Social Econ Blog

Americans are notoriously unhealthy, and our health care system provided few incentives to do better. In particular, our health care system does a woeful job of managing people with chronic problems.

In terms of improving the efficiency of the health care system, there are two parts to prevention. First, we need to make sure that healthy people don't end up sick. In particular, we want to encourage people to do what they can to avoid developing chronic problems. Second, once people develop chronic problems, we to manage them effectively so that we avoid costly "extreme" events.

As noted in class, 1% of patients comprise 35% of health care expenditures, and 70% of medical care costs come from people with chronic diseases. Doctor shows and conversations tend to focus on acute care (traumas, cancers, communicable diseases, maternity care, etc.), but the bulk of health dollars are in fact spent on people with chronic condistions like diabetes, congestive heart failure, coronary artery disease, asthma, and depression.

Many health problems (both acute and chronic) are preventable, but the health care system does little to encourage people to "be smart" because not everyone gets paid if people remain healthy. The two players in the system who would make money if people stayed healthy are individuals themselves and insurance companies (and perhaps employers who ultimately pay for insurance premiums). Individuals obviously need some help because we're not getting it done on our own in spite of the fact that most people are aware of their unhealthy habits. Insurance companies don't invest heavily in prevention because they know that the benefits of prevention today come in the form of better health tomorrow, but they know that it is very likely that when tomorrow comes you'll be covered by a different insurer.

Health care providers, sadly, have no financial incentive encourage prevention and efficiently manage chronic problems because they get paid more for doing more complicated stuff. One might argue that doctors should still do the right thing because if they make their patients healthier they should attract more patients, but patients don't know if they are receiving good care or not. As such, this mechanism for market correction doesn't function.

Furthermore, lack of communication and coordination among one's various doctors (in part due to lack of electronic medical records, in part due to the lack of incentives for effective coordination) impedes effective management of people with chronic problems (particularly those with several).

Many argue that improving prevention efforts would reduce health care costs substantially, but there is debate over whether or not the net savings would actually be very significant. Here's a nice summary of the prevention debate:

The theory goes like this: By practicing preventive medicine, doctors can keep many people from getting sick in the first place. Those who do end up with a chronic illness will be closely tracked so that fewer of them develop complications. These steps will result in less illness, which in turn will require less health care. With the savings, the country can then lower its medical bills or provide health insurance for the 40-odd million people who lack it — or maybe even both.

As Hillary Clinton recently told The Atlantic, it’s possible to “save money and improve quality and cover everybody.”

The would-be reformers have hit on something important here. The current health care system doesn’t pay hospitals, doctors and nurses to keep people healthy; it pays for tests, surgeries and drugs. So Americans often get expensive invasive care of dubious medical benefit while missing out on sensible basic care. Millions of other people go without any care for chronic illnesses like heart disease and diabetes. If Medicare and private insurers paid for more preventive care, Americans would be healthier than they are today and live longer.

But the current presidential candidates go one step further. They don’t merely argue that preventive care delivers good bang for the buck. They argue that it delivers good bang for no bucks whatsoever. And this is where the candidates are overreaching.

No one really knows whether preventive medicine will save money in the long run, let alone free up the billions of dollars a year needed to help pay for universal health insurance. In fact, studies have shown that preventive care — be it cancer screening, smoking cessation or plain old checkups — usually ends up costing money. It makes people healthier, but it’s not free.

“It’s a nice thing to think, and it seems like it should be true, but I don’t know of any evidence that preventive care actually saves money,” said Jonathan Gruber, an M.I.T. economist who helped design the universal-coverage plan in Massachusetts.

This is a tough idea to swallow because better health really does seem as if it should lead to lower medical bills. Indeed, if it were somehow possible to wave a wand and turn people into thin nonsmokers who remembered to take their statins, this country’s health care expenses would fall.

But any effort to promote health has its own costs. Doctors and nurses need to spend time with patients to persuade them to change their behavior. (Ever tried to get someone to stop smoking or drinking?) For a new program to work, it has to reach people who are not being helped by whatever exists now — and who thus will be among the most difficult and expensive patients to treat. The program would also have to treat a whole lot of people who never would have gotten sick.