Robert Samuelson did a classic misrepresentation of data in his column today. He told readers that people spend pretty much the same amount of money on health care regardless of income. He blamed this on government health care programs like Medicare and Medicaid which pick up much of the tab for low-income people. He sees this as a problem because it leads us to spend a great deal on health care procedures that often have little value in terms of improving health. There are two big problems with Samuelson's analysis. First, the relative equality of spending is hugely driven by age (the elderly largely fall in the bottom quintile), which Samuelson notes in passing. This is important because old people need health care, young people don't. Most young people spend little on health care and they would still spend little on health care even if their incomes increased by a factor of ten. (Do people go to the doctor for fun?) Controlling for age, rich people do spend substantially more on health care than poor people, although not as much more as would be the case without government assistance. The other problem with Samuelson's analysis is that often the "expensive" procedures are not really expensive in the sense of using substantial resources, they are only expensive because the government hands out patent monopolies. This is the case with expensive drugs and tests. In almost all cases drugs would be very cheap without patent protection as would even the most high tech medical tests and scanning procedures. However, patent monopolies can allow firms to charge exorbitant prices. This is important in this context because if we deny this "expensive" care to the poor, we are not actually saving resources for society, we are just preventing them from getting care that could have important health benefits. The logical way to get around this problem is to consider more efficient mechanisms than patent monopolies for supporting biomedical research. Unfortunately, because of the power of the pharmaceutical and medical supply industry, economists rarely consider alternatives to patent protection and the media will rarely allow the issue to be discussed. (General Electric, a major supplier of medical equipment, owns NBC.)
--Dean Baker
