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Arnold makes me want to be a little more careful about my position on health care. By way of background, I'll admit that I get most of this from Robin Hanson. But I was so incredulous when I first started hearing his views, that I've canvassed every other health economist who crossed my path. (Maybe 5 total, but a pretty random sample). And I was surprised to learn that Robin was telling me the standard conclusion. Robin is only radical in taking the standard conclusion seriously, while other economists admit that health care doesn't do much for health, then get back to obsessing about the uninsured.

So what is the standard conclusion?

1. The marginal benefit of health care is on average about zero. How big of a margin? Roughly the last 30% of dollars spent.

2. The total benefit of health care is small relative to total increase in life expectancy. We live decades longer than we used to, and generous accounting says that a couple of those years come from better health care.

For cites and details, check out the section "Medicine and Health" in Hanson's "Showing that You Care."

My tweak on this literature, you may recall, is that the small effects of health care are probably a blending of large positive effects (e.g. saving my twins) with large negative effects (e.g. killing my grandpa).

Perhaps now that I've been more careful, Arnold won't disagree as much. But maybe greater clarity will just make my errors more obvious! In any case, Arnold's latest says:

Co-blogger Bryan and I have been arguing over two issues, one substantive and one methodological.


Substantive issue: I say that health care probably is effective. He says that there is no evidence that it is effective on average.

This overstates my position, though perhaps the fault is mine. "No evidence" is almost always too strong. I do believe that the bulk of evidence says that marginal health care is ineffective on average, and that the total effect of health care is a small fraction of the gain in life expectancy.

Incidentally, Paul Krugman says that there is no evidence that U.S. health care is effective at the margin, meaning that the additional money that we spend on health care relative to other countries does not lead to measurably better health outcomes.

Yes, and I've said that Krugman is treading on thin ice. If people knew how small the benefit of health care was, the hand-wringing about the uninsured would fizzle.

Methodological issue: I say that looking at aggregate data on health care outcomes is lazy econometrics. There is no substitute, I argue, for careful disaggregated studies.

Now, in response to my post on Murphy and Topel's article about the huge benefits of health care, Bryan is sticking to his substantive position, but reversing himself on methodology. That is, he remains skeptical that health care provides benefits. Now, he argues that Murphy and Topel are failing to control for other factors that affect health.

Arnold conflates two different things. The literature I'm promoting tries to figure out how much health care has improved health on average. I think that's a very valuable project. Assuming Robin's critique of Murphy and Topel is correct, however, they don't do this. They give an aggregate number, but to reach it they beg the vital question about the effectiveness of health care. (That might not be such a severe sin, if there weren't already a big literature out there that says the opposite!)


I am more than willing to concede the substantive point that Murphy and Topel have failed to provide conclusive evidence of the benefits of health care. However, I claim progress on the methodological point that the question needs to be settled by careful, disaggregated analysis rather than lazy macro statistics.

The problem with disaggregation is that people lose the forest for the trees. It would be good to know which treatments have the biggest bang per buck. But given limited research resources and attention spans, it is better to know how helpful we can typically expect health care to be. And the answer is: A lot less than most people think.

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The author at The Liberal Order in a related article titled Marginal Expenditure on Health Care writes:
    Bryan Caplan and Arnold Kling continue their debate on health care, expenditures on health care, and the marginal benefit of health care expenditures. It's been very interesting and both make [Tracked on June 19, 2005 3:03 PM]
The author at Catallarchy in a related article titled The Money Pit writes:
    There's been an intersting debate over at EconLog between Kling and Caplan over the general efficacy of medical care. An it goes as little something like this... [Tracked on June 20, 2005 8:08 PM]
COMMENTS (6 to date)
simon writes:


While on the margin health care costs does not increase life expectancy is accurate, the linkage you posit (and suggest is a macro statement) may not be the relevant decision driving decision makers. That is, consumers may be valuing the perceived marginal moments much more highly than the average. Logically, we all consider moments in our life that we value more highly than others. Thus, I concur that the aggregate level view completely misses the dynamic that shapes the the value of the particularly moments and thus as you say are the lazy man's econometric study.

Pekka Nykänen writes:

When we talk about the costs of medical treatment we should compare that to zero treatment.
Imagine that all medical treatment is stopped to the people. Life expectancy and the productivity of industry would be decreased. In fact the result would be the scenario of Middle Ages. It can be concluded that certain amount of money which is invested to health care is highly productive.
Problem is that we do not know where is the border of productivity. The rich OECD countries invest a lot of money to health care. I suggest that part of the economic success in these countries depends on good quality health care. The labourers are able to concentrate on working and know that they get help if they become ill.
I can not understand that caring of people is a risk to their welfare. Possibly it a risk to shareholders which perhaps have better application to the money. It is funny that at the same time when the hospitals struggle with the money problems, stock market tries find new toys to the people.
Pekka Nykänen MD

Dewey Munson writes:

Years ago our Doctor with whom I was conversant told me "80% of my patients only think they are sick."

A walk thru the drug store sustains my belief that she was correct.

dsquared writes:

On the other hand, there is loads of evidence of a very large effect on health outcomes and life expectancy from inequality.

Marco writes:
The marginal benefit of health care is on average about zero. How big of a margin? Roughly the last 30% of dollars spent.
That might make sense. After all, most people with good insurance pay close to zero in marginal cost for their treatments.
James writes:

Dsquared writes:

On the other hand, there is loads of evidence of a very large effect on health outcomes and life expectancy from inequality.

No, dsquared, there isn't. Nor will there ever be evidence of any causal relationship. There are simply datasets of variables such as life expectancy and inequality. Exactly why these variables display the patterns that researchers notice is not a question that can be answered empirically. Maybe the class envy the poor toward the not poor cause them to experience stress which leads to poor health. Maybe poor skills at managing stress harm both health and prospects for economic advancement. Whatever the causal mechanisms are, it's beyond the capabilities of empiricism to make that determination. Claiming that there is evidence that poor health outcomes and life expectancy are an effect of inequality only weakens the force of your argument because it gives your reader the impression that either you aer willing to use empirical work to give a scientific veneer to an ideology.

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