
High US health care spending explained by its high material standard of living - elberto34
https://randomcriticalanalysis.wordpress.com/2016/09/25/high-us-health-care-spending-is-quite-well-explained-by-its-high-material-standard-of-living/
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arcticbull
Strange, this neglects that portion of health care spend that is accounted for
by profits, by marketing expenses and administrative/billing bloat that
ensues.

It also neglects that for its massively higher spend 10% of Americans aren't
covered and therefore don't receive preventative care yielding massively
higher final costs, and it doesn't take into account the WHO ranks the US
system as 31st in the world dramatically under all the socialized players.

[Edit] as I suspected [1] indicates a full 20% of spend is wasted mostly on
profits and administrative costs. That should be taken off the top.

IMO this is a case of "figures don't lie, liars figure" but without the
malicious intent.

[1] [https://www.cms.gov/CCIIO/Resources/Files/Downloads/mlr-
repo...](https://www.cms.gov/CCIIO/Resources/Files/Downloads/mlr-
report-02-15-2013.pdf)

~~~
malandrew
What amazes me is how few people value the value of profits in our system. The
US is responsible for ~40% of the world's output in terms of medical research,
which is 10x the country with the second largest amount of output, England.

Profits provides the impetus for many of the medical advances invented here in
the US, and many of these advances find their way to other countries. Because
of profits, the US is essentially the medical R&D powerhouse for the world and
every human in the world benefits. We help make more care options available to
more people are lower prices sooner.

In a way, the US is providing socialized medical care over time beyond its
borders and for more people instead of having it just be socialized in the
present.

Until I hear solutions that acknowledge this very important detail, I'm going
to remain skeptical of all comparisons with countries with socialized medicine
and attempts to take the US in that direction. I learned long ago to be
skeptical of anyone criticizing any system where they can't point out the
value of that system versus the others they prefer.

Making the US healthcare system function like the socialized medical systems
seen in Europe risks destroying the profit motive and therefore jeopardizes
improvements in medical care quality, speed, options, etc. for everyone
everywhere.

I far prefer a system where some lose out in the present in favor of a system
where far fewer people lose out in the future. This is essentially the trolley
problem. We can provide care for X people in the US who don't have care in the
present or we can provide care for several times X people in the US and
elsewhere in the world in the future.

[1] [https://www.forbes.com/sites/matthewherper/2011/03/23/the-
mo...](https://www.forbes.com/sites/matthewherper/2011/03/23/the-most-
innovative-countries-in-biology-and-medicine/#507bcef81a71)

~~~
rbehrends
> The US is responsible for ~40% of the world's output in terms of medical
> research, which is 10x the country with the second largest amount of output,
> England.

These seem to be academic publications and according to this Quora post [1],
it's primarily driven by American universities and research institutes. It is
not entirely clear to me how profits within the US would be a major factor
here: I would have thought that NIH spending is more important in this
context. While it's sort of true that NIH spending is more relevant for the R
in medical R&D and industry spending for the D in R&D, the Forbes article
seems to be only about peer-reviewed published research.

[1] [https://www.quora.com/What-countries-have-lead-the-world-
in-...](https://www.quora.com/What-countries-have-lead-the-world-in-medical-
research-and-innovation-in-the-past-20-years)

~~~
malandrew
What percent of new medicines and treatments developed are developed in the
UK? How does that compare to the US?

~~~
rbehrends
I don't know, and the UK may not even take a dominant role here (as the
commercial research infrastructure is very likely to be different). We'd also
have to account for the fact that a lot of drug development goes into drugs
that do not provide any novel treatments, but merely exist because somebody
wants a share out of a big market (e.g., Viagra alternatives) or to find a
replacement drug that can be patented to sell in lieu of a drug where patent
protection is running out (which doesn't work too well in countries with
reference pricing, but reference pricing is still uncommon in the US, and the
US practice of prescription drug advertising doesn't help, either).

In any event, if you want to make such a claim, it's up to you to support it.
I was merely pointing out that your argument is fairly incomplete as it
stands. It doesn't even address the question whether it may be due to economic
clustering effects or a superior bioscience infrastructure in America; after
all, if selling drugs in the US were so profitable and that was the cause of
research, that would also spark research in other countries.

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arkis22
This strikes me as circular logic. "The reason healthcare is expensive is
because the US is expensive."

I have no problem with the idea of healthcare expenditures increasing
proportionally to GDP because it's a luxury good. This is logical. I'll pay
more to protect my life than widgets.

But I don't see the connection between this and the thesis:

>Now, to be clear, my position is not that we ought to be spending as much as
we spend. My position is that the issues we face are very similar to the
issues faced in Europe and other prosperous countries (and are generally
similar to patterns many decades earlier). They are largely differences in
degree, not kind. Our large apparent cost differences mostly originate from
our significantly higher material standard of living. The long term increases
found in the United States and other developed countries are generally a
product of ever increasing material living conditions and varying levels of
productivity in different economic sectors (healthcare being labor intensive
and relatively high skilled at that). Despite the fact that all developed
countries allocate a large and increasing share of their consumption
expenditures on health care these these richer countries, including the United
States, still spend more on other forms of consumption.

That sounds to me like the cost of our healthcare is ultimately up to the
market, but that's not a thesis to fight for, as it's always a fact.

By using end result economic data like GPD or AIC to compare healthcare costs
the analysis ignores the changing cost of inputs. Those rising costs should be
linked to changes in business conditions.

Healthcare costs have been rising faster than inflation. And they have been
rising faster than the material standard of living in the US. There are
structural problems.

~~~
yummyfajitas
No, what he's saying is the reason (health care consumption / GDP per capita)
is abnormally high in the US is the probably same as the reason that (all
consumption / gdp per capita) is abnormally high in the US.

That's not circular. It's merely pointing to an underlying cause that is
probably _not_ specific to the health care system.

~~~
arkis22
If it's not specific to the healthcare system, price increases should mirror
inflation.

The underlying cause being high material standard of living? Because that is
why it's circular logic to me.

I still have a problem with using the end economic result data.

It _automatically_ assumes that price increases are called for based on the
market.

If all firms in an industry can raise prices at the micro level, then no firm
stands out at the macro level, which means macro analysis is kind of useless.

An analysis of healthcare companies COGS and profit margins would be more
illuminating.

~~~
rcafdm
I wrote the blog post. Some of these broader patterns do relate to Baumol's
cost disease, i.e., health and other service typically do not see productivity
increases at the same rate as manufactured products, agricultural produce, and
wages in these services will tend to reflect increasing wages in other parts
of the economy (especially skilled ones), but mostly this is about increasing
volume, i.e., quantitive and qualitative increase in health goods and
services.

This empirical regularity can be explained by the fact that as countries get
rich they attach increasing value to human life _and_ they experience
diminishing marginal utility with most other consumption expenditures (an
extra year of life, even discounted, can be worth a lot more than buying yet
another bauble, a few more sqft in housing, etc)

"Profits" as such are unlikely to explain more than a tiny fraction of this as
(1) for-profit sector isn't that large in the health care space (2) their cost
profile is generally very similar to government and non-profit alternatives
(3) the patterns generally have relatively little to do with true price
increases/inflation. Further, even removing profit per se from the equation
does not mean that problems of this sort necessarily disappear. Principal-
agent problems abound, even a physician on state payroll doesn't necessarily
have their incentives well aligned with the interests of their patients.

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scarface74
Slightly off topic but is there is a such thing as universal affordable good
healthcare?

I've talked to a few U.S. citizens that worked abroad who said healthcare in
European countries is universally available but the demand outstrips the
supply causing longer wait times to get treated than in the U.S. and that they
prefer the U.S. system. These are of course people who have good jobs in the
U.S. with company provided coverage. Is that true?

Is there any system that can both cover everyone without making healthcare
worse for people who already have good coverage?

~~~
ramparrt
The Australian system is far from perfect but does come some way to solving
this. It is effectively 2 tiered:

1) Public Medicare, the publicly funded system available to everybody. 2)
Private insurance, paid for by the individual and tailored to their needs.

To pay for the public system everybody pays a Medicare levy as part of their
income tax. The levy is coarsely means tested. If you have private insurance
then this levy is reduced somewhat.

The real critical differentiation between the public (Medicare) and private
offerings are that any services deemed as elective in nature (ie, non life
threatening conditions such as surgeries to treat injuries, etc) can be
completed by the public system but there is a wait list which can often be
quite long. If you have private insurance then you can get in very quickly
with the surgeon you want.

Having private in no way restricts your usage of the public system so there is
no downside to having private except that it costs more. There are also fee
structures in place to encourage people to take up private when they're
younger and the saving on the medicare levy.

As I said, it's far from perfect, but the 2 tiers offer a high level of
customized cover for people willing and able to afford it while offering an
acceptable level of cover for those who can't.

~~~
bigger_cheese
One thing I don't like about the Australian system is I think it is wasteful
in someways. For example under my private cover I'm subsidized for ~$300 a
year in optical expenses (split between lenses and frames).

From anecdotal conversations I know there are many people who purchase a new
pair of glasses every year just because the system is basically set up to
encourage this which smells like very wasteful consumption to me. I don't need
a pair of glasses every year. I have gone through 3 sets of glasses in 15
years.

If I wanted to I could opt to exclude optical from my cover and save some
money every month but then I'd worry about what happens if I lose my glasses
or sit on them and I'd end up out of pocket so I keep paying for optical cover
I don't use and feel like a sucker every year for not taking advantage of
subsidized glasses.

Same thing with trips to dentist I know people who insist on general dental
(unnecessary cleaning etc) because they are subsidized so they "need to take
advantage to get their money's worth".

~~~
robbiep
I suggest you stop thinking about it as a benefit and think about what it
actually is, which is insurance. My travel insurance is cheaper if I don't
cover any lost property, but what if I need it? Anecdotally many young
travellers who head overseas 'lose' their $1500 DSLR or their 6 year old
macbook when in South America in order to make use of their $300 travel
insurance

~~~
bigger_cheese
Agreed exactly why I pay for it. The fact it is advertised as a benefit
probably contributes to this.

My insurer has gone as far as cold calling me last year "I notice you haven't
been claiming any of these benefits, would you like to review your policy."

------
hackuser
(withdrawn)

~~~
yummyfajitas
The data in the article shows there is no country with the same standard of
living.

The article doesn't disagree that you could get similar health outcomes for
less money. The claim of the article is that as people become richer, they
spend more money on marginally beneficial health care.

(Or sometimes just consumer goods masquerading as health care, e.g. Oxycontin
and similar drugs, used by our leisure class use to mask their ennui.
[https://www.commentarymagazine.com/articles/our-
miserable-21...](https://www.commentarymagazine.com/articles/our-
miserable-21st-century/) )

------
arcticbull
Is it possible that healthcare in the US is a "superior good" (definition in
article) because the lower quartiles can't afford proper care and as they
become wealthier they progress from zero care, to basic plans that don't cover
nearly what they should, to plans equivalent to the care people receive
elsewhere in the world as a right of citizenship?

~~~
yummyfajitas
No it's not. As it relates to this article, the relevant metric is whether
healthcare is a superior good _relative to GDP /capita_. Those measurements
are based on country data, including countries that have socialized medicine.

Here's a link to the embedded image of text that explains this (which you can
also find in the 3rd paragraph or so):
[https://randomcriticalanalysis.files.wordpress.com/2016/09/s...](https://randomcriticalanalysis.files.wordpress.com/2016/09/screenshot_890.png?w=1024)

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anonymousDan
So his claim that the us has a higher standard of living is based on it having
a higher AIC. But does this take into account that countries with higher
taxation and hence public expenditure could reduce the need for households to
spend money on public goods/services?

~~~
tcbawo
I find it odd to compare the nations of Europe individually, but taking the
United States as a whole. Availability of subnational metrics probably makes
this difficult, but averaging West Virginia and California is probably
distortive.

~~~
Spooky23
It is odd and would be a damning set of metrics. People actually migrate away
from the Deep South because their spin on Medicaid is garbage and there's no
providers.

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WalterBright
Sam Peltzman in "Regulation of Pharmaceutical Innovation" shows how the 1962
FDA regulations have slowed down progress in pharmaceutical development to
more than outweigh the improved safety. I.e. it's a net negative.

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transfire
I have a severe migraine attack, I need narcotic strength pain meds. Only
place to get them on short notice is the Emergency room. Takes four hours and
I get a bill for $3,000.

This has nothing to do with US being expensive. It's a broken system.

