[atomic_rabbit]

The blog Random Critical Analysis has made a good argument that Americans spend so much on healthcare simply because Americans spend so much on everything. Healthcare isn't exceptional in this regard. If you replace the usual GDP per capita measure of income by a measure of actual individual consumption, the US lies right on the trend line, just with higher healthcare spending and higher overall consumption than everyone else.

https://randomcriticalanalysis.com/2018/11/19/why-everything...

[rgbrenner]

The US healthcare system is not a free market. The pricing system--critical to any free market--is broken when it comes to healthcare. Customers are unable to shop on price (even for non-emergency care).. but also the AMA limits the number of doctors; and hospitals require a certificate of need (giving competitors a veto over new businesses), for example.

It isn't just that we spend more... if that was the only issue, then everything would be fine because we would be obtaining what we paid for.

But since it's not an efficient free market... the fact that we spend more only increases the urgency that we reform the system... since those inefficiencies become so huge in a system that accounts for such a big portion of GDP.

So while RCA's analysis might be perfectly correct... unless he also proves that the healthcare market is at least as efficient as a free market system... then we still need to reform it.

[yellowstuff]

A post from RCA's blog a year ago addresses that more directly:

https://randomcriticalanalysis.com/2018/11/19/why-everything...

He argues very convincingly that high income leads to high health care spending very directly. Not only is the US not an outlier in terms of inefficiency, but he can't find any compelling examples of countries significantly improving on health care spending predicted by actual household income. (Other countries have better health outcomes, but not significantly less spending relative to income.) So while common sense indicates that there's lots of room to reform the system, analysis of data from around the world indicates that no one's been able to do much to avoid spending roughly a fixed percent of actual income on health care.

> The most successful cost containment regime in the OECD was probably the UK (NHS), which was perhaps an accident of history. They rationed particularly aggressively and managed to hold costs substantially below what we would expect for a country of its wealth for a few more years than usual.

> However, people (voters) ultimately wouldn’t stand for it, so this rationing effort was radically reduced (budgets expanded). Today they are much closer to expected spending levels.

[beagle3]

First time I hear of RCA, I will have to read the analysis to evaluate, and it might already have been addressed, but ...

a) many (perhaps the majority, don't have time to source now) of the bankruptcies in the US are due to medical issues and spending, and at least 75% IIRC of those going bankrupt from medical spending HAD insurance. This is practically unheard of outside the US.

b) The rate of growth of US spending on healthcare, especially government spending on healthcare, far outstrips the rate of growth of money / wages / any other measure of something that can pay for it.

c) The same medicines by the same manufacturers and often the same production lines (not just equivalents or generics, which are much cheaper still!) often cost 10-100 times more in the US than they do in other places. The DaraPrim and QuestCor cases are famous for being outliers, but they are only outliers in the speed of price increase, not in the fact that prices in the US (but not outside the US) keep going up irrespective of costs.

It was not until I lived in new york that I heard gainfully employed people say things like "I have to stitch my cuts my self because I cannot afford medical care"; neither could I understand George Carlin's "dirty doctor" joke.

So perhaps the overall spending/GDP analysis is not direct proof, but the US medical and healthcare system is very, very sick. Karl Deninger at the https://market-ticker.org has been documenting these atrocities very dilligently since 2007.

[rcafdm]

> a) many (perhaps the majority, don't have time to source now) of the bankruptcies in the US are due to medical issues and spending

The vast majority of medical bankruptcies have nothing to do with the cost of medical care, but the disruption to career/income flow imposed by illness. This is clearly a problem in other countries as well.

https://www.nejm.org/doi/pdf/10.1056/NEJMp1716604

> The rate of growth of US spending on healthcare....far outstrips the rate of growth of money

This is true in other OECD countries too. Further, this doesn't mean what you think it does. As our productivity rises, the share spent on consumption categories with high productivity growth (increasingly low relative prices) can decline, which frees up spending to be spent on health and other areas subject to less productivity growth (the majority of the expenditure growth corresponds to rising real health consumption tho)

https://randomcriticalanalysis.com/2019/12/03/no-means-no-th...

> The same medicines by the same manufacturers and often the same production lines ... often cost 10-100 times more in the US than they do in other places

One might be able to find outliers of this sort, but that clearly doesn't reflect anything close to central tendencies (mean, median, mode, etc), especially when compared (accurately) to other high-income countries. Richer countries, like the US, generally pay relatively higher prices.

The US may pay a somewhat higher premium, but there are tradeoffs here vis-a-vis incentivizing innovation in the long run. It's also not widely appreciated that the US pays markedly less for generics....

[nradov]

Please stop posting misinformation about the AMA. It does not limit the number of doctors. The actual bottleneck is in residency slots, and the AMA is actually advocating to increase funding there.

https://www.ama-assn.org/press-center/press-releases/ama-fun...

Most patients are able to shop on price. The majority of insurers now provide web sites where their members can obtain estimates of out-of-pocket expenses for common treatments at network providers. There are still some gaps and room for improvement but most people are able to do price comparisons for non-emergency care if they want to.

[koolba]

Bullshit. Trying to get prices from an insurance company requires hours of time, researching individual billing codes, and at best leads to a ballpark guess.

[nradov]

That's not true. Most insurers allow you to search by text and see an accurate estimate of what you would pay at each provider. Such features aren't universal yet but the majority of patients have access.

[IAmEveryone]

Your argument is circular: You are assuming a "free-market system" to be better than the US health care system. Then, you use this assumption to "prove" that US health care is suboptimal. Which in turn you're using to argue for a "free market" system.

They are making an empirical argument that pricing in the US is not actually out of line when compared to the correct base. This would imply that the US system is about as efficient as all others. And considering the differences between vastly different systems are almost negligible, it is also an argument that these systems are rather efficient. Because if there were easy wins with any specific measures, you would expect some systems to improve relative to others with skill or just luck.

[jk27277]

You can't spend more on everything, not on a percent of GDP basis. This is a stupid idea since every GDP is limited to 100%. If you spend more you have to take debt and spend future GDP

[rcafdm]

You absolutely can in real terms.

https://randomcriticalanalysis.com/2019/12/03/no-means-no-th...

Also while I agree that 100% of a GDP is a reasonable approximation of an upper limit in practice, that's not necessarily strictly true either. GDP measures domestic production, not the income available to residents. The income available to residents can certainly be much less than GDP (e.g., Ireland, Luxembourg, etc), so the reverse can be true in principle too.

[cma]

Since healthcare is priced into every salary, I'd expect at least some big portion to come through on non-imported goods (though if it was 2X it wouldn't on its own bring every other thing to 2X).

[rcafdm]

I’m not sure what you’re getting at. Obviously, healthcare must be paid for somehow and it’s a fair assumption workers bear most of the incidence. However, the role of real incomes and relative prices are generally under appreciated here.ie. It’s not so much that health benefits are something extra as part of total remuneration (ultimately a reflection of rising productivity elsewhere which frees up spending to be allocated to health and other services)

[scythe]

I think he hasn’t sufficiently explained the curvature in this graph:

https://i2.wp.com/randomcriticalanalysis.com/wp-content/uplo...

Drawing that curved line is crucial for making the US appear to be on-trend. If you simply use a linear correlation — which seems more reasonable from first principles — you reproduce the US as an outlier, albeit with a slightly smaller z-score. We do see a good fit on the log-log plot (but anything fits a log-log plot) but there remains at least the open question of why the proportion of healthcare expenditures should increase with absolute household disposable income. Even if this is a global trend, it is still clearly not a sustainable one.

[rcafdm]

1, I can fit the US on a linear trend amongst high income countries.

2, there’s no necessary reason why increasing health share with rising real income is unsustainable. We can and have increased share spent on health while increasing real expenditures across the board.

3. I touch on some reasons why this may curve up and then eventually flatten out.

4. No, not everything fits on log-log slopes and us is very close to the trend.

https://randomcriticalanalysis.com/2019/12/03/no-means-no-th...

[scythe]

1. You didn’t.

2. Asymptotic growth towards 100% certainly sounds unsustainable.

3. You mention Baumol’s cost disease and the proportion of income spent on services, which is not so bad.

4. Log-log overfitting is a well-known phenomenon and a low deviation (particularly at the edge of the graph) doesn’t make it go away.

5. This claim, tucked between historical spending and nurse salaries, underpins much of the thesis, but is curiously unsubstantiated:

>Nor do we tend to find results consistent with this in wages, profits, and other proxies for (or presumed causes of) such issues in these sectors. On the contrary, the reliable statistics for healthcare (at least) shows prices have fallen relative to average nominal income and that most of the increase is therefore explained by rising real consumption (quantities per capita).

Healthcare prices are kind of the whole point here. The lower third of this country can’t afford essential care. Not only that, but we’ve seen the prices, and they’re ridiculous.

So if you have data about healthcare prices not being out of order, that seems a lot more relevant— and less cherry-picked — than the history of household spending on food consumption.

[rcafdm]

> 1. You didn’t.

https://i0.wp.com/randomcriticalanalysis.com/wp-content/uplo...

> 2. Asymptotic growth towards 100% certainly sounds unsustainable.

"Sounds" isn't an argument and I'm explicitly arguing the slope is likely to flatten, eventually. The point the income elasticity of health expenditure can be (is) well north of one and we can (and do) consume more of everything else at the same time.

https://randomcriticalanalysis.com/2019/12/03/no-means-no-th...

> Log-log overfitting

That isn't a thing. You can argue this specification minimizes the residuals at the high end if you want, but it's very likely to the correct modeling decision, it's bog standard in economics, and the US residual ~= 0 (certainly not notably high). It's also pretty obvious health expenditures are increasing in % terms and that failing to log-transform results in particularly poor model performance with constant slope out of sample.

https://i0.wp.com/randomcriticalanalysis.com/wp-content/uplo...

> So if you have data about healthcare prices not being out of order, that seems a lot more relevant

https://randomcriticalanalysis.com/2018/01/06/its-not-the-pr...

https://randomcriticalanalysis.com/2017/07/27/health-care-pr...

> The lower third of this country can’t afford essential care.

The lower third of the country consumes approximately the same amount of care as the rich, as in other high-income countries, and the socioeconomic gaps in other countries are likely comparable to even larger (depending on how measured).

https://randomcriticalanalysis.com/2017/04/15/some-useful-da...

https://twitter.com/RCAFDM/status/1203715358152167424

To the extent there are real and ultimately consequential issues with affordability for some small segment of our population, these aren't likely to be explained by aggregate costs or prices so much as by narrow details that we can tweak, i.e., without requiring massive change, should the political desire exist to do so.

> seems a lot more relevant— and less cherry-picked — than the history of household spending on food consumption.

Pardon me, but I was engaging with someone that was arguing this expenditure growth implied starvation and you're making very similar (wrong) arguments. Whether you appreciate it or not, the role of general increases in productivity, the source of real income growth in the long run, and differences in the rate of productivity growth in different sectors, which we are clearly reflected in prices, is very much on point. Food production is simply a way to make this concrete for people that struggle with abstractions like price indexes and relative prices.

[scythe]

>That isn't a thing. You can argue this specification minimizes the residuals at the high end if you want,

No, but yes.

>> So if you have data about healthcare prices not being out of order, that seems a lot more relevant

> https://randomcriticalanalysis.com/2018/01/06/its-not-the-pr....

> It is the consensus view amongst researchers that have published long-run analyses:

>https://www.cms.gov/research-statistics-data-and-systems/sta...

So I think it's interesting here that you make no mention of the explanation for HCE increases provided in the "consensus view" link.

>In health care research, the impact of medical technology on health care cost increases has always been a great unknown. Yet 81 percent of the leading health economists agreed with the statement, “The primary reason for the increase in the health sector’s share of GDP over the past 30 years is technological change in medicine”.1Growing attention to the role of technological change in driving growth in health spending, and to the costs and benefits associated with new medical innovation reflects an acknowledgement of the long-term dilemma posed by historically unsustainable rates of growth in medical costs, combined with an increasing consensus that technological advance is a major factor in driving this growth. The current acceleration in health spending growth - following the quiescent period accompanying the spread of managed care - brings troubling implications for the long-term viability of our current system of financing and provision of health services. Understanding the magnitude of technology’s historical contribution to growth in costs is vital to the analysis of the future path of medical spending. Of course, in most areas of the economy a rapid pace of technological advance is regarded as a good thing. That this is not the case for medical care reflects a second point of consensus. Throughout much of history, imperfections in medical care markets have failed to provide incentives for the cost-effective provision of medical services, encouraging the development and diffusion of innovations beyond the point that would prevail under competitive market conditions. Low out-of-pocket costs for medical care due to insurance coverage, combined with patients’ lack of full information on the services they consume encourage the provision of medical care to a point where the marginal benefit of treatment to the patient is small relative to its marginal cost.

You can hand-wave this as "increased consumption", if you want, but it is:

- recognized as an anomaly

- considered a point of concern

- likely to lead to cost reductions if fixed

In other words, this is precisely the sort of phenomenon you are arguing does not exist in US healthcare!

[rcafdm]

> Yet 81 percent of the leading health economists agreed with the statement, “The primary reason for the increase in the health sector’s share of GDP over the past 30 years is technological change in medicine"

I've highlighted the role of technological change on my blog before, but technological change is a major proximate cause. The root cause is income growth. Countries are chasing these technological advancements in direct proportion to their income and the degree to which they can afford them (as prices fall, countries with lower real incomes are more able to afford technologies the US and other rich countries had long before, but the frontier has long since moved on....). If you throw year fixed-effects or a time trend into analysis the coefficient on time (a proxy for tech chg) is very modest and the income effects are virtually identical.