A central issue in the debate over health care reform is spending. The consensus seems to be that the steady increases we have seen in health care expenditures as a percentage of GDP are symptomatic of a dysfunctional delivery system badly in need of repair.
Not everyone endorses this gloomy perspective, however. In a recent article in the Quarterly Journal of Economics, Robert E. Hall and Charles I. Jones argue that, as our incomes grow, it makes perfect sense to invest more money in good health and longer life:
Is the growth of health spending a rational response to changing economic conditions—notably the growth of income per person? We develop a model based on standard economic assumptions and argue that this is indeed the case.
Unfortunately, being economists, these guys use a good bit of impenetrable jargon:
Standard preferences—of the kind used widely in economics to study consumption, asset pricing, and labor supply—imply that health spending is a superior good with an income elasticity well above one.
Huh? All they’re saying here is that health care is a species of luxury good. Thus, as our disposable income increases, we choose to devote more of it to health care. And, Lefty agitprop notwithstanding, we’re getting our money’s worth.
Over the past half century, Americans spent a rising share of total economic resources on health and enjoyed substantially longer lives as a result.
Something to think about the next time some advocate of government-run health care uses rising costs as a justification for turning our entire medical delivery system over to Uncle Sam.
Comments 3
If we were to spend more money on “good health and a longer life” the increase of the GDP would go to weight loss, gym memberships and healthier food. Most of the health care dollar is spent when sick, which happens when you “dont” spend on those other things. As far as a “substantially longer life” as compared to who? note, longer doesnt mean better.
Posted 08 Nov 2007 at 12:13 pm ¶Those are great observations drmatt. I think we really need to look at the preventitive dollar and the economics of that dollar to find and accurate snapshot. When a person is healthy, they tend to take it for granted. I am assuming that you are a medical doctor, so you probably see this daily. This all is represented when you look at a marginal utility curve and how each person sits on that curve. With the law of diminishing marginal utility and the history of medical science, we can safely say that no matter how much we spend on healthcare, all our bodies will fail at one time or another and they will eventually fail terminally. With perfect information, utility curves can describe fairly accurately an individual’s decision making. If they see a higher value in one curve than another, they will likely choose the higher curve. All these curves are completely relative to the individual. I could look at Michael Moore and say he would probably get more value out of an excersize and diet regimen, however he may see more value in sitting at his desk or in front of a reviewing screen going over ideas for a new project. That also supports your assertion that longer doesn’t mean better. If he had persued a diet and excersize regimen, he may not have had time to make his films and would have less enjoyment out of his life.
Posted 09 Nov 2007 at 10:50 am ¶yes, medical doctor, and you likely someone who works with numbers? Health care is tricky, and you are absolutley right that there is a person to person value and negotiating quality versus quantity, which in my office and (economically) I can see two very medically, demographicaly similar people and do two very different things to come up with two very different (hopefully equally satisfying) outcomes.
Posted 09 Nov 2007 at 3:21 pm ¶Post a Comment