The Cost Of High Costs

American Prospect: Health-Care Cost Inflation Is Not A Good Thing

(The American Prospect)  This column was written by Maggie Mahar.

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Last Thursday The New England Journal of Medicine published a study that contradicts nearly everything that you and I thought we knew about skyrocketing medical bills. According to Harvard economist David Cutler, health-care inflation is a good thing.

"The rising cost … of health care has been the source of a lot of saber rattling in the media and the public square, without anyone seriously analyzing the benefits gained," Cutler, the lead author on the study, told The Associated Press. "But the dramatic increase in life expectancy that we've seen over the last decades shows that rising medical costs have been largely justified."

Cutler doesn't dispute that costs have soared. On average, a person born in 1960 could expect to rack up medical bills of $13,943 over the course of a lifetime, while cradle-to-grave care for Americans born in 2000 is likely to average $83,307. (Dollars are adjusted for inflation.) But he stresses that those born in 1960 could look forward to living only 70 years; someone born in 2000 has a life expectancy of 77 years.

The NEJM study estimates that 3.5 of the seven years gained are due to improvements in medical care. Cutler's team then divides the change in spending by the change in life expectancy to conclude that each one of those extra 3.5 years the "average" American gained cost just $19,000. Not a bad deal — especially if you happen to be one of those who makes it to 77.

Cutler's study came on the heels of a New York Times article that appeared a week earlier headlined "Making Health Care the Engine that Drives the Economy." The Times reported that while "huge increases are coming" in our health-care bills, "some [economists] say that may be just fine."

The article quoted Cutler as well as Nobel Laureate Robert W. Fogel of the University of Chicago, who predicts that by 2030, health-care spending will equal 25 percent of gross domestic product (up from 16 percent today). In his view, this will make medicine "the driving force in the economy, just as railroads drove the economy at the start of the 20th century."

"Taxpayers will foot the bill. But Dr. Fogel is not alarmed," the paper explained. "Americans can afford it, he says, because the nation is so rich."

After years of reading all of those depressing stories about spiraling costs and families who can't afford care, this fresh perspective on U.S. health care is undeniably heartening. If only it were true.

Begin with the notion that a rich nation can afford to spend 25 percent of what it produces on health care. The bulk of our health-care bill is covered by taxpayers. "The health-care industry has become addicted to revenue growth — and it's crowding out other things that we care about," says Alan Sagar, a professor at Boston University's School of Public Health. We spend 16 percent of GDP on health care, and only 4.7 percent on primary and secondary education. That's just 1 percentage point more than we spent in 1970 — even though the number of children in the United States has increased by 13 percent. As a result, while we sink a much larger percentage of GDP into health care than any other country in the world, when it comes to education, we rank 10th — behind Saudi Arabia, Norway, Malaysia, France, and South Africa, among others.

David Cutler is aware of the problem. "That is why we have to raise taxes," he said in a phone interview last Friday. "Government has grown to one-third of GDP because we have decided we want government to do more. At the high end, wealthier people will have to pay more taxes to cover those who cannot afford health-care inflation. Do you want to pay more taxes or do you want to ration care?"

Cutler's is a generous vision. But will the wealthiest among us really be kind enough to finance health care for all at a level that equals 30 percent of GDP? Not if they realize that other countries have made similar strides in lengthening life expectancy while spending far less. Indeed, many have done better. Worldwide, the United States ranks 31st in longevity, behind such countries as Australia, Canada, and Malta. And it ranks 40th in the probability that a child will die before age 5, with nations such as Estonia, Portugal, and Slovenia doing better.

Pundits have suggested that this is because we live in a more heterogeneous society where the poor (minorities in particular) pull down the national average — both because they receive less care and because they indulge in self-destructive lifestyles. But a study published in JAMA last May tested that hypothesis by focusing squarely on white 55- to 65-year-old Americans and comparing them to white 55- to 65-year-olds in England. Hands down, the British proved much healthier. Indeed, the study revealed that white Americans at the top of our income and education ladder suffered diabetes and heart disease at about the same rate as the poorest and least well-educated British subjects.

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I be willing to consider limitations on mal-practice suits but I don't trust the Republicans to do it. Look what they did with the prescription drug program. Their only concern is massive corporate profits not the individuals well being. If the Republicans were to get their way and restrain litigation I would be highly suprised to see any reduction in medical costs.