Health Care Costs Joseph P. Newhouse

Main Points The US is an outlier in how much it spends but not its rate of increase Medical advances represent the bulk of the cost increase At the society level it was worth it

Italy missing data before Germany , Japan, UK Source: OECD Health Data 2005, US GDP deflator. Cost Increase in the G-6 Average=4.6% Annual real % cost increase in the G-6,

Sources: CMS National Health Accounts. Newhouse, JEP 1992(3), Stat Abst, Ec Rpt Pres. GDP Deflator. Similar Increases in Real US Cost Annual $/person, by decade Average = 4.4% Medicare and Medicaid enacted Managed care

What Do These Data Tell Us? Any explanation of the cost increase needs to hold across countries and decades The rate of cost increase is not so dissimilar among countries, so the institutional differences among countries are not the explanation The US is less of an outlier in the growth rate of cost than in the level of cost

See Newhouse, Journal of Economic Perspectives, So What Is Raising Costs Everywhere? Most plausible explanation of most of the increase is the new capabilities of medicine Aging cannot explain much A management consultant might say the medical industry keeps developing new lines of business Think dialysis, transplants, angioplasty, non- invasive imaging, joint replacement, biotech

Life expectancy: Health United States, Low-tech: Cutler, et al., 1999; Braunwald 1997; generally: Cutler, Was It Worth It? Life expectancy gains in all countries : US life expectancy grew 6.6 years, from 70.8 years to 77.4 years – Most of this gain was from improved mortality from cardiovascular disease

Source: Messerli, et al, NEJM, 2005, 353:1206. Messerli, F. H. et al. N Engl J Med 2005;353: Changes in Heart Disease Treatment CCUs better managed arrythmias. Thrombolytic agents and angioplasty improved arterial blood flow.

The Challenges How to pay for care for lower income groups Waste and poor quality in all countries How to reduce waste without removing valuable services, cutting future innovation