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The blog Random Critical Analysis has made a good argument that Americans spend so much on healthcare simply because Americans spend so much on everything. Heal

The blog Random Critical Analysis has made a good argument that Americans spend so much on healthcare simply because Americans spend so much on everything. Healthcare isn't exceptional in this regard. If you replace the usual GDP per capita measure of income by a measure of actual individual consumption, the US lies right on the trend line, just with higher healthcare spending and higher overall consumption than everyone else. https://randomcriticalanalysis.com/2018/11/19/why-everything-you-know-about-healthcare-is-wrong-in-one-million-charts-a-response-to-noah-smith/ https://randomcriticalanalysis.com/2018/11/19/why-everything...

jk27277 7y ago
You can't spend more on everything, not on a percent of GDP basis. This is a stupid idea since every GDP is limited to 100%. If you spend more you have to take debt and spend future GDP
- rcafdm 7y ago
  You absolutely can in real terms. https://randomcriticalanalysis.com/2019/12/03/no-means-no-the-high-income-elasticity-of-health-expenditure-does-not-mean-we-are-going-to-starve/ https://randomcriticalanalysis.com/2019/12/03/no-means-no-th... Also while I agree that 100% of a GDP is a reasonable approximation of an upper limit in practice, that's not necessarily strictly true either. GDP measures domestic production, not the income available to residents. The income available to residents can certainly be much less than GDP (e.g., Ireland, Luxembourg, etc), so the reverse can be true in principle too.
  - cma 7y ago
    Since healthcare is priced into every salary, I'd expect at least some big portion to come through on non-imported goods (though if it was 2X it wouldn't on its own bring every other thing to 2X).
    - rcafdm 7y ago
      I’m not sure what you’re getting at. Obviously, healthcare must be paid for somehow and it’s a fair assumption workers bear most of the incidence. However, the role of real incomes and relative prices are generally under appreciated here.ie. It’s not so much that health benefits are something extra as part of total remuneration (ultimately a reflection of rising productivity elsewhere which frees up spending to be allocated to health and other services)
rgbrenner 7y ago
The US healthcare system is not a free market. The pricing system--critical to any free market--is broken when it comes to healthcare. Customers are unable to shop on price (even for non-emergency care).. but also the AMA limits the number of doctors; and hospitals require a certificate of need (giving competitors a veto over new businesses), for example. It isn't just that we spend more... if that was the only issue, then everything would be fine because we would be obtaining what we paid for. But since it's not an efficient free market... the fact that we spend more only increases the urgency that we reform the system... since those inefficiencies become so huge in a system that accounts for such a big portion of GDP. So while RCA's analysis might be perfectly correct... unless he also proves that the healthcare market is at least as efficient as a free market system... then we still need to reform it.
- nradov 7y ago
  Please stop posting misinformation about the AMA. It does not limit the number of doctors. The actual bottleneck is in residency slots, and the AMA is actually advocating to increase funding there. https://www.ama-assn.org/press-center/press-releases/ama-fund-graduate-medical-education-address-physician-shortages https://www.ama-assn.org/press-center/press-releases/ama-fun... Most patients are able to shop on price. The majority of insurers now provide web sites where their members can obtain estimates of out-of-pocket expenses for common treatments at network providers. There are still some gaps and room for improvement but most people are able to do price comparisons for non-emergency care if they want to.
  - koolba 7y ago
    Bullshit. Trying to get prices from an insurance company requires hours of time, researching individual billing codes, and at best leads to a ballpark guess.
    - nradov 7y ago
      That's not true. Most insurers allow you to search by text and see an accurate estimate of what you would pay at each provider. Such features aren't universal yet but the majority of patients have access.
scythe 7y ago
I think he hasn’t sufficiently explained the curvature in this graph: https://i2.wp.com/randomcriticalanalysis.com/wp-content/uploads/2018/10/screenshot_3405.png?ssl=1 https://i2.wp.com/randomcriticalanalysis.com/wp-content/uplo... Drawing that curved line is crucial for making the US appear to be on-trend. If you simply use a linear correlation — which seems more reasonable from first principles — you reproduce the US as an outlier, albeit with a slightly smaller z-score. We do see a good fit on the log-log plot (but anything fits a log-log plot) but there remains at least the open question of why the proportion of healthcare expenditures should increase with absolute household disposable income. Even if this is a global trend, it is still clearly not a sustainable one.
- rcafdm 7y ago
  1, I can fit the US on a linear trend amongst high income countries. 2, there’s no necessary reason why increasing health share with rising real income is unsustainable. We can and have increased share spent on health while increasing real expenditures across the board. 3. I touch on some reasons why this may curve up and then eventually flatten out. 4. No, not everything fits on log-log slopes and us is very close to the trend. https://randomcriticalanalysis.com/2019/12/03/no-means-no-the-high-income-elasticity-of-health-expenditure-does-not-mean-we-are-going-to-starve/ https://randomcriticalanalysis.com/2019/12/03/no-means-no-th...
  - scythe 7y ago
    1. You didn’t. 2. Asymptotic growth towards 100% certainly sounds unsustainable. 3. You mention Baumol’s cost disease and the proportion of income spent on services, which is not so bad. 4. Log-log overfitting is a well-known phenomenon and a low deviation (particularly at the edge of the graph) doesn’t make it go away. 5. This claim, tucked between historical spending and nurse salaries, underpins much of the thesis, but is curiously unsubstantiated: >Nor do we tend to find results consistent with this in wages, profits, and other proxies for (or presumed causes of) such issues in these sectors. On the contrary, the reliable statistics for healthcare (at least) shows prices have fallen relative to average nominal income and that most of the increase is therefore explained by rising real consumption (quantities per capita). Healthcare prices are kind of the whole point here. The lower third of this country can’t afford essential care. Not only that, but we’ve seen the prices, and they’re ridiculous. So if you have data about healthcare prices not being out of order, that seems a lot more relevant— and less cherry-picked — than the history of household spending on food consumption.

jk27277 7y ago

You can't spend more on everything, not on a percent of GDP basis. This is a stupid idea since every GDP is limited to 100%. If you spend more you have to take debt and spend future GDP

rcafdm 7y ago
You absolutely can in real terms. https://randomcriticalanalysis.com/2019/12/03/no-means-no-the-high-income-elasticity-of-health-expenditure-does-not-mean-we-are-going-to-starve/ https://randomcriticalanalysis.com/2019/12/03/no-means-no-th... Also while I agree that 100% of a GDP is a reasonable approximation of an upper limit in practice, that's not necessarily strictly true either. GDP measures domestic production, not the income available to residents. The income available to residents can certainly be much less than GDP (e.g., Ireland, Luxembourg, etc), so the reverse can be true in principle too.
- cma 7y ago
  Since healthcare is priced into every salary, I'd expect at least some big portion to come through on non-imported goods (though if it was 2X it wouldn't on its own bring every other thing to 2X).
  - rcafdm 7y ago
    I’m not sure what you’re getting at. Obviously, healthcare must be paid for somehow and it’s a fair assumption workers bear most of the incidence. However, the role of real incomes and relative prices are generally under appreciated here.ie. It’s not so much that health benefits are something extra as part of total remuneration (ultimately a reflection of rising productivity elsewhere which frees up spending to be allocated to health and other services)

rgbrenner 7y ago

The US healthcare system is not a free market. The pricing system--critical to any free market--is broken when it comes to healthcare. Customers are unable to shop on price (even for non-emergency care).. but also the AMA limits the number of doctors; and hospitals require a certificate of need (giving competitors a veto over new businesses), for example. It isn't just that we spend more... if that was the only issue, then everything would be fine because we would be obtaining what we paid for. But since it's not an efficient free market... the fact that we spend more only increases the urgency that we reform the system... since those inefficiencies become so huge in a system that accounts for such a big portion of GDP. So while RCA's analysis might be perfectly correct... unless he also proves that the healthcare market is at least as efficient as a free market system... then we still need to reform it.

nradov 7y ago
Please stop posting misinformation about the AMA. It does not limit the number of doctors. The actual bottleneck is in residency slots, and the AMA is actually advocating to increase funding there. https://www.ama-assn.org/press-center/press-releases/ama-fund-graduate-medical-education-address-physician-shortages https://www.ama-assn.org/press-center/press-releases/ama-fun... Most patients are able to shop on price. The majority of insurers now provide web sites where their members can obtain estimates of out-of-pocket expenses for common treatments at network providers. There are still some gaps and room for improvement but most people are able to do price comparisons for non-emergency care if they want to.
- koolba 7y ago
  Bullshit. Trying to get prices from an insurance company requires hours of time, researching individual billing codes, and at best leads to a ballpark guess.
  - nradov 7y ago
    That's not true. Most insurers allow you to search by text and see an accurate estimate of what you would pay at each provider. Such features aren't universal yet but the majority of patients have access.

scythe 7y ago

I think he hasn’t sufficiently explained the curvature in this graph: https://i2.wp.com/randomcriticalanalysis.com/wp-content/uploads/2018/10/screenshot_3405.png?ssl=1 https://i2.wp.com/randomcriticalanalysis.com/wp-content/uplo... Drawing that curved line is crucial for making the US appear to be on-trend. If you simply use a linear correlation — which seems more reasonable from first principles — you reproduce the US as an outlier, albeit with a slightly smaller z-score. We do see a good fit on the log-log plot (but anything fits a log-log plot) but there remains at least the open question of why the proportion of healthcare expenditures should increase with absolute household disposable income. Even if this is a global trend, it is still clearly not a sustainable one.

rcafdm 7y ago
1, I can fit the US on a linear trend amongst high income countries. 2, there’s no necessary reason why increasing health share with rising real income is unsustainable. We can and have increased share spent on health while increasing real expenditures across the board. 3. I touch on some reasons why this may curve up and then eventually flatten out. 4. No, not everything fits on log-log slopes and us is very close to the trend. https://randomcriticalanalysis.com/2019/12/03/no-means-no-the-high-income-elasticity-of-health-expenditure-does-not-mean-we-are-going-to-starve/ https://randomcriticalanalysis.com/2019/12/03/no-means-no-th...
- scythe 7y ago
  1. You didn’t. 2. Asymptotic growth towards 100% certainly sounds unsustainable. 3. You mention Baumol’s cost disease and the proportion of income spent on services, which is not so bad. 4. Log-log overfitting is a well-known phenomenon and a low deviation (particularly at the edge of the graph) doesn’t make it go away. 5. This claim, tucked between historical spending and nurse salaries, underpins much of the thesis, but is curiously unsubstantiated: >Nor do we tend to find results consistent with this in wages, profits, and other proxies for (or presumed causes of) such issues in these sectors. On the contrary, the reliable statistics for healthcare (at least) shows prices have fallen relative to average nominal income and that most of the increase is therefore explained by rising real consumption (quantities per capita). Healthcare prices are kind of the whole point here. The lower third of this country can’t afford essential care. Not only that, but we’ve seen the prices, and they’re ridiculous. So if you have data about healthcare prices not being out of order, that seems a lot more relevant— and less cherry-picked — than the history of household spending on food consumption.