Last Thursday The New England Journal of Medicine published a study that contradicts nearly everything that you and I thought we knew about skyrocketing medical bills. According to Harvard economist David Cutler, health-care inflation is a good thing.
“The rising cost … of health care has been the source of a lot of saber rattling in the media and the public square, without anyone seriously analyzing the benefits gained,” Cutler, the lead author on the study, told the Associated Press. “But the dramatic increase in life expectancy that we've seen over the last decades shows that rising medical costs have been largely justified."
Cutler doesn't dispute that costs have soared. On average, a person born in 1960 could expect to rack up medical bills of $13,943 over the course of a lifetime, while cradle-to-grave care for Americans born in 2000 is likely to average $83,307. (Dollars are adjusted for inflation.) But he stresses that those born in 1960 could look forward to living only 70 years; someone born in 2000 has a life expectancy of 77 years.
The NEJM study estimates that 3.5 of the seven years gained are due to improvements in medical care. Cutler's team then divides the change in spending by the change in life expectancy to conclude that each one of those extra 3.5 years the “average” American gained cost just $19,000. Not a bad deal -- especially if you happen to be one of those who makes it to 77.
Cutler's study came on the heels of a New York Times article that appeared a week earlier headlined “Making Health Care the Engine that Drives the Economy.” The Times reported that while “huge increases are coming” in our health-care bills, “some [economists] say that may be just fine.”
The article quoted Cutler as well as Nobel Laureate Robert W. Fogel of the University of Chicago, who predicts that by 2030, health-care spending will equal 25 percent of gross domestic product (up from 16 percent today). In his view, this will make medicine “the driving force in the economy, just as railroads drove the economy at the start of the 20th century." “Taxpayers will foot the bill. But Dr. Fogel is not alarmed,” the paper explained. “Americans can afford it, he says, because the nation is so rich."
After years of reading all of those depressing stories about spiraling costs and families who can't afford care, this fresh perspective on U.S. health care is undeniably heartening. If only it were true.
Begin with the notion that a rich nation can afford to spend 25 percent of what it produces on health care. The bulk of our health-care bill is covered by taxpayers. “The health-care industry has become addicted to revenue growth -- and it's crowding out other things that we care about,” says Alan Sagar, a professor at Boston University's School of Public Health. We spend 16 percent of GDP on health care, and only 4.7 percent on primary and secondary education. That's just 1 percentage point more than we spent in 1970 -- even though the number of children in the United States has increased by 13 percent. As a result, while we sink a much larger percentage of GDP into healthcare than any other country in the world, when it comes to education, we rank 10th -- behind Saudi Arabia, Norway, Malaysia, France, and South Africa, among others.
David Cutler is aware of the problem. “That is why we have to raise taxes,” he said in a phone interview last Friday. “Government has grown to one-third of GDP because we have decided we want government to do more. At the high end, wealthier people will have to pay more taxes to cover those who cannot afford health-care inflation. Do you want to pay more taxes or do you want to ration care?"
Cutler's is a generous vision. But will the wealthiest among us really be kind enough to finance health care for all at a level that equals 30 percent of GDP? Not if they realize that other countries have made similar strides in lengthening life expectancy while spending far less. Indeed, many have done better. Worldwide, the United States ranks 31st in longevity, behind such countries as Australia, Canada, and Malta. And it ranks 40th in the probability that a child will die before age 5, with nations such as Estonia, Portugal, and Slovenia doing better.
Pundits have suggested that this is because we live in a more heterogeneous society where the poor (minorities in particular) pull down the national average -- both because they receive less care and because they indulge in self-destructive lifestyles. But a study published in JAMA last May tested that hypothesis by focusing squarely on white 55- to 65-year-old Americans and comparing them to white 55- to 65-year-olds in England. Hands down, the British proved much healthier. Indeed, the study revealed that white Americans at the top of our income and education ladder suffered diabetes and heart disease at about the same rate as the poorest and least well-educated British subjects.
The investigators looked at lifestyle factors to try to explain the difference, but it turns out that while we're fatter and exercise less, the British drink more. Smoking rates are similar. Researchers speculated that life in the United States may be more stressful -- but the U.K. is hardly a Polynesian island. Polite to a fault, the British investigators refrained from suggesting that the problem might lie in our health-care system. Nor did they mention that we shell out twice as much for health care.
Why do we spend so much more to achieve only middling results? The best evidence available suggests that up to half of the $2.2 trillion that we lay out on healthcare is wasted on unnecessary -- and often overpriced -- products and procedures.
Consider cardiac care. According to the NEJM study, advances in cardiac care account for fully 79 percent of the gains we have made in life expectancy. At the same time, Cutler is quick to agree with most cardiac specialists that "we perform far too many cardiac procedures in the U.S.”
How can he say both that the major benefit of health-care inflation has been the progress we've made in cardiac care and that we perform way too many bypasses and angioplasties? A closer look at Cutler's data helps to reconcile this seeming contradiction. In a study published in Health Affairs in 2006, researchers from Dartmouth discovered that although early advances in cardiac care brought great benefits, after 1996, survival gains stagnated, even while spending on lucrative cardiac procedures continued to spiral.
"The vast majority of the increase in 30-day survival rates [for cardiac patients] between 1975 and 1995 was the consequence of low-cost treatments such as aspirin, [and] beta-blockers,” the researchers concluded. Meanwhile “the incremental benefit of more-expensive treatments such as invasive surgery” has shrunk.
This is not what device makers who sell bare-metal stents for $1,500 a pop want to hear. As blogger Matthew Holt pointed out, “the ink was barely dry” on Thursday's edition of the NEJM when Advamed, the chief lobbying group for the medical-device industry, published a press release referencing Cutler's study and touting its own pricey medical products and procedures. Last year, medical device makers raked in $36.5 billion in profits. No wonder they're the head cheerleaders for health-care inflation.
As for Cutler, in Friday's interview he conceded that we have learned much more about health-care waste in recent years, “and I've tried to include that in my latest research.” In particular, he's now a bit less sanguine about healthcare inflation when it comes to spending on older patients. For this group, gains in life expectancy are much more expensive. Cutler calculates that the average cost of an additional year for a 65-year-old is $84,500. At that price, the quality of that extra year becomes central -- but the NEJM study does not tackle that question. It simply assumes that living longer is a good in itself. After all, Cutler notes, “Everything that we know suggests that older people are healthier than ever before.”
In general, this is true. But anyone who thinks that, with advances in technology, 95 is becoming the new 80 should consider this brutal fact: 40 percent of Americans over the age of 85 suffer from Alzheimer's -- as do 20 percent of those between the ages of 75 and 84.
Finally, while the argument that if we spend more, we'll live longer and feel better is seductive, in many cases Americans are simply paying more for the same products and procedures that are available at half the price in other countries. In an article titled "It's the Prices, Stupid" published in Health Affairs in 2003, researchers concluded that, even after adjusting for differences in cost of living, we spend more than other countries, not because we're receiving more services, but because we pay higher prices for drugs, devices, hospital stays and doctor's visits.
In the end, the notion that if we overpay for health care, it can replace the railroad as the engine that drives the economy defies any common-sense understanding of what adds to the wealth of a nation. The point of health-care spending is not to fuel the economy, create jobs, spur new technologies, or provide profits for shareholders. The raison d'etre of health care is simply to improve our health. And the question, “How much is an extra year of life worth?” is an emotional red herring that distracts from the more important debate: How do we cut waste and get better value for our health-care dollars?
Maggie Mahar is the author of Money-Driven Medicine: The Real Reason Health Care Costs So Much (Harper/Collins, 2006).
If you enjoyed this article, subscribe to The American Prospect here.
Support independent media with a tax-deductible donation here.
