Pursuit of Truthiness

my gut tells me I know economics

Archive for the ‘health care’ Category

Why US Health Spending is So High: The Beginnings of an Answer

with 2 comments

The US spends twice as much on health care as the average developed country, and three times as much as a percentage of GDP as we did in 1965, but our life expectancy is below average for a developed country. These facts are a regular refrain for health economists like me, and are often given as a motivation for our research. But one year ago I realized I had no good answer for why US health spending is so high, and no one else seemed to either. I’m still not close to finishing a book about it, but I’m finally starting to feel like I have the beginnings of an answer.

First, that even by developed country standards we are quite rich, and richer countries spend more on care.

Second, the biggest single mechanism driving this higher spending seems to be the particular design of Medicare reimbursement, especially for outpatient care. That’s the high spending.

Why don’t we seem to get much for it? Here, I think the thing is simply that life expectancy is not primarily about medical care, and that the factors driving out life expectancy down are mostly or entirely outside the medical system (obesity, overdoses, accidents, violence, et c).

In fact it is possible, though not firmly established, that our medical system really is the best in the world; that if Americans got the English or Japanese medical system our life expectancy would be even shorter, and that if the English or Japanese got the American medical system their life expectancy would be even longer. The world-beating 86 year life expectancy of Asian-Americans, a group that gets US medical care while mostly avoiding the worst of US health behavior, is suggestive of this.

Though, even if the US medical system is the best in the world, I still think it is unlikely that quality is ahead of other countries by anything like as much as spending is. We might spend a lot more and only have a slightly better quality medical system because of classic diminishing returns, or inefficiency, or because part of our high spending is on developing and implementing new technology that everyone else quickly adopts once it is cheap.

In short: it shouldn’t seem mysterious that a very rich country, especially one with insurance designed like Medicare, spends a lot on health care; and it shouldn’t seem mysterious that this high spending is unable to fully overcome the life-expectancy-dropping effects of the American lifestyle.

What does still seem mysterious to me, but I hope won’t in another year: To what extent can high private spending be explained by the influence of Medicare? Does any other rich country have an insurance design resembling Medicare Part B, and if so why has it not yielded similarly high spending? Where exactly does our higher spending go to? In particular, how much is price vs quantity vs quality today vs new tech dev vs pure inefficiency? How would the US medical system compare to other countries in a ranking of value added (contribution to life expectancy)- rather than the usual rankings that measure only inputs or outcomes?

Advertisements

Written by James Bailey

April 23, 2019 at 7:14 am

US Health Spending Growth: Its All Outpatient

with one comment

I previously pointed out that while we spend twice the OECD average on health care overall, we spend three times the OECD average on outpatient care.

Now I want to show you the history and give one theory that explains why. First, we’ve become much more of an extreme outlier on outpatient spending since 1987 (when OECD data on the US first starts distinguishing between inpatient and outpatient spending), as our outpatient spending has nearly doubled as a % of GDP while other countries are mostly flat:

Source: customized chart using stats.oecd.org

What is going on here? One big hint is that over the same time period, our inpatient spending is basically flat as a % of GDP, and remains in line with other countries:

Source: customized chart using stats.oecd.org

There’s a lot going on but if I had to pick a single explanation, it would be the design of Medicare and its 1983 Prospective Payment reform. Basically, the way Medicare was originally designed (cost-based reimbursement that gives providers a big incentive to do more) led to huge growth in spending following the introduction of Medicare in 1965.

The 1983 Prospective Payment reform reduced the incentives to over-treat and led to slower spending growth- but it only applied to Medicare Part A, which covers inpatient treatment. Despite a 1992 reform that changed prices around, for Medicare Part B (which covers outpatient care) reimbursements still seem to work on the same essential principle as in 1965- the more treatments you do and the more costly the treatments you do, the more you get paid. Certainly Part B has been the fastest-growing part of Medicare spending since the 1980s, and its direct contribution to spending together with spillover effects on pricing and reimbursement norms for private insurance could explain most of our spending increase since the 1980s.

Still looking for annual data that breaks out Part A vs B back to 1965

 

 

Written by James Bailey

April 22, 2019 at 5:20 pm

What Happened to U.S. Health Spending After 1980? It Slowed Down.

with one comment

In a NYT Upshot post titled Medical Mystery: Something Happened to U.S. Health Spending After 1980, Austin Frakt shows that US health spending pulled ahead of other countries in the 1980’s, and tries to explain this by looking for other ways the US was exceptional in the ’80s.

OECD

But looking at the RATE of spending growth rather than the absolute amount of spending tells a very different story. The US got to the top of health spending by rapid growth between 1960 and 1980; US spending growth actually slowed in the 1980s, and has slowed further since.

Average annual spending growth during 1960’s: 8.3%

Average annual spending growth during 1970’s: 6.0%

Average annual spending growth 1980’s: 5.4%

Real NHEA increase

So what happened before 1980? My main theory is, Medicare. Started in 1965 with cost-based reimbursement that incentivized hospitals to spend more, transitioned to a reformed payment scheme (Part A Prospective Payment) starting in 1983.

Average annual spending growth 1965-1983: 6.3%

Average annual spending growth 1984-2016: 4.1%

Numbers are my calculations from NHEA data and CPI. The most obvious counter to the Medicare theory is clear in the graph above: growth was even faster in the early ’60s before Medicare. Of course, I’m far from the first to point out the potential importance of Medicare or the 1983 reform. See Amy Finkelstein’s papers for the causal arguments (Introduction of Medicare, 1983 Reform), or this paper (summary) from CMS researchers that gives the best overview of historical US spending I’ve seen. I particularly like their table of US health spending ‘eras’:

US Health Spending Eras

US Health Spending Since 1960

with 2 comments

As a health economist, I’m legally obligated to remind you that US health spending has more than tripled as a proportion of GDP since 1960. But while the “proportion of GDP” statistic is the one we share most often, I’m not sure its the most interesting. Total US Real GDP per capita has also tripled since 1960, implying that real US health spending per capita is actually 9 times the level of 1960.

The National Health Expenditure Accounts report that health spending was $10,739 per American in 2017. Their historical data goes back to 1960. Oddly, they don’t provide real inflation-adjusted spending figures themselves, so I calculated them using historical NHEA data and the CPI; you can get my spreadsheet here. I estimate that real per capita health spending in 1960 was $1212, just over 1/9th of current spending.

The sources of health spending have also changed dramatically since 1960, as you can see in these charts I made from NHEA data:

1960 spending pie

2017 spending pie

Spending has shifted from direct payments out of the pockets of patients/consumers, and toward insurance, especially public insurance (Medicare and Medicaid). Real out-of-pocket spending per American has merely doubled since 1960, while private insurance spending is 14 times its previous level, and public insurance is 58 times higher.

Why has spending increased so much? More coming soon…

Written by James Bailey

April 9, 2019 at 4:12 pm

Is the US Healthcare system responsible for our low life expectancy?

with one comment

No. For life expectancy in developed countries, individual differences matter more than health systems.

The US is known for having below-average life expectancy for a developed country. This is true, but all generalizations about the US are wrong in important ways because the country is so huge and diverse (can I claim this as Bailey’s law? Or did someone else in our huge, diverse country already take credit?).

First there is huge variation across states, with average life expectancy ranging from at totally respectable 81.3 years in Hawaii to 75 years in Mississippi (putting it in the tier of much poorer countries like Iran, Brazil, or Sri Lanka).

Its common to blame low US life expectancy on “the US healthcare system”, but this can’t be right. Are the 12+ states with life expectancy of 80+ years not part of the real US health care system? Health policy is largely set at the federal level. Perhaps the exceptions are important, or for some other reason (more/better doctors?) the healthcare system really is better in those states. There is no “US healthcare system”, but rather 50+ US healthcare systems. Possible.

But there is also huge variation by race– from 74.6 years for African-Americans to 86.5 years for Asian-Americans. If Asian-Americans were their own country, they would have by far the longest life expectancy of any country in the world (currently Japan leads at 83.7). African-Americans, by contrast, would be down in the tier of middle-income countries, just as Mississippi was (though their life expectancy is still well above that of any sub-saharan African country, including relatively prosperous ones like South Africa and Botswana). Its also not a simple story of income differences- note that average Latino life expectancy in the US is 82.8 years, 3.9 years above whites (the Hispanic Paradox).

When we take advantage of the race-by-state cross-tabulations, we can really start to tell which stories about life expectancy have more merit. Asian-Americans maintain world-class life expectancies even while living in states near the bottom of the US rankings, like Alabama and Louisiana. If the problem were really about the health systems in those states being much worse than average, this would be hard to explain. One explanation I’ve heard from several other health economists is that the US healthcare system is actually good for most people, but bad for the ~20% who are poor and/or uninsured. This 20% does dramatically worse, skewing our overall average life expectancy downwards; and they are more concentrated in certain states, which explains the state-to-state variation. This sounds plausible and mostly matches the state variation, though it would mean the Hispanic Paradox remains a paradox; also, in Massachusetts blacks as well as Hispanics and Asians now outlive whites.

What explanations remain? Differences in health behaviors (e.g. diet, exercise, drug and alcohol use, medication adherence, accidents) are looking good. Genetics are possible too. Both could also explain why women live five years longer than men. My ad-hoc analysis here matches up with a lot of the more serious life expectancy research, for instance the research behind this tool you can use to calculate your personal life expectancy. Note how almost all of their questions are about your daily behaviors, and almost none are about interactions with the medical system.

Written by James Bailey

February 16, 2019 at 3:56 pm

The ACA and Entrepreneurship

leave a comment »

In a newly published paperDhaval Dave and I tried to assess how the Affordable Care Act affected entrepreneurship. Many people have been speculating about this, but very few have actually tried to measure it. Part of the reason for this is that the appropriate data only recently became available; most earlier work, including my dissertation, had to focus on the relatively minor parts of the ACA that started earlier, while the biggest provisions didn’t kick in until 2014.

So, did the ACA help or hinder entrepreneurship? In short, it probably helped, but with huge heterogeneity. In our paper we compare entrepreneurship rates for people in their early 60’s (who might benefit from the availability of individual insurance through the ACA) with a “control group” of people in their late 60’s (who are eligible for Medicare and presumably less affected by the ACA). We find that the ACA led to a 3-4% increase in self-employment for people in their early 60’s.

So, should we take that estimate and extrapolate it to everyone, and use that to imply that the ACA created a million businesses? I don’t think so. I expect that the biggest positive effect of the ACA was for exactly the group we studied- people in their early ’60s. Both because they are old enough to have substantial average health costs and health insurance premiums  (so they will factor health insurance into their decisions more strongly than younger people) and because of the community rating provisions of the ACA (which generally reduced individual premiums for older people while raising them for younger people). The other new papers on the ACA and entrepreneurship use identification strategies that let them study adults of most ages, and they generally find no effect or smaller positive effects.

If I do more work on the ACA specifically, it will be to probe the effects on other subgroups that I expect to have particularly positive effects (e.g. less healthy people) or negative effects (e..g young, health people). Alternatively, we can start to look to post-ACA data and assess to what extent entrepreneurship lock remains a problem even after the full ACA implementation.

Written by James Bailey

September 25, 2018 at 2:04 pm

The US Spends 3x the OECD average on Outpatient Care

with 2 comments

You’ve probably heard that the US spends twice what other rich countries do on health care, and this is true. But we actually spend a normal amount on inpatient and long-term care, while spending more than three times as much as other rich countries do on outpatient care: 7.5% of GDP for the US vs 2.5% for the average OECD country. In fact, we spend more than twice as much as the next-highest-spending countries, Portugal and Switzerland, which each spend 3.5% of GDP on outpatient care.

I’m working on a book that will explore why we spend so much.

OECDoutpatientSpending

Source: OECD Health Statistics 2015