Economics, Entitlements

We Have Met the Enemy and It Is Us: Healthcare Fact of the Week

A new study projects that U.S. healthcare spending will rise by as much as $66 billion a year by 2030 because of obesity. That’s about 2.6 percent of current health spending. While this trend is of obvious concern (and would be good to avoid), those figures pale in comparison to the total amount of U.S. health spending that can be attributed to behavior, lifestyle, and other avoidable causes.

Consider the underlying causes of diseases that give rise to health spending. The chart below lists 15 such causes, together with estimates of the share of 2011 personal healthcare expenditures (PHCE) attributable to them. (Note that PHCE represents only about six-sevenths of total health spending, as it does not include the costs of medical research, health-related construction, public health activities, or the administrative costs of health insurance or public programs such as Medicare).

The data represent the gross amount of health spending that hypothetically could be avoided in a perfect world. Because we do not live in a perfect world, it is not possible to eradicate every dollar of avoidable spending. Although individual efforts to “try harder” can yield fruitful results virtually without costs, any serious effort to influence spending of this magnitude would require an investment of resources to alter systems (for example, electronic medical records to reduce medication errors) or behaviors (for example, smoking cessation aids or counseling). Although it never would make sense to spend a dollar to save less than a dollar, some of these initiatives might well use a sizable fraction of the potential savings. It would be imprudent to spend hundreds of billions in potential savings before ascertaining the actual net savings attainable. That said, the enormous costs attributable to conditions such as hypertension, obesity, smoking, and physical activity highlight the extent to which personal responsibility can play a role in trimming these massive expenditures.

To the extent we insulate individuals from the cost consequences of their unhealthy behavior, we surely encourage more of it. A McKinsey survey of employees whose employers replaced all health plans with a high-deductible health plan coupled with a health reimbursement account showed that CDHP enrollees were a) 25 percent more likely to report that they engaged in healthy behavior than were members of traditional plans; b) 20 percent more likely to engage in wellness programs; c) over 30 percent more likely to take advantage of preventive services (e.g., annual checkups); and d) 20 percent more likely to carefully manage chronic conditions. Not surprisingly, the largest study ever conducted of high-deductible health plans found that spending was 14 percent lower than in conventional plans. In short, we know greater cost-sharing works and can be an important tool in bending the cost curve. Yet in a variety of ways, the Patient Protection and Affordable Care Act (PPACA) will reduce the amount of cost-sharing for most patients. Should PPACA be fully implemented, this does not bode well for trends in lifestyle-related health spending. We have met the enemy and it is us.

Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research and an adjunct scholar at AEI. The charts shown are from his new book American Health Economy Illustrated, to be released in January 2012 by AEI Press. See PowerPoint version of Figure 2.6 and Excel spreadsheet on the distribution of health spending related to selected behavior, lifestyle, and other avoidable causes for data, sources, and methods.

2 thoughts on “We Have Met the Enemy and It Is Us: Healthcare Fact of the Week

  1. Excellent article, Christopher. There are many people who share the blame for our skyrocketing health care prices. I don’t mean to take our legislators, medical or insurance industry lobbyists off the hook, because they’re responsible for this mess as well. But we as citizens would spend a hell of a lot less on health care and health insurance if we’d only take better care of ourselves. But since so many people want to avoid that self-accountability, we as a society will keep getting fatter ’cause we don’t take care of ourselves and get madder at our leaders that we elect, our doctors and our insurance carriers.

  2. …yes…our demand for healthcare depends on how we take care of ourselves, but, this is not the problem with the high price of healthcare. The problem with the high price of healthcare is that healthcare’s economic model is that of a luxury…no matter what the price of healthcare is, people will pay for it. Even if everyone followed a healthy life style, this alone will have no influence on price increases in healthcare because the supply curve is perpendicular to the horizontal axis of demand. What you only hope to achieve with everyone adopting a healthy life style is delay how much you pay, but, in the long run the consumer of healthcare will pay the price the industry wants to charge. This is why the price caps utilized for Medicare/Medicaid should also be applied to the prices charged to the average consumer of healthcare. A better way to keep prices in check would be if international healthcare were to be allowed to operate in the U.S. so that there would be an alternative to our healthcare industry. To be a true alternative to our healthcare service, hospitals and drugs sold by expatriate companies should be allow to operate as embassies so that we can pay the same price for healtcare as their citizens. The introduction of this true alternative to our healthcare will have the effect of changing the economic model that our healthcare industry operates under from a luxury model to a closer model of free market competion. In other words a flatter supply curve then perpendicular.

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