Arnold Kling  

Culture and Health Care Costs

Ethanol Enthusiasts... Fantasy Agendas...

David Leonhardt discusses the common complaint, why is it that the U.S. spends so much on health care and has no greater longevity than other countries? He writes,

So something beside administrative costs is at work here, and it involves a basic cultural difference. Americans seem to be less willing to take no for an answer and more willing to try almost anything, no matter how expensive or how slim the odds, to prolong life.

That is the conclusion that I reach in Crisis of Abundance, but I do not think it is just late-stage care that is excessive. People at all stages of life demand thorough diagnosis and the most expensive treatment (as long as someone else pays for it). Doctors want to satisfy their customers.

One quibble with Leonhardt's article is that he cites administrative costs in health care of 25 percent in a context that makes it sound as if this is the administrative cost of health insurance, for which that figure is way too high. The 25 percent number must include all administrative costs, including scheduling patients, record-keeping, and so forth.

The finding that "population X spends more on health care but has no better outcomes than population Y" holds within the United States as well as across countries. Given that we know that some medical procedures are beneficial, what accounts for these findings (which I sometimes refer to as "users-are-losers" results)? Robin Hanson (be sure to read his comments on that post) says that good procedures are canceled out by harmful procedures, so that on average medicine has zero benefit. I say that good procedures are averaged in with a lot of wasteful procedures, so that the average benefit appears to be zero.

Leonhardt goes on to write "The United States is also a fatter, more diverse country with wider income disparity, which gives our medical system a harder task." This is another possible explanation for the "users-are-losers" results. The population that spends more on health care may have some unmeasured characteristic that makes it need more health care, and this characteristic tends to boost spending while worsening outcomes.

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COMMENTS (6 to date)
Fritz writes:

Wealth drives healthcare demand. Our failing k-12 public delivery system of education has more to do with uninsured Americans than the payer system. We have too many low GDP producers that can't make up the slack.

dearieme writes:

But why do you all so desperately wish to live longer: what's the point of being a Christian if you are not happy at the prospect of meeting your maker?

Matt writes:

Coagulation of the medical industry causes this effect, it is the classical hoarding effect.

The AMA and associated unions group all manipulations of the human body into one broad category (medicine), and therefore gain advantages in bargaining.

We are back to the same problem the conservatives have, a fixed tax on the population (insurance premiums) cause continual growth of the supplier (medical industry).

When the government offers generalized services for a flat rate to everyone, then it is a promise that new government services will be supplied whenever these services increase the return on investment for a class of consumer.

The medical industry suffers the same fate.

There must be a name for this in pricing theory. Each new expensive service is funded by increasing the flat rate on everyone, even though only a small class receives benefit.

Carl Marks writes:

One explination is that cholestoral drugs and diabetes treatments that are more effective mean that americans do not need to take as much personal responsibility for their health.
Make the consumers pay out of pocket for these expenses and some may think twice about that next hoagie.
Even a $3 a day drug is only $90 a month $1080 a year, not high enough to need to insure against the risk of needing it.

I'm really hoping for (though I don't expect it to come) a liberating of health insurance companies. Ensure me for the really big stuff, require me to get testing one a year and i might see my medical expenses drop easily under $1,000.

Dr. T writes:

Leonhardt writes, "The United States is also a fatter, more diverse country with wider income disparity, which gives our medical system a harder task."

A diverse population is a key factor in longevity statistics. We have an underclass that avoids medical care, even if it is free (though inconvenient). This same underclass has a high prevalence of substance abuse, poor diet, and little exercise. The infant mortality rate among this group is far higher than average. Infant death has a huge impact on longevity statistics.

Another difference is how countries report infant deaths. Some countries classify deaths of premature babies within 30 days of birth as stillbirths (that do not affect longevity statistics). In the U. S., a premature baby born with a heartbeat who dies 15 minutes later is counted as an infant death.

A third factor is our combined homicide/suicide rate which is higher than many countries and usually involves teens and young adults. Again, death of the young greatly reduces average longevity.

Getting back to population diversity, it is much easier to properly diagnose and treat a homogeneous population. Our great diversity brings cultural benefits but makes it much harder to practice medicine. Just to give one example, treatment of hypertension is greatly different between whites and African-Americans. Great drugs for whites can be harmful to African-Americans. The best drug for African-Americans is typically a third-choice drug for whites. This is just one condition and two racial groups. American doctors deal with hundreds of "common" medical conditions and dozens of racial or ethnic groups. It is difficult to keep up with advancing medical information for one group; it is impossible for dozens of groups.

dan writes:

re administrative costs.

It is well-documented that 1) administrative costs of healthcare in the US are AT LEAST 25% (some estimates up to 49%); 2) most of that actually IS due to INSURANCE.

ie: Study: 1 in 5 health care dollars Used for Insurance Paperwork:;

Drs. Himmelstein and Woolhandler from Harvard have done extensive research on this question and conclude, in their 2001 book, that a single-payer national health insurance, which would eliminate the insurance companies and streamline the healthcare system, would save enough to provide comprehensive health care for everyone. The book isn't online, but here's a recent interview:

Q. What is driving our high health care costs?

A. Administrative costs. As of 1999, these accounted for 31 percent of U.S. health care expenditures, compared to 16.7 percent in Canada. In fact, we spent $1,059 per person on administrative costs, compared to $307 in Canada. With a single-payer system, we could save $209 billion a year by eliminating the high overhead and profits of the private insurance industry.

So... please don't spout conclusions about the 25% figure not being mostly attributable to our private health insurance system unless you have some DATA to back that up. Because the experts disagree with you.

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