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Thursday, April 10, 2008

Health Care Costs: An Aging Population is Not the Problem

A summary of Maggie Mahar's summary of a talk by Uwe Reinhardt on the source of rising health care costs. As noted here many times, an aging population is not the problem, it's a combination of technological innovation and rising labor costs:

The Mythology of Boomers Bankrupting Our Healthcare System, by Maggie Mahar, Alternet: ...[D]eveloped countries share many of the same problems. One that stands out is the fact that our populations are aging. Each country faces the same question: How will a shrinking work force possibly pay for the medicine their nations' retirees will need?

This brings me to Princeton economist Uwe Reinhardt's speech ...  on what he called "the folklore that people bring to the healthcare policy table." By nature an iconoclast, Reinhardt spent the next 20 minutes shattering some ... myths... Begin with the notion that an aging population is a major factor driving healthcare inflation. In the United States this is accepted...

Bad news is often more gripping than good news, and "if you want to be a popular speaker, you need to feed the paranoia of your audience," Reinhardt observed, pointing to the first slide of his PowerPoint presentation -- a chart illustrating just how quickly we can expect a horde of wrinkly boomers to take over the nation. ... [Note: the slides are shown in the Alternet article.]

A second slide is even more distressing, revealing that healthcare spending on patients over 75 averages about five times what we spend on 40-year-olds.

Yet the next graph that Reinhardt offers is a little puzzling. Here, we see that the United States spends close to $7,000 per person on care -- even though its population is younger than the citizens of most developed countries... Meanwhile, Japan's population has been graying for some time, yet it spends only $1,000 per person. Could eating fish really make that much difference?

Reinhardt's next graph provides the explanation. It turns out that when you look at estimates of growth in healthcare spending from 1990 to 2030, a senescent citizenry plays only a minor role in the projected jump from $585 billion (what we laid out for healthcare in 1990) to $14,026 billion (what analysts say we'll ante up in 2030...).

What will be the biggest factor pushing the tab so much higher? Innovation. "The healthcare industry will continue developing new stuff for every age group," Reinhardt explains. Will that "new stuff" -- in the form of new drugs, devices, tests and procedures -- be worth it? Some of it will be. Some won't. ... In many areas, we seem to have reached a point of diminishing returns. This also is true in the drug industry, where most new entries are "me too drugs" -- little different from products already on the market.

"In truth, the aging of the population is not a big problem," Reinhardt says. ... This doesn't mean that healthcare spending won't continue to levitate. "But what will drive costs in coming years, will come, not from the demand side of the equation, but from the supply side,"... We can be certain that, without some significant reforms, suppliers will continue to invent new products for every age group, charging us more and selling us more -- using whatever methods it takes, from direct-to-consumer advertising to promises of near immortality and perpetual youth... -- if we just swallow enough pills and replace enough body parts. ...

Moreover, healthcare is labor intensive.... We are already experiencing a shortage of registered nurses -- which has helped raise wages. ... Looking ahead, we'll probably need 50 percent more nurses than we employed in 2000. ...

So between the endless inventiveness of those who would overmedicate us to the unavoidable costs of a labor-intensive industry in an aging society, it is the supply side of medicine that is likely to push prices higher. This, says Reinhardt, is what policymakers should be thinking about.

But, he emphasizes, it doesn't have to happen. "If we begin to purge our healthcare system of Waste, Fraud and Abuse," we could save billions... And when it comes to caring for the elderly, he suggests, "If we develop healthcare information technology, we could use it to monitor seniors in their homes -- instead of in nursing homes."

This is just one example of how the United States could bring costs down on the supply side. In addition, Medicare could use its clout to negotiate for lower drug and device prices -- just as other nations do. We could become more discriminating about what we buy from the healthcare industry's suppliers...

Finally, Sweden offers proof that an aging population doesn't have to spell financial disaster. ... [the post goes on to discuss Sweden's health care system...]

    Posted by on Thursday, April 10, 2008 at 03:15 AM in Economics, Health Care | Permalink  TrackBack (0)  Comments (34)


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