At an MIT economics alumni event today, I had a brief discussion with Robert Hall on health care spending. He argues that (a) health care spending is going to approach 50 percent of GDP by the end of this century, and that therefore (b) this is going to require government health insurance, since there is no way for the private sector to provide insurance--when the average person spends half his income, the variation around that will be impossible to insure against.
The reason he expects health care spending to grow as a fraction of GDP is the argument given in Hall and Jones, namely that spending on other goods and services brings diminishing marginal returns, but adding years of healthy life brings increasing marginal returns.
Fair enough, but everything else in Hall's chain of reasoning is intellectual swindle. Primarily, it's a swindle to tie increased longevity to increased use of health care services. We can increase longevity without using health care services--better lifestyle choices, for example. Moreover, a lot of medical spending goes for things that do not increase lifespan, or even to make significant quality-of-life improvements. In fact,the consensus is that at the margin a lot of health care spending is wasted.
Instead, I think it is fair to tie increased longevity to increased medical research. Sometimes, as in the case of pharmaceuticals or medical equipment, the research costs are passed on to people obtaining services. However, this does not have to be the case. Research could be funded directly.
I think that if you compare a policy of funding research directly to a policy of indirectly funding it by providing government insurance that encourages overuse of treatment, the direct-funding approach is likely to be better. (Of course, I am leaving the issue of what gets funded as a "black box," and I'm implicitly assuming that funders, including government, will make wise decisions.)
In any event, my take on the Hall and Jones story of increasing returns to longevity is that it is an argument for raising medical research as a percent of GDP, but it has less compelling implications for raising medical services as a percent of GDP.
Speaking of research and longevity, this topic has been much in the news recently, because of scientists reporting on the anti-aging properties of resveratrol. A blogger at fightaging.org writes,
This is one of the most representative and advanced efforts of that segment of the research community presently attempting to safely change metabolism to slow aging. Unfortunately, given that the FDA will not approve any treatment for aging itself, these sorts of efforts are channeled into developing treatments for specific age-related conditions - the short-termist and ultimately ineffective process of patching up the consequences of aging, with no impetus to commercialize preventative methodologies.
Maybe Hall and Jones need to help fightaging.org explain to the FDA the benefits of longevity per se.