TCS Daily

Health Care Intelligence Failure?

By Arnold Kling - April 15, 2005 12:00 AM

"The United States has the most privatized, competitive health system in the advanced world; it also has by far the highest costs, and close to the worst results."

-- Paul Krugman


The small cabal wants to launch an attack against a long-time enemy. To justify the assault, the cabal claims to have definitive proof, when in fact its conclusions are grounded in group-think and based on flimsy evidence. Will Paul Krugman, brave crusader for truth, stand up to the cabal? Not in this case. Instead, he is their leader.


The cabal argues that the United States government has too little control over our health care system. In other countries, government controls 80 percent or more of the health care system, while the major government health care programs in the United States account for only about 40 percent of our health care spending. The cabal alleges that in other countries people enjoy better, less expensive health care. If this is true, then the implications are obvious: the private sector component of American health care must be invaded and overthrown.


The cabal may turn out to be right. I think that any fair-minded person should be prepared to accept evidence that socialized medicine works better than private medicine. It is dangerous to overlook facts just because they run counter to one's own views.


However, based on all of the evidence that I have been able to assemble thus far, I continue to believe that the best bet to make is that the cabal is wrong. That is, I believe that it is likely that, for the most part, Americans receive significantly better health care than their counterparts in other advanced countries.


Still, it would be premature to state that as a firm conclusion. The point of this essay is not to demonstrate the superiority of our health care system. Instead, what I want to suggest is that the indicators available on comparative health care quality send only weak and contradictory signals. Much better research is required.


Some Basic Facts


I believe that it is beyond reasonable doubt that, over the past 25 years, the share of GDP devoted to health care has risen faster in the United States than in other advanced countries. In 1980, the U.S. share (using OECD measures) was 8.7 percent, which was higher than most OECD countries, but close to or even lower than the shares of Germany, Sweden, and Denmark. By the year 2000, the U.S. share was 13.1 percent, and only one other country (Germany) had a share over 10 percent.


I believe that it is beyond reasonable doubt that at least some of the difference in spending reflects higher utilization rates for health care services. That is, not all of the increase in the U.S. share of health care spending is due to inflation. The Commerce Department accountants and economists who compile the health care data attempt to apply an inflation adjustment. Using data in this article, I calculated that from 1980 to 2003, cumulative inflation, as measured by the health care deflator, was 225 percent, more than double the cumulative overall inflation rate of 96 percent.


Adjusted for this health care inflation, the increase in real spending was still 106 percent. That is, the amount of actual health care services consumed more than doubled.


Most of the increase in the share of health care spending in GDP in the United States from 1980 to 2003 was for real goods and services, as opposed to price increases. To see this, start by noting that in this data the share of health care spending in GDP in the U.S. was 7.7 percent in 1980 (our domestic measure differs somewhat from the OECD measure). Suppose that we extrapolated U.S. health care spending in 2003 based on 1980's level, plus population growth and health care inflation. In that case, spending would have been 8.1 percent of GDP in 2003. Instead, our accounts show a figure of 13.1 percent. The difference between 13.1 and 8.1 is the amount of the rise in the health care spending share that represents a real per capita increase in utilization. (In other words, from 1980 to 1993 GDP grew enough to absorb the increase in population and most of the increase in the relative prices of health care services. It was the doubling in the utilization of services that caused the surge in health care's share of GDP.)


Infant Mortality


I also believe that it is beyond reasonable doubt that the United States does not enjoy a significantly lower measured infant mortality rate than other countries. However, it is likely that the numbers are sensitive to the treatment of pre-term infants. In the United States, it is not uncommon for a baby to be delivered three or four months before the due date, where otherwise there would be a miscarriage. It is not uncommon for these low birth-weight babies to die.


Health care economist David Cutler devotes a chapter in his recent book to the costs and benefits of U.S. treatment of pre-term infants. He points out that "Mortality for the smallest infants...roughly two pounds, fell from 90 percent in 1950 to about 40 percent today." Cutler argues that although saving these infants is very expensive -- he cites a typical cost of $100,000 -- we are getting our money's worth, based on standard economic measures of the value of life.


Cutler does not make any international comparisons. However, one can imagine that in other countries a larger share of high-risk pregnancies end up as miscarriages. Those countries will have higher fetal death rates, but probably will have lower measured rates of infant mortality.


One international comparison suggests that indeed the United States is near the top of the advanced world in the proportion of low birthweight infants. The cabal cites this data, but not to suggest that infant mortality statistics are not comparable. Instead, they want to argue that this shows how poorly we do at providing prenatal care.


One way to sort this out would be to conduct a statistically valid comparison of fetal survival rates across countries. In each country to be studied, take a random sample of pregnancies that are normal as of three months. Try to control for age of the mother and other risk factors. Then measure the proportion of babies that live to age one.


A statistical study of this sort would not be affected by some of the measurement differences that I suspect are in the aggregate infant mortality data. I am not saying that such a study would prove that the cabal is wrong. However, it would provide what for me would be more persuasive evidence, regardless of whether the results imply that that U.S. health care is better, worse, or the same as that of other countries.


Quality of Life


The cabal also presents data from the World Health Organization indicating that Americans over age 60 are in poorer health than the elderly of other countries. However, an OECD briefing tells a different story. A table in the briefing shows that the percentage of people aged 65 and over who report themselves in good health is 89 percent in the United States, the highest of any country included in the briefing. However, the briefing cautions against using self-reporting surveys (I certainly agree with that) and warns that there is "no standard instrument used yet" that would produce reliable international comparisons of health status.


In addition to asking people how they feel, we could observe what they do. How does the percentage of people physically unable to work after age 65 compare across countries? What about the proportion of people aged 75 who can care for themselves? Again, I believe that statistical studies could be done that would make comparisons of health status across countries less a matter of guesswork and more a matter of knowledge.


Relative Spending by Age Bracket


That same OECD briefing offers a sliver of data pertaining to what could be a very persuasive indicator about the differences between the U.S. and other countries. It looks at spending by age bracket in two countries -- France and the United States. In the United States, per capita spending in the 19-44 age group is about $2500, compared with about $5000 in the 55-64 group and about $8000 in the 65-74 group. In France, per capita spending is about 1200 euros in the younger age group, rising to 2500 euros and 3500 euros in the older age groups, respectively. Thus, the pattern of relative spending is very similar in the two countries.


This is potentially interesting because we know that where the U.S. differs most from other countries in the structure of our health care finance system is below age 65. Over age 65, we are like other countries, in that government pays for the bulk of health care spending. Thus, if the reason that the U.S. spends so much on health care is that we do not have government health insurance, you would expect the U.S. to spend close to the same amount per capita on the elderly as other countries do. The big difference should be in spending on those under 65. However, that is not the pattern that we observe. Instead, it would appear that the standard of health care in America simply calls for more services to be used than in other countries, regardless of whether spending is controlled privately or by the government.


I would like to see more data on health care spending by age bracket across countries. It seems to me that if greater government involvement would make health care more efficient, we should see some evidence that most of our higher spending relative to other countries goes for people under age 65.


I cannot draw any conclusions from my excursion into the international health care data. I am still struggling to understand the basis of the difference in what we spend on GDP on health care and what other countries spend on theirs. All I can say at this point is if the United States were to undergo regime change and adopt socialized medicine based solely on the evidence as it exists today, that would represent a massive intelligence failure.


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