Health and Health Care Costs

Ezra Klein had an interesting post yesterday taking on the question of whether or not healthier lifestyles reduce health care costs. I think you can probably sum this up by saying: “it depends.”

What it depends on can get very complicated. But I think it’s probably best to oversimplify. You could control cost growth in Medicare by simply imposing a “global budget” on the program. Congress would decide how much Medicare can spend in any given year. Then within that budget constraint, health outcomes could be better or worse. Clearly, if the underlying health condition of the treated population is better, that will lead to better health outcomes. And if the health care spending is more efficient—directed at patients and treatments that are highly cost-effective, less waste, fewer medical errors—that will improve health outcomes. But none of that stuff will reduce health care costs because the costs are determined by the budget.

Alternatively, you could have some kind of target for health outcomes. We could try to maintain a stable “life expectancy at age 65″ across the population. Or we could do something more nuanced with Quality Adjusted Life Years. In that case, healthier lifestyles and more efficient medicine probably wouldn’t improve health outcomes. Instead, they’d reduce costs.

In either case, though, it’s not that healthier lifestyles do or don’t reduce costs, it has to do with how the healthier lifestyles interact with other elements of the system. At the end of the day, though, when you’re thinking about public policy it seems to me that it makes much more sense to make “better health outcomes” a policy goal rather than “less overall health care spending.” What’s upsetting about our current level of health care spending isn’t that it’s high, but that it seems to be incredibly wasteful.

If this chart were a symptom of a growing gap in health outcomes between the United States and the other countries on the list, then I think you’d say that was not such a crazy thing—more health care spending for better health. But that’s not what’s happening. Thus, one obvious way to improve health outcomes is to try to make our health care spending more efficient. And one way to do that is to direct some additional resources toward prevention and lifestyle issues.