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Something to Fear in Health Reform

Andrew Biggs: The problem is not that health spending is growing too rapidly--we want it to grow about as rapidly as it is. The problem is that the level of health spending is about twice what it should be. (I would add: and that the distribution of our health spending is all wrong as well.)

He writes:

A Dog in the Healthcare Fight: [S]pending on veterinary care... and national health expenditures (for people).... Two things are interesting here: first, the rate of growth of spending from 1984 to 2006 wasn’t all that different--and in both cases, spending grew faster than the rate of economic growth. As new technologies are developed for humans, we adopt them for Bowser and Fifi—because we can afford to and we think it’s worth it. I personally took my Alaskan Malamute to a Washington-area practice that was known as the “Mayo Clinic of veterinarians” —and I suspect this wasn’t because, like the real Mayo Clinic, it keeps costs low.

?But second, the level of spending was very, very different: we spend hundreds of times more on ourselves than on our pets. The main reason for this is obvious: we value our own lives and those of our families more than we do our pets or other animals. At the same time, however, veterinary care is one of the few areas of health where we are directly confronted with difficult decisions regarding the costs and benefits of additional treatments. As the famed RAND health experiment showed, out-of-pocket costs can significantly affect the level of health spending without changing health outcomes.

This again highlights that the real issue with healthcare may not be the rate of growth but the level of health spending--and the fact that so much of it seems to be wasteful. This distinction is important because it shapes our policy priorities. The level of spending has different causes than the rate of growth of spending, among them our healthcare system’s structural incentives to overspend. Rather than attempting merely to temper cost growth, plans that remove incentives for overspending, improve consumer choice, or pay doctors based on quality rather than quantity of service could reduce the overall level of spending.

Andrew is scared of a health reform focused on restraining the rate of growth of health spending that does so by slowing down the rate of adoption of new health techologies. The alternative--a health reform that gets us better value for our money and that leads us to spend less--gores powerful oxen because each dollar not spent will be a dollar that does not flow to the income of somebody who votes today. By constrast, the people who will die thirty years hence becaues we haven't invested in growing cloned kidneys don't know now who they are.

I am scared too.