wasn't here then, but I am going by what Elvis and Bobby Brown said). At the very least, people were not more unhappy than they are now.
Also note that Clinton, despite his well publicized failings on the health care front, appears to be the only President to have delivered on this count ~ the spending on health care was flat under him. Quite a spectacular achievement, if you look at the chart, and you consider that President Obama's fondest wishes were to "bend the curve" in total health expenditures at some future date (beyond 2020), and all the reform proposals only sought to "bend the curve" in annual growth in health spending. Here is one of the proposals:
I cannot believe that so much debate has gone into proposing a complicated measure that could, perhaps, bend the curve in annual growth in health spending at some future date.
It is time to start over, but with a relentless focus on two metrics:
(a) the number of uninsured.
(b) per capita health care spending.
The 2nd metric was forgotten in the current debate !!