The United States spends more than any other country on medical care both absolutely and relative to GDP. Medical spending has increased rapidly since 1965, and if past trends continue-a big "if"!- health care would absorb a quarter of American incomes by the year 2050. Trends in medical spending in Europe and Japan are also up, although their rates of increase are slower than in America. Most past increases in this spending are not due to aging populations, but to greater spending at all ages, in large measure due to advances in expensive medical technologies.
Rapidly growing health costs have led to numerous discussions of how to improve the health delivery system to cut down spending without significant effects on health. Much can be done to improve efficiency, but I will mainly ignore questions of greater competitiveness in the health delivery system, larger co-payments, a more effective way to cover spending on drugs by the elderly, and other ways to raise efficiency of health delivery. Instead, I discuss benefits from health spending, and whether benefits can justify costs.
In the article in The New England Journal of Medicine cited by Posner, David Cutler and two co-authors claim that increased medical spending had much to do with the lengthening of life expectancy during the past several decades. They particularly relate medical spending to improved survival rates of infants and from heart disease. After using estimates from various studies on the value individuals place on additional years- about $140,000 per year at prime ages- they conclude that perhaps the big increase in medical spending was justified by the size of improvements in life expectancy. Since their calculations are not precise, the authors might have overestimated the contribution of medical spending to the growth in life expectancy. On the other hand, in one important respect they underestimate the contribution of medical spending, for they do not measure its effect on the large improvement in the quality of life for individuals who contract major diseases.
Any calculation of the benefit-cost ratio of medical spending must confront the fact- as Posner does- that more than ¬º of all medical spending goes to people over age 65. Posner argues that too much is spent by the United States on the elderly because the cost of extending their lives is high, and the benefits are low since they often do not live much longer and frequently have a low quality of life. Posner is surely right that the elderly would not choose to spend as much of their own resources on their health if they could not rely on taxpayers to foot most of the bill. Countries like The Netherlands and France spend much less on the elderly's health than the U.S. does when this spending would contribute little either to improved life expectancy or to a decent quality of life.
Still, several considerations seriously qualify the conclusion that too much is spent on extending the lives of elderly American men and women. One mentioned in passing by Posner I consider quite important; namely, that the vast majority of people have an enormous fear of death. Given this fear, people try to postpone the inevitable as long as they can, even if that would mean spending much of their own resources on modest extensions of their lives. They would partly spend indirectly by contracting for expensive private health insurance that covers payments even for small life extensions. Old persons would spend less if they did not receive subsidies since the elderly who get sick have fewer resources than taxpayers, but older persons would still spend a sizable fraction of their own resources to extend their lives.
Another important factor is the altruism and concern of others toward the elderly who are seriously ill. In addition, without much public spending on the very sick, the US media would go on about the "mean-spirited" younger taxpayers who are unwilling to shell out to provide an 85 year old with an operation or drug treatment that might conceivably keep him or her alive for a while longer. I believe the combination of altruism and politics is the crucial factor in explaining the large public spending on the elderly.
The growing fear of death as people age, altruism toward seriously ill older persons, and bad publicity from withholding treatments that can help the elderly live longer or have a better quality of life, even if only by a little, make it difficult for me to conclude that the large medical spending to extend the lives of elderly persons is clearly socially wasteful.