A recent article in the New England Journal of Medicine by an economist (David Cutler) and two M.D.‚Äôs (Allison Brown and Sandeep Vijan), summarized last week in articles in the New York Times and the Wall Street Journal, presents estimates of the contribution of medical spending to longevity. U.S. life expectancy at birth has increased by about 7 years (from 70 to 77) since 1960, and the authors, estimating that half this increase is due to medical spending rather than to life-style changes (such as reduced cigarette smoking and safer cars and working conditions), divide aggregate medical spending by the increase in longevity to generate an estimate of the cost of extending life by one year. The authors recognize that much medical spending does not increase life expectancy but does create utility by curing or alleviating medical conditions that do not cause death (blindness and deafness are examples). This implies that their estimates substantially understate the benefits of the spending.
The authors find that inflation-adjusted medical spending since 1960 has on average extended life at a cost of slightly under $20,000 for each year of added life, but that the cost has been growing and is now almost double that, and that when it comes to extending the life of elderly people (65 and up), the current cost per year is $145,000. This range is plausible because 90 percent of the increase in life expectancy, the authors find, has resulted from reduced infant mortality (due largely to better medical treatment for the health problems of premature babies) and reduced death from heart disease, and the treatments for these conditions tend not to be very expensive‚Äîmuch treatment of heart disease consists of prophylactic drug therapy to reduce blood pressure and cholesterol. Keeping old people alive is much more challenging, involving as it does frequent hospitalizations and treatments with increasingly expensive but not very effective cancer drugs. (The authors find that cancer treatment is responsible for only 3 percent of the increased life expectancy since 1960.)
When one considers the value that people attach to their lives (the current average estimate of the value of life of Americans, inferred from their behavior toward risk, is $7 million, though this figure has little significance in the case of elderly and dying patients, who are in fact the principal consumers of health care), the costs incurred in extending the life expectancy of infants and children, young adults, and middle-aged people seem modest, especially when one remembers that medical spending enhances utility in many ways besides just adding years to life. But even without regard to the special problem of medical spending on the elderly, there is a marked discrepancy between marginal costs and marginal benefits. The discrepancy occurs at two levels. Most of the increase in life expectancy that is attributable to medical care is, as I have already hinted at, probably due to relatively inexpensive and rather routine medical interventions, including better prenatal and natal care, blood pressure and cholesterol drugs, angiograms and angioplasty, and coronary bypass surgery (the last is hardly inexpensive, but it no longer requires a prolonged hospital stay, so it is not comparable in cost to treating a chronic disease, such as renal failure). Suppose that 90 percent of the increased longevity due to medical spending is attributable to the first $5,000 spent per year; then aggregate medical spending could be grossly in excess of any reasonable estimate of incremental benefits. The last $15,000 might be purchasing longevity increases measured in days rather than years. An example is dialysis treatment, which is very costly, for dying patients.
This phenomenon is likely to be most pronounced in the case of the elderly. I can speak from my own experience. My father died a few days short of his 96th birthday. He had been in pretty good shape until about six months before his death, and until his terminal decline his lifetime medical expenditures had been quite modest. In the last six months of his life, however, he incurred total medical bills of about $300,000, virtually all paid for by a combination of Medicare and private Medigap (also known as "Medicare Supplementa") insurance. The maximum extension of his life that this expenditure could have bought was six months, but that is plainly an overestimate, since his deterioration was gradual. The quality of his life during this period was poor, though it would have been even poorer without medical treatment. Because people fear death and his treatment was virtually costless to him, he did not choose to forgo any of the treatments offered him. That was a perfectly rational choice, but the economic implications are disturbing. With Medicare supplemented by private insurance, we attain an almost complete divorce between benefit and cost: the patient (and his family) receives all the benefit, and the taxpayer (and the members of private insurance pools) pays all the cost. The incentives for economizing are very weak. The problem is growing as the number of elderly Americans increases along with the cost of advanced medical treatments.
The only solution to the problem that I can think of, brutal as it sounds, is to reduce Medicare benefits. If the slack is taken up by increased private spending, well and good; that would just show that the elderly and their families really do place a very high value on trivial extensions of a not very pleasant life. But the slack will not be taken up fully by private spending, because most people have limited financial means. Although hospitals will not refuse emergency treatment to people who cannot pay for it, they will not provide the most advanced treatments to such people. So cutting public benefits would result in a real reduction in medical spending on the elderly. There would be a loss of utility but in my judgment it would be more than offset by the savings to the taxpayer. If my father's case is typical, expensive efforts to extend the life of elderly people by a few months do not generate proportionate benefits.