Thursday, August 20, 2009

Quick Note: Source for health care spending data

In a comment, I was asked:

"Health care expenditures in this country are already half public . . ."

I have heard this before, but can't find a source. Can you suggest one?
This is an important issue. So many statistics are thrown around in political debates, and rarely are the sources referenced. My sources for the above statement have been multiple, but today I tracked down where the figures originated from.

One source is a report from Dept. of Health and Human Services, the "Long-Term Growth of Medical Expenditures — Public and Private" The first pie chart visually compares public and private funding from 1960 and 2003. (Purple is public, blue is private)

Another data source is the Center for Medicare and Medicaid Services, a division of the Dept. of Health and Human Services. See: National Health Expenditures>>Historical. Scroll down to Downloads, and then retrieve the "NHE summary including share of GPD, CY 1960-2007." If you open this spreadsheet, you will find the following data for 2007:

National health exp.

Private $ 1,205.50 billion -- 53.8%

Public $1,035.70 billion -- 46.2%

Total: $ 2,241.20 billion

In order to be more accurate, I should change my statement to read "Health care expenditures in this country are nearly half public . .." But this does not change the underlying principle that since 1960 there has been an explosive growth in government's share of health care funding. This growth has been accompanied by a similar increase in government regulation and control of the shrinking private sector--which adds even more to the cost of providing care.



Anonymous said...

This provides an interesting perspective on our health care expenditures. It is certainly something we should monitor in relation to our ability to fund the expenditures. Before we get alarmed, though, we need to consider the change in the demographics that might account for the increase in Medicare spending, as well as the introduction of new tests and procedures that add to the cost of care, among other contributing factors.

The latter consideration is a perennial source of attack on the pharmaceutical industry. Pharmaceutical costs are often cited as the fastest increasing cost in health care. It may well be. But before blame is assigned, we need to consider what we are getting for our money. If someone cares to look, I think they would find that we are treating more diseases per capita than we were a few years ago due to new medicines. And diseases we could treat a few years ago are treated more effectively, with fewer side effects. It just may be that the pharmaceutical and biotechnology industries are better at expanding the reach and effectiveness of health care than are the surgical specialties or other forms of care. Is that a problem?

If it is, take two aspirin and call me in the morning. That will cut pharmacy costs to the bone.


Anonymous said...

An older post about giving $20 to someone where you work (see Obama try this at home). Once again a key parameter was overlooked. The authors of the original piece as well as the comments failed to ask about the propensity to spend. If both the giver and recipient of the $20 have equal propensity to spend, nothing changes. However, if the recipient is more prone to spend a greater proportion of the money because it is not his, then there will be a stimulating effect on the economy. I think economic research supports the notion that people will more readily spend 'found' money than earned money. Whether all this is beneficial or detrimental to the long run economy is another story all together, and involves consideration of savings rates, capital formation and economic growth.

My point is that none of the question being entertained here are simple, and simplistic answers are appealing but not necessarily informative.

Anonymous 1

Beth said...

Thank you for your comments.

I think your point about what we are getting for the money we are spending on health care is an excellent one. I do not think that how much we are spending necessarily is a problem in and of itself.

In regards to the increase in pharmaceutical expenditures, not only are we treating more diseases more effectively, the use of drugs in many cases has decreased reliance on other more expensive treatments.

A few examples:

When I was in medical school, (1978-83) ulcers were treated surgically at great cost. The introduction of H-2 blockers (cimetidine, ranitidine, etc.) meant that expensive hospital stays and surgeries (and the related complications) were replaced by medications, many of which are now available over-the-counter. Even these drugs only managed the problem. With the discovery of a bacterial origin of gastric ulcers, the problem is now frequently cured with antibiotics.

Another example is the management of atherosclerotic heart disease. Many potentially crippling or fatal heart attacks are prevented through medications. In addition, the previous heavy reliance on emergency surgeries and/or cardiac catheterization has been significantly replaced by clot-dissolving drugs.

So your point is well taken that much of the pharmaceutical spending is actually beneficial (provides great value for the money spent.) In addition, it is also more cost-effective. Better questions to ask woudl be 1) what adds unnecessary expense and use of scarce resources, and 2) what is the best way minimize waste.

I hope to address the "more spending issue in greater detail in a future post --but really need first to finish my post on comparing the administrative costs of public and private means for funding health care.

In regards to the "found" $20--I disagree with your analysis as it treats saving as not spending. Savings (unless simply stuck under a mattress) are invested. Investments go to productive spending (as opposed to consumptive spending) which in the long run is the real engine of productivity and prosperity.

In regards to your final comment on the complexity of the problem:

Many factors are involved and the manifestations of the problem are numerous. That does not preclude looking for fundamental underlying factors which can explain much of the phenomena. In a disease, the symptoms can be varied and appear complex, but once the cause of the disease is properly identified and understood, that complexity is vastly simplified---and that simplification is beneficial. "Simple" answers will in fact be helpful if they are based on the identification of essential fundamentals. The real danger is to erroneously OVERsimplify and to fail to recognize that mistake.

Thank you again for contributing your thoughts. I hope the above elaborations provide further clarification of mine.

Anonymous said...

Pt 1:

At the risk of getting wrapped around the axle, let me point out that spending is a short run economic phenomenon and investing is a long run phenomenon. Your comment regarding the two brings to mind a question. Mises asserts that government manipulation of the money supply causes the boom and bust cycle, but that the boom/bust cycle is only a symptom, not the problem. The problem is misallocation of capital. So, if too many people save too much, when and economy gets moving again will interest rates be low enough to cause the misallocation of capital? According to the Austrians it should be self correcting, but on what time scale, and after how much misallocation?

More important are your questions about unnecessary medical expense. In addition to the way medical students are trained -- habituated to do all the tests by seizing every excuse to do the tests so they can be trained on the tests, which of course is exacerbated by the fear that if they don't do the tests and something goes wrong they will be fried in court -- the current "insurance" system adds unnecessary expense. It really isn't insurance, it's actually a third party that we pay handsomely to take care of routine bills, as well as provide insurance. As a result the market is distorted and neither the patient nor the provider is getting a fair market value. Why? Look at the exchange from the ground up.

A doctor's office visit is worth about $120, or so, for primary care. I take my kids to the doctor and pay a $15 co-pay. As a result of my perception of a $15 cost I might (and have) take my child for a throat swab at the first complaint of a sore throat, before there is even enough strep to produce a positive test. Then I take them again in a few days, when the sore throat doesn't resolve, to get a positive test. Simple example, but it just doubled the cost of an office visit for a sore throat. Compound this by the domino effect of how this influences our decisions about what we eat, how much we exercise, and how much we drink and smoke, and, well, you can do the math.

Now look at the other side of the exchange. The provider is not negotiating with the customer (patient), nor is he or she negotiating in a local market. Insurance companies have collected patients together and introduced a dominating buyer power into the market, making providers price takers -- they have to take whatever price the market (i.e. insurance companies) offer. This situation usually arises when the product is a commodity or when many alternatives exist, but in health care it results from a distortion introduced by insurance companies. And insurance companies don't even have anything to do with the exchange, save skimming about 30% off the top for administrative costs and profits.

(Please note that I am simply pointing out facts and observations here. I am not ranting and raving about guns and force and slavery, nor am I suggesting that other points of view are sinister or that those who hold them are evil.)


Anonymous said...


Having said all that, any system that provides 'free' health care will exacerbate the problem, even the plans currently under consideration. The problem is that the two teams that we call our government are so wrapped up in competition they instinctively oppose whatever the other side proposes, even to the point of proposing that which is diametrically opposed to what they think the other side would propose.

A better system, proposed by Tim Harford ("The Undercover Economist"), comprises publicly assited Health Savings Accounts (HSA's) and catastrophic insurance that kicks in at some predefined deductible level. In his scheme everyone gets a tax-free HSA, individually funded for those who can afford, and publicly funded on a sliding scale for those who can't. Routine health care is purchased, cash on the barrel head, using the money in the HSA. Catastrophic events would be handled with catastrophic (i.e. "real") insurance. And, perhaps as a last resort, the government could provide reinsurance, so no one is denied. This would reduce the cost of routine health care by the 30% due to administrative fees, as well as an additional amount due to personal responsibility. I know I would not be so fast to get a throat swab if it cost me $100 a pop; I would wait a few days, so the test would be more reliable.

Harford's scenario includes mandated HSA funding through taxes starting at age 18, so that by the time the average person reaches 40, or so, the HSA has enough money to see them through. Additionally, HSA's would be bequeathable, so healthier families would amass health care wealth. The resultant disparity in fortunes due to the genetically dealt hand is a problem from my perspective, and the mandated/public funding is bound to be a problem from the objectivist (every man for himself) point of view.

Unfortunately, I know of no serious attempt to work through any of problems associated with Harford's scheme, even though he proposed it years ago. Instead we have a huge argument precipitated because the Republicans favor an "every man for himself" solution, which requires that the Democrats propose a government savior approach.

I think there is a happy medium. Unfortunately it will not be found if we continue to vilify the other side or speak in terms of theft or force at the point of a gun.


Beth said...

RE: "It really isn't insurance, it's actually a third party that we pay handsomely to take care of routine bills, as well as provide insurance."

In your following analysis, if you substitute "third-party payer" for "insurance" (which would include the government payments as well as private) then I think it would get much closer to defining the problem. Normal market forces are NOT operating in our current system.

I think it is important to also look at the government interventions which gave rise to the current dominance of third-party payment in the structure of private insurance. There are two good articles which I need to look up in order to provide the links which will provided more detailed background on these two issues. I will post them later.

Also--as I continue to work on a post which will examine administrative costs, I would love to look at your source(s) for the 30% figure you have quoted. I have not found anywhere which uses a figure that high.

Do you have a specific link to Harford that you can recommend?

Thanks again for your contributions.

Beth said...

I found that article reference. I also had referenced it in an earlier response to a comment by you following a different post. (It's a challenge to keep a coherent thread going in this format.)

The article is by Arthur Laffer (of the Laffer curve): "The Prognosis for National Health Insurance"

He also wrote an op-ed for the WSJ which briefly introduces his points: "How to fix the Health-Care Wedge".