Very fine comments; a few brief responses:
I apologize for having misnamed Cutler's coauthor as Allison Brown rather than Allison Rosen. However, I don't apologize for having described her as an M.D. That was not denigration! It is entirely appropriate that an article on the economics of health care should be written by an interdisciplinary team consisting of an economist and two M.D.s.
One commenter asked me whether I would have spent $300,000 on end of life medical care for my father. The answer is yes. But now ask me whether I would have spent that amount if it would have required me to take on heavy debt or give up my judgeship and got into private practice. The answer is that my father would not have wanted me to make that large a sacrifice merely to keep him alive for a few more months of a rather miserable existence because of his cascade of ailments and deficiencies.
If I had been paying, however, I would have been vigilant to make sure I wasn't overpaying and I would have avoided painful repetitive tests. That is the difference between a system in which people pay for medical and a system in which the government pays.
I do not favor coupling a reduction in Medicare benefits with imposing a ceiling on what rich people can spend out of their own wealth on medical care. There are three points. Because Medicare will not pay for highly experimental procedures and does not pay 100 percent of a person's medical bills, there is no doubt that rich people get on average better medical care than poor people. There really is no feasible way of equalizing medical expenditures across persons regardless of wealth. But second, the purpose of accumulating wealth is to be able to spend it; if you forbid people to spend it in their preferred ways, you are destroying wealth. Third, when scarce resources are not rationed by wealth, it doesn't mean that they are allocated more "fairly." Under any feasible system of nonprice rationing of medical care, one can be sure that big shots, people with connections, physicians' relatives, the big donors to hospitals, etc., will get the best care.
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.
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.
Good comments, including a couple of corrections of my errors: Lance Armstrong won seven straight Tours, not six, and I meant to write Barry Bonds, not his excellent ball-playing father Bobby.
Perhaps Armstrong used drugs and Landis did not, but I believe it was probably the opposite. However, I admit that neither claim is proved beyond a shadow of a doubt.
If exercise, diet, etc helps an athlete do better in baseball, football, cycling, and other sports, in the absence of regulation, participants would do these in amounts that exceed the optimal levels in their attempt to do better than others. In particular, they might exercise to the point that actually lowers their long run-health. If athletes in contests could control the amount of exercise that everyone takes, they would want to do so. Clearly, however, enforcement would be impossible, so they do not try to implement any controls.
My support of restrictions on the use of various drugs in organized support is not inconsistent with my support of legalizing drugs. I believe people should be free as individuals to use steroids and other drugs, but that is not the same as believing that major league baseball, or the Tour de France, should not have the right to limit the amounts of certain drugs or other chemicals used by participants. No one is forced to enter these races and contests. If bicycle fans want bicyclists to use drugs in races, those races that allowed them would prosper relative to those that did not. To be sure, this argument is less persuasive for major league baseball since they face little competition from other leagues, although baseball does face competition from other sports.
I am not advocating paternalism. "Paternalism" prevents certain behavior that people would engage in if they were not constrained by laws and regulations. Most athletes would support outlawing doping if that could be effectively enforced.
The analogy of drugs in sports to illegal immigrants is not apt. If employers were punished for using illegal workers, that cost has to be added to the cheaper wage of immigrants. If neither the immigrant nor employer had to fear punishment, there would be no competitive advantage from using illegal workers.