Healthcare Reform: It’s not about the money

I haven’t written much about healthcare reform over the past year,  mainly because the public debate has been all about money: How do we pay for extending coverage, how do we reduce the costs, how do we change reimbursements, how do we save the country from going broke, yada yada yada….

But here’s where Obama and company have made their big mistake. They thought that the big problem with the healthcare system was money.

And it’s true, people whine about the cost of healthcare. But in the end, it’s not about the money.The big problem with the healthcare system is  that it doesn’t produce enough results for most Americans.

Let’s take a look at a few charts, shall we? Here’s the first one, the death rate per 100,000 for Americans aged 45-54.  These are the prime years when people are working, raising kids,  and generally at their peak in terms of contributing to society.   But they are also the years when we all start feeling the first whiff of mortality–cancer, heart disease, and all sorts of other ills.  Speaking for this age group (after all, I’m 52),  we want a health care system that addresses these potentially  fatal ills.  

Uh oh. What do we see? The death rate for us 45-54 year olds hasn’t budged much since the late 1990s. In 2007, the latest year published, the death rate for 45-54 year olds was 419.9, actually up from 418.2 in 1999.   That’s a big change from the previous two decades, when the death rate has plunged.

We see no sign in this chart that all of the hundreds of billions of dollars in health care research, and the trillions of dollars in health care spending, are actually paying off.  Yes, it’s possible that the health care system is simply struggling to keep up with external factors such as Americans are getting heavier and a possibly deteriorating environment.  But now take a look at this chart.

This chart reports the percentage change in the death rate for three broad age groups–14 and under, 15-54, and 55 and over.  What we see is that older Americans have seen a very rapid improvement in their odds of dying since the late 1990s.  Younger Americans are also less likely to die.

But what about us in the middle? We 15-54ers saw only a 1% decline in our death rates over this period.  Not good. Not good at all. Where’s the bang for the buck?

(Technical note: I started with 1999 because I was sure I could get a consistent series over that stretch…the numbers don’t change much with a 1998 start date. I used  2006 population weights to combine groups).

Finally, here’s one more chart.  Given the change in the death rate between 1999 and 2007, how many deaths per year were “avoided”  in each age group?  That is, how many fewer people died in one year because death rates were at 2007 levels rather than 1999 levels?

There’s quite a few ways to do this calculation, but I used the 2006 population as my reference point. Here’s what I got.  

In the 14 and under category,  the 1999-2007 change in death rates would translate into about 4000 fewer people dying per year.  Similarly,  in the 15-54 age group, the 1999-2007 change in death rates would translate into about 4000 fewer people dying per year in that age range. The big impact comes from older Americans, with roughly a 350,000 estimated drop in deaths (please treat these as rough I said, there are multiple ways to do these calculations).

So let’s summarize. For the people aged 15-54, who make up more than half the population, the health gains have been meager since the late 1990s.  Why? I’ll get to that in a future post, but let’s just note for now that many of the health research initiatives which seemed so promising a decade ago have gotten bogged down. For example,  cancer death rates have fallen,  but the war on cancer has turned into a long-term battle, with some progress but not nearly enough (I’ll get to this more in the next post).  

Let’s also note that this stagnation in healthcare outcomes for a big chunk of the population has occurred over the same period that  national health care spending  roughly doubled (in nominal dollars) . So did  the NIH budget.  And healthcare employment rose by roughly one-third.

 The Obama legislation assumed that healthcare outcomes were fine, and all we had to do was broaden coverage and (perhaps) reduce costs. But if you want to do something that benefits the great majority of Americans who already have health insurance coverage,  you have to do something to improve healthcare outcomes.

The first goal of any healthcare reform legislation should be to improve health, for everyone.  At the lowest marginal cost, for sure, but it’s never going to be acceptable, politically or morally, to go backwards.


Book Review: “From Poverty to Prosperity”

One thing that I intend to do on this blog is highlight interesting books on innovation and growth. Let’s start with From Poverty to Prosperity: Intangible Assets, Hidden Liabilities, and the Lasting Triumph over Scarcity by Arnold Kling and Nick Schulz (Encounter Books, 2009)

I like this book a lot. But first, let me say a word about Arnold.  I first came across his online essays a few years ago (one that I remember in particular was “You Call This Health Insurance?”). I was very impressed–here was someone who both understood his economics better than most academic economists and could also write more clearly than most journalists).

Kling, who today is one of the main  writers on the terrific blog EconLog,  continues to write very interesting and original stuff.  In this book, Kling and his co-author  Nick Schulz of the American Enterprise Institute,  do two things. First, they have chapter-long interviews with many of the big-name thinkers in the economics of innovation: Robert Fogel, Robert Solow, Paul Romer, Joel Mokyr, Douglass North, William Easterly, Edmund Phelps, Amar Bhide, William Lewis, William Baumol. Great stuff that you can’t get anywhere else  (though I think they should have also interviewed Daron Acemoğlu of MIT and Rob Atkinson of the Information Technology and Innovation Foundation).

Kling and Schulz also make a case for what they call ‘Economics 2.0’ .    Here what they say in the book :

“Economics 1.0 is about scarcity….Economics 2.0 is about abundance, which arises from technical progress.”

“Economics 2.0 says, ‘Markets often fail. That is why we need markets….In Economics 2.0, the market is a mechanism for stimulating and filtering innovation”

I think Kling and Schulz are on the right track. What they call Economics 2.0 is similar to what I and others have called “innovation economics,”  which stresses knowledge and intangible assets . Way back in 2008, I wrote a cover story for BusinessWeek (remember that magazine?) called 

Can America Invent Its Way Back?

The subhead was

“Innovation economics” shows how smart ideas can turn into jobs and growth—and keep the U.S. competitive

It’s good to see a book which focuses on this topic,  whether the authors call it innovation economics or Economics 2.0 or something else. We need more of this kind of thinking.

A New (Unfortunate) Record: Advanced Technology Trade Deficit

The advanced technology trade deficit hit an all-time record of $8.3 billion in November, handily beating the previous record of $7.7 billion, set in October 2007, at the peak of the boom.  That’s the gap between exports and imports for high-tech goods such as aerospace, advanced materials, information technology, and biotech.

On one level, that’s not a surprise. The U.S. has  run a  trade deficit in advanced technology products in every month since June 2002.  On another level,  it’s intensely disturbing that the financial crisis seems to have done nothing to break the longterm trend.

Economic Statistic of the Decade Award: Winner

You have voted, and the winner of the  Economic Statistic of the Decade Award is…..

Household Borrowing!

(loud applause from the audience). Definitely a worthy winner.

Household borrowing received 6 votes.  Housing prices got 2 votes, as did Chinese economic growth.  Job growth got 2 write-in votes, and oil (prices and production) got 2 votes as well.  Oddly enough, there were no votes for international trade.

Should I have a plaque made?

College grad unemployment hits magic 5% level

The unemployment rate for college-educated workers has now hit 5%, according to this morning’s jobs report.   How high will it go?

Some Higher Education Facts, Good and Bad

I was thinking about human capital and growth, and the importance of  having workers with advanced degrees to drive innovation forward.  So I asked myself the question: What percentage of U.S. college graduates have an advanced degree? (Masters, professional, doctorate)

It turns out that  35% of college graduates have an advanced degree. (You didn’t know that, did you? I didn’t). That’s up from 32.7% in 1999 (these figures are for workers 25 and over).

That seems pretty good, doesn’t it?  More and more of our college grads are getting advanced degrees, which is exactly what we would want to help foster innovation.

But then I asked a second question: What percentage of  U.S. college grads have a doctoral degree?  That is, what percentage of them have a research-oriented education? The answer was not so pleasant.

In fact, the share of college grads with a doctorate has fallen over the past decade. Not by much, for sure—but there’s no sense of a PhD being a desirable degree.  Americans are not flocking to spend 4-6 years writing a dissertation and going on to research.

And why not? This chart, which shows the change in real pay since 1999 for higher ed graduates,  may help explain the relative undesirability of the PhD.

Yowza! The real earnings for full-time workers with a doctoral degree has dropped by 10% since 1999.

That’s not what you would expect in an innovation-driven economy.

National Savings at the Lowest Level Since the Depression

In a recent NYT article entitled “Americans Are Finally Saving. How Did That Happen?” Ron Lieber wrote:

 This was the year of the return to financial sobriety — if you judge such things by the nation’s personal savings rate

 Most other journalists and economists have take the same position–that Americans have reacted to the recession by saving more.

But for the U.S. economy as a whole, the savings rate has not gone up–it’s actually fallen .

What we see here is that the net national savings–the sum of personal, corporate, and government savings, net of depreciation–has been plunging rather than rising .  The net national savings rate fell to -2.5% in the third quarter of 2009, its lowest level since the  Great Depression.  That’s astounding low.

What’s going on here? As this chart shows, savings in the private sector has been on the rise, including both household and corporate savings, as most people believe.  

But the government is running such big deficits that they swamp the savings gains in the private sectors.

Here’s another way of putting it: The government is borrowing a lot of money and transferring it to the private sector, through fiscal and monetary stimulus. The private sector is using some of those transfers to boost savings.  But on net,  the country’s savings rate as a whole is falling.

No financial sobriety here.

Note: These charts use savings net of depreciation. The same analysis holds using gross savings. Also, for the purposes of these charts, I have ignored the various adjustments to the official savings rate that I have made in previous articles.

Edited 1/5/10: Slight changes to chart language to clarify calculation.