Does Getting Old Cost Society Too Much?

Paul Krugman emails, in reference to this post at Brad DeLong's:

Brad, Mark - saw the dismal post on Brad's blog. I wrote about that way back in 96!

Here's what he wrote:

Does Getting Old Cost Society Too Much?, by Paul Krugman, Commentary, NY Times: Back in the early 1980's, before most of us had ever heard of the Internet, science-fiction writers like Bruce Sterling invented a genre that came to be known as cyberpunk. Its protagonists were usually outlaw computer hackers, battling sinister multinational corporations for control of cyberspace (a term coined by another sci-fi novelist, William Gibson). But in his 1996 novel, ''Holy Fire,'' Sterling imagines a rather different future: a world ruled by an all-powerful gerontocracy, which appropriates most of the world's wealth to pay for ever more costly life-extension techniques. And his heroine is, believe it or not, a 94-year-old medical economist.

When the novel first came out, it seemed that Sterling was behind the curve. Public concern over medical costs peaked about four years ago, then dropped off sharply. Not only did the Clinton health care plan crash and burn, but the long-term upward trend in private medical costs also flattened, as corporations shifted many of their employees into cost-conscious H.M.O.'s. Even as debates over how to save Social Security make headlines, few question budget plans by both Congress and the Administration, which assume, while being systematically vague about the details, that the growth of Medicare can be sharply slowed with few ill effects. With remarkable speed, in other words, we have gone from a sense of crisis to a general belief that the problem of health costs will more or less take care of itself.

But in recent months, there has been a flurry of stories with the ominous news that medical costs are on the rise again. Suddenly, our recent complacency about health care costs looks as unjustified as our previous panic. In fact, both the panic and the complacency seem to stem from -- what else? -- a misdiagnosis of the nature of the problem.

Over the last generation, the U.S. economy has been digitized; it has been globalized; but just as important, it has become medicalized. In 1970 we spent 7 percent of our gross domestic product on medical care; today the number is twice that. Almost 1 worker in 10 is employed in the health care service industry; if this trend continues, in a few years there will be more people working in doctors' offices and hospitals than in factories.

So what? As Joseph Newhouse, a Harvard health economist, put it, ''Neither citizens nor economists . . . are especially concerned about rapid growth in most sectors of the economy, like the personal computer industry, the fax machine industry or the cellular phone industry.'' Yet where the growth of other industries is usually regarded as a cause for celebration, the growth of the medical sector is generally regarded as a bad thing. (Not long ago, an article in The Atlantic Monthly even proposed a measure of economic growth that deducts health care from the G.D.P., on the grounds that medical expenditures are a cost, not a benefit.) Indeed, the very phrase ''medical costs'' seems to have the word ''bloated'' attached to it as a permanent modifier: we are not, everyone agrees, getting much for all that money.

Or are we? There is, of course, some truth to what Newhouse calls the ''cocktail party story of excessive medical spending.'' Traditional medical insurance gives neither physicians nor their patients an incentive to think about costs; the result can be what Alain Enthoven, a health care reform advocate, calls ''flat of the curve'' medicine, in which doctors order any procedure that might possibly be of medical value, no matter how expensive. Reintroducing some incentives can produce important savings.

In 1983, for example, Medicare replaced its previous policy of paying all hospital costs with a new policy of paying hospitals a lump sum for any given procedure. The result was an immediate sharp drop in the average number of days in the hospital, with no apparent adverse medical effects. But after that one-time saving, the cost of hospitalization began rising again. There is, in fact, a clear rhythm in the health care industry. Every once in a while, there is a wave of cost-cutting moves -- fixed fees for Medicare, replacing traditional insurance with H.M.O.'s -- that slows the growth of medical expenses for a few years. But then the growth resumes.

Why can't we seem to keep the lid on medical costs, for older adults and for everyone else as well? The answer -- the clean little secret of health care -- is simple: we actually do get something for our money. In fact, there is a consensus among health care experts that the main driving force behind rising costs is neither greed nor inefficiency nor even the aging of our population but technological progress.

Medical expenditures used to be small, not because doctors were cheap or hospitals were well managed but because there was only so much that medicine had to offer, no matter how much you were willing to spend. Since the 1940's, however, every year has brought new medical advances: new diagnostic techniques that can (at great expense) identify problems that could previously only be guessed at; new surgical procedures that can (at great expense) correct problems that could previously only be allowed to take their course; new therapies that can (at great expense) cure or at least alleviate conditions that could previously only be endured. We spend ever more on medicine mainly because we keep on finding good new things that (a lot of) money can buy.

It is often argued that the share of our national income that we devote to health care cannot continue to rise in the future as it has in the past. But why not? An old advertising slogan asserted that ''when you've got your health, you've got just about everything.'' Sterling's protagonist goes through an implausible procedure (albeit one based on an extrapolation of some real medical research) that restores her youth; who would not give most of their worldy goods for that? Even barring such medical miracles, it is not hard to imagine that some day we might be willing to spend, say, 30 percent of our income on treatments that prolong our lives and improve their quality.

Some economists therefore argue that we should stop worrying about the rise in medical costs. By all means, they say, let us encourage some economic rationality in the system -- for example, by eliminating the bias created by the fact that wages are taxed but medical benefits are not -- but if people still want to spend an ever-growing fraction of their income on health, whether for older adults or for all Americans, so be it.

But matters are not quite that simple, for medicine is not just like other goods.

The most direct difference between medicine and other things is that so much of it is paid for by the Government. In most advanced countries, the government pays for most medical care; even in free-market, anti-government America, the public sector pays for more than 40 percent of medical expenditures. This in itself creates a special problem. It is not at all hard to see how the American economy could support a much larger medical sector; it is, however, very hard to see how the U.S. Government will manage to pay for its share of that sector's costs.

When Cassandras like Pete Peterson, the former Commerce Secretary, present alarming numbers about the future burden of baby boomers on the budget, it turns out that only part of that prospective burden represents the sheer demographic effects of an aging population: forecasts of rising medical costs account for the rest. Despite the aging of our population, the Congressional Budget Office projects that in 2030, Social Security payments will rise only from their current 5 percent of G.D.P. to about 7 percent -- but it projects that Medicare and Medicaid will rise from 4 percent to more than 10 percent of G.D.P. (Some people dismiss such forecasts: they point out that if medical costs were to rise to that extent, by the time baby boomers become a problem, health care would be a much larger share of G.D.P. than it is today -- and that, they insist, is just not going to happen. But why not?)

Some might then say that the answer is obvious: we must abandon the idea that everyone is entitled to state-of-the-art medical care. (That is the hidden subtext of politicians who insist that Medicare is not being cut -- that all that they are doing is slowing its growth.) But are we really prepared to face up to the implications of such an abandonment?

We have come to take it for granted that in advanced nations almost everyone can at least afford the essentials of life. Ordinary people may not dine in three-star restaurants, but they have enough to eat; they may not wear Bruno Maglis, but they do not go barefoot; they may not live in Malibu, but they have a roof over their head. Yet it was not always thus. In the past, the elite were physically superior to the masses, because only they had adequate nutrition: in the England of Charles Dickens, the adolescent sons of the upper class towered an average of four inches above their working-class contemporaries. What has happened since represents a literal leveling of the human condition, in a way that mere comparisons of the distribution of money income cannot capture.

There is really only one essential that is not within easy reach of the ordinary American family, and that is medical care. But the rising cost of that essential -- that is, the rising cost of buying the ever-growing list of useful things that doctors can now do for us -- threatens to restore that ancient inequality with a vengeance.

Suppose that Lyndon Johnson had not signed Medicare into law in 1965. Even now there would be a radical inequality in the prospects of the elderly rich and the ordinary older citizen; the affluent would receive artificial hip replacements and coronary bypasses, while the rest would (like the elderly poor in less fortunate nations) limp along painfully -- or die.

The current conventional wisdom is that the budget burden of health care will be cured with rationing -- the Federal Government will simply decline to pay for many of the expensive procedures that medical science makes available. But what if, as seems likely, those procedures really work -- if there comes a time when those who can afford it can expect to be vigorous centenarians, and perhaps even buy themselves smarter children, while those who cannot can look forward only to the biblical threescore and ten. Is this really a tolerable prospect?

There is, some might say, no alternative. But of course there is. It is possible to imagine a society that taxes itself heavily to provide advanced medical care to everyone and that rations that care not by wealth but by other criteria. (Bruce Sterling's imaginary future is ruled by ''the polity,'' a nanny state that rewards not wealth but personal hygiene: society takes care of those who take care of themselves.)

Such an outcome sounds unthinkable in the current political climate, which is dominated by a low-tax, anti-government ideology. But history is not over; ideologies may change. For all we know, the future may belong to the medical welfare state, a state whose slogan might be ''From each according to his ability, to each according to his needs.''

Comments

[Ken Houghton]

It's scary that Holy Fire is more than 10 years old, but still the first thing I thought of when I saw the DeLong post.

As RS noted there, education works. And proper education would do much more than produce workers for EA.

[anon]

I think DeLong's fear of a nanny state is silly. I made the comment that economists have not had much trouble with the US government operating as crazy old coot state, and adopting policies that harm American's health in order to produce profits for corporations, since rich people have used it to stuff their pockets with cash -a certain type of economist always likes that.

So, cigarette companies have been shielded from liability for decades, Congress won't act to remedy the absurd situation that free-based nicotine in cigarettes is not addictive. Utra cheap corn syrup and cow feed makes unhealthy food the cheapest food, all due to agricultural subsidies for the biggest producers, and tax favors for the biggest food processors. Then you have what I think amounts to a war on what has been historically normal childhood physical activity for the last 20 years (since even the cheapest most rudimentary after school programs are too expensive for the plebian masses).

The first two are egregious examples of government interference in the market. So, combine that with social decision to treat sick people who need care if they have life-threatening conditions sooner or later. Well, surprize surprize, you get rapidly increasing health care costs.

So, maybe do something to change the unhealthy life styles, for which government policies are more than a little to blame? NOW economists worry about the nanny state. As if trying to get people to not be obese loafers hovering on the verge of heat disease, who smoke and live mostly on high-fructose corn syrup is some kind of sinister social engineering.

Complete insanity without a lick of common sense -on other words, what you would expect from a conservative free-market worshipping ideologically driven US economist. DeLong needs to snap out of it.

[anon]

meant to say
Congress won't act to remedy the absurd situation that free-based nicotine in cigarettes is *ligally considered to be* not addictive *and cannot be regulated.*

[Bruce Webb]

I haven't looked at Medicare numbers in anywhere the level of detail of Social Security, primarily because how do you really get at the cost assumptions. But I can make a couple of observations:

1) Depletion of the HI Trust Fund (Part A) has been pushed back in time. In 1992 it was projected to run out in 1999, today that date is 2018. It has not been pushed back at quite the same rate as Social Security depletion, but a straight line extrapolation of a 19 year improvement in outlook for at least this component of Medicare over a 15 year period raises some questions in and of itself.
http://www.ssa.gov/OACT/TRSUM/trsummary.html

2) And probably related to 1) The Trustees of Medicare who with one exception are also the Trustees of Social Security not surprisingly use SSAs Intermediate Cost economic assumptions. Which means they are very likely to be underestimating income going forward.

[anne]

Mark,

There seems to be something wrong with Typepad, or so a technician tells me. I am not sure whether this notice will post.

[Real Person from the Real World]

RECENT ARTICLE
Retirees up against debt
By Kathy Chu, USA TODAY
Across the nation, seniors are becoming the face of the indebted....Over the past decade, the Godwins of Austin used credit cards to pay off about $140,000 in medical bills that insurance didn't cover. The bills piled up after Ronald Godwin lost most of his vision in the late 1990s and Carol Godwin was diagnosed with cancer in 2005. As interest rates on the cards jumped, the Godwins moved into a smaller house. Then they refinanced the house to pay off credit card bills. Now, they're crossing their fingers that they won't have more unexpected health costs.
"I didn't expect all this (debt)" in retirement, Ronald says. "I had saved money, but it just seemed like it went away overnight."
####
This society is becoming more and more selfish.

My father was an executive who bought the best health policy his company offered (back in the 50s or 60s). When the company was sold, and he was retired, the policy because worthless, but he paid for Blue Cross/Shield out of his pocket. He still had good care, but I stayed home and took care of him.

Now I am working in the new "Service" economy, and I can barely make enough money to pay my bills, and I was dumped from my HMO. I have a pre-existing condition, so all I can do is hope I will get help when I am ready for Medicare, but now that is a "problem."

I am well educated, but not healthy and aging, and employers discrimate. Good paying jobs are hard to come by, even for some much younger people.

We have globalization that brings in immigrants for some of the highest paying jobs. And polarization of the economy between people getting 80K a year and up, CEO's making millions, and a great mass of us barely making 20k is becoming a fact of life, while credit card companies are ratcheting up their fees, bankrupcies are harder to get, and people now pay for everything including medical bills and even taxes using credit cards. So now it comes down to that if you do not have one of these really high paying jobs and the money they pay, you might as well die since you have no medical insurance all so may of the lucky winners are unwilling to pay for anyone but themselves.

Makes me think of the Nazis, who killed off 'lesser' beings.

[Movie Guy]

This was a good article by Paul.

Unfortunately, we haven't made much progress toward reining in medical costs since 1996. The rate of cost growth isn't sustainable from a national nor individual perspective.

I have followed the matter of medical costs, procedures, improvements, various health care plans, and so forth for the last fifteen years with considerable interest.

Kaiser Family Foundation's health care web site is a good place to start if one is attempting to analyze cost data.

Why have medical costs continued to increase so much more than general inflation? I can't justify it and I dismiss many of the notions that normally attempt to do so.

We must get a handle on this one.

[yan]

I think the general point of the article is correct. Science will continue to advance our medical knowledge and capacities. This will make it possible to have ever more diagnostic technologies, surgical procedures, pharmaceuticals, etc... to deal with the problems of aging. The more such solutions exist, the greater aggregate cost per individual. A hundred years ago the first serious problem you had would kill you. Now that problem may be treatable and so may problems two, three, four and five. At some point an individual hits a problem without a treatment and dies. Modern medicine has increased the average number of life saving treatments that a person has access to, thereby boosting life expectancy. But as the statistical average of how many such treatments a person may receive increases so do the aggregate medical costs to society.

But a separate question is whether these costs are "too much" for the society to bear. I think this is a much harder question to answer. Biologically we are wired to age but psychologically we are wired with a survival instinct. The survival instinct makes us willing to pay more and more for those extra years of life. But there is no fighting biology and significant life extension won't be possible without the following shifts:

1) genetic re-engineering to remove telemores on human cells and other metabolic aging switches that are in the DNA, otherwise organ failures are inevitable when cell replication reaches its natural limit
2) if cells are allowed indeterminate growth then various forms of cancer will emerge and we will need treatments for the majority of them
3) ways to keep the pipes clean since this seems to be the other major category of disease, which includes everything from cholesterol deposits in the circulatory system to amyloid plagues clogging up the synapses.

Of course the question of costs is a much bigger concern in the US because from an international perspective our system seems inefficient. The US spends about 15% of GDP and other developed countries spend in the 7-11% range. And with all that excess spending neither absolute life expectancy nor the increase in life expectancy over the last 20-30 years is better than in the systems that spend less. We know that the US medical system is more labor intensive than elsewhere in the world (and this is not with respect to doctors and nurses) and has higher employee compensation. Some other inpur costs are also higher in the US. The real problem here is not just that we are paying more due to higher treatment availability and longer lifespans but that there is no apparent benefit for those expenditures. If we could rein in medical costs to the ~11% of GDP spent by the next highest spender would we feel that medical costs were at a socially acceptable level?

[anne]

So, Ireland has a baby glut, Irish babies are thick enough that parents need to walk in the roads just to make room for them. Too many bouncing Irish babies (at least if they were to stop bouncing, but they won't) too many babies is the problem, at least in Ireland. Stop Irish babies before the spread. (Do babies do that too?).

So, asking whether getting old costs society too much is simply bizarre. Please.

[Brad DeLong was a bunch of classes before me, so the problem is all his and I know where to find him if he continues to age with no regard for the blessed young.]

[mrrunangun]

Does anyone know what other countries spend on transportation, housing, food, education, etc. compared with the USA? The only comparisons I ever see involve health and I wonder where other countries' populations are spending all that money they save on medical care.

says...

A society that spent most of its 'GDP' on the well being of its citizens, how shocking. One that spends billions upon billions on war that kills its own and other's, now that makes sense.

[anne]

"A society that spent most of its 'GDP' on the well being of its citizens, how shocking. One that spends billions upon billions on war that kills its own and other's, now that makes sense."

Precisely; precisely what Franklin Roosevelt understood even in the dread mist of World War II; precisely what Roosevelt would never forget or let us forget.

[ken melvin]

Thanks Anne, for the plug. Actually, I wrote it in response to some diatribe of MV's somewhere about the need for defense spending. Eisenhauer/Eisenhower made a similar comment along the line of the direct trade off.

[calmo]

It is something to keep in mind when we ask the UN for more troops (Afghanistan) from countries we usually belittle for not spending a tenth what we do on the military.
And clearly those countries do not have political structures (the 2 party block --bipartisan heist) that allows the incubation of industrial/military complexes that result in inferior health and education for the general population. Of course, they are advanced and we are still "moving forward".

[maria]

From the BBC:

http://news.bbc.co.uk/2/hi/programmes/
from_our_own_correspondent/6302043.stm

[maria]

One thing I think is clear. If the US population is made to understand that not everything can provided, and that war spending cuts into medical spending, the zest for war and empire will collapse very rapidly.

[ken melvin]

Maria, there are those aplenty amongst us who would spend all on defense against fearsome spirits and naught on any other thing no matter how real the threat.

[callahan]

We have nothing to fear, but lack of a fountain of youth.

[Barry]

"Maria, there are those aplenty amongst us who would spend all on defense against fearsome spirits and naught on any other thing no matter how real the threat."

Posted by: ken melvin

Not that many, if they believed that it'd affect *them*. The whole idea behind supply-side fraud is that people believe that they can have it all (even as most get screwed).

[callahan]

I'd bet it's being old, not getting old that will cost.

I can say from experience that being old hurts.