• Health care as a capital investment

    With his permission, below I quote in full a post by Ohio State University Professor of Pediatrics, Psychology, and Psychiatry Bill Gardner who writes on the blog Something Not Unlike Research. The post is something not unlike a very nice integration of some recent posts by me and Aaron and relates it all to the current global concern about deficits. It makes points I should have made, which is why I asked Bill if I could repost it.

    The developed world is currently debating what to do about government deficits (for example, here). Because health care spending is a large and rapidly growing component of government spending, concern about deficits leads to discussion of health care spending. Aaron Carroll recently wrote an important series of posts documenting how Americans pay too much for their health care. It is also important, however, to look into what we are getting for all the money we are paying.

    I sense that many people view health care spending as an unfortunate necessity. If someone spends $25,000 to remodel their kitchen, there is a benefit: they have a terrific kitchen to point to. If someone spends $25,000 on a coronary artery bypass graft procedure, it feels like a loss: all you get is a nasty scar. But this is the wrong way to see things.

    One thing we get from some health care is more years of life. David Cutler (summarized here [see also here]) showed that modern methods of treating cardiovascular disease (CVD) have extended the lives of a great many adults. A year of life is the ultimate consumption good: Life itself is a wonderful thing, and it facilitates — to put it mildly — every other wonderful thing. Priced appropriately, the increase in life expectancy attributable to better health is among the most valuable things our economy produces.

    Moreover, health can be viewed as capital, and health care as a capital investment. Austin Frakt summarizes a study of cardiovascular disease (CVD) the presents data showing that “health spending and, in particular that aimed at lowering CVD mortality, may increase growth if it reduces CVD mortality.” Now, how can spending on heart disease increase economic growth? Productivity is all about human capital: people and their skills. If a person does not work because they are sick or dead, society loses the use of that person’s skills, and the enterprise she belonged to has to find or train someone else to do the job. Health care preserves capital that promotes growth, like maintenance for an expensive machine.

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    • One of the other things we get from health care is more life in our years. To quote from Tom Gill’s recent policy brief: “Not only are Americans living longer than ever, but the prevalence of chronic disability (disability lasting 90 days or longer) among older Americans has been steadily declining since the 1980s. Data from the 1982-2004 National Long-Term Care Survey indicate that between 1982 and 1994 the absolute number of cases of chronic disability increased even as the prevalence of chronic disability decreased, reflecting the aging of the population. But around 1994 the number of cases began to decrease as well, a remarkable trend that continued through the end of the survey. As a result, the number of persons with chronic disability in 2004 (6.9 million) was nearly identical to that in 1982 (7.1 million), although the number of elderly people in the US grew over that same period by about one-third, from 26.9 to 36.2 million (Manton 2008)”

      It’s not just life-years we gain. It’s quality adjusted life years!.