The Money Pit

There's been an interesting debate over at EconLog between Kling and Caplan over the general efficacy of medical care. And it goes as little something like this:


Start with medicine. Modern techniques have clearly saved a lot of lives. If memory serves me, survival rates for premature babies have skyrocketed from 10% to 90%. You probably know someone who is alive today as a result. I think my twins qualify.

But you probably also know quite a few cases of people who died prematurely as a result of unnecessary medical treatment...


My grandpa was probably one of the mistakes. He got elective surgery on his knee, and never came out of anesthesia.

From this perspective, low estimates of the benefits of medicine cease to be counter-intuitive. You don't have to deny the medical miracles you've witnessed. You only need to remember to average them in with all the disasters.

Kling (from a paper by Murphy and Topel):

From 1970 to 2000 gains in life expectancy added about $3.2 trillion per year to national wealth, with half of these gains due to progress against heart disease alone. Looking ahead, we estimate that even modest progress against major diseases would be extremely valuable. For example, a permanent 1 percent reduction in mortality from cancer has a present value to current and future generations of Americans of nearly $500 billion, while a cure (if one is feasible) would be worth about $50 trillion.

Caplan replies:

Think of it this way: What is your willingness to pay to live forever? I'd happily pay all my earnings in excess of $10,000 in perpetuity - a present value of millions of dollars.

OK, but what is your willingness to pay for a bottle of medicine that a spammer says will let you live forever? I wouldn't pay a penny.

Are doctors no more credible than spammers? That's going too far. But the bottom line is that life is precious, but at least on average, medicine is not.

Kling again:

Co-blogger Bryan and I have been arguing over two issues, one substantive and one methodological

Substantive issue: I say that health care probably is effective. He says that there is no evidence that it is effective on average. Incidentally, Paul Krugman says that there is no evidence that U.S. health care is effective at the margin, meaning that the additional money that we spend on health care relative to other countries does not lead to measurably better health outcomes.

Methodological issue: I say that looking at aggregate data on health care outcomes is lazy econometrics. There is no substitute, I argue, for careful disaggregated studies.

Now, in response to my post on Murphy and Topel's article about the huge benefits of health care, Bryan is sticking to his substantive position, but reversing himself on methodology. That is, he remains skeptical that health care provides benefits. Now, he argues that Murphy and Topel are failing to control for other factors that affect health.

Murphy and Topel find that longevity after age 60 has increased since 1970, with much of the improvement coming in the form of fewer deaths among males from heart disease. But can we conclude that this reflects better health care? Might this reflect other factors, such as reduced pollution, less physically-demanding jobs, and earlier retirement? Murphy and Topel glide past this question.

I am more than willing to concede the substantive point that Murphy and Topel have failed to provide conclusive evidence of the benefits of health care. However, I claim progress on the methodological point that the question needs to be settled by careful, disaggregated analysis rather than lazy macro statistics.

Hit me Bryan one more time (OK, I promise: first and last Britney Spears reference...ever!)

Arnold makes me want to be a little more careful about my position on health care. By way of background, I'll admit that I get most of this from Robin Hanson. But I was so incredulous when I first started hearing his views, that I've canvassed every other health economist who crossed my path. (Maybe 5 total, but a pretty random sample). And I was surprised to learn that Robin was telling me the standard conclusion. Robin is only radical in taking the standard conclusion seriously, while other economists admit that health care doesn't do much for health, then get back to obsessing about the uninsured.

So what is the standard conclusion?

1. The marginal benefit of health care is on average about zero. How big of a margin? Roughly the last 30% of dollars spent.

2. The total benefit of health care is small relative to total increase in life expectancy. We live decades longer than we used to, and generous accounting says that a couple of those years come from better health care.


[Kling]... overstates my position, though perhaps the fault is mine. "No evidence" is almost always too strong. I do believe that the bulk of evidence says that marginal health care is ineffective on average, and that the total effect of health care is a small fraction of the gain in life expectancy.


Arnold conflates two different things. The literature I'm promoting tries to figure out how much health care has improved health on average. I think that's a very valuable project. Assuming Robin's critique of Murphy and Topel is correct, however, they don't do this. They give an aggregate number, but to reach it they beg the vital question about the effectiveness of health care. (That might not be such a severe sin, if there weren't already a big literature out there that says the opposite!)


The problem with disaggregation is that people lose the forest for the trees. It would be good to know which treatments have the biggest bang per buck. But given limited research resources and attention spans, it is better to know how helpful we can typically expect health care to be. And the answer is: A lot less than most people think.

Since I'm starting orientation for my residency tomorrow, one would think I'd have a general opinion on the overall effectiveness of medical care. The bottom line in the debate is Arnold attributes a large amount of life expectancy gains to advances in medical care, while Bryan concludes a healthy margin of medical expenditures have no net benefit.

It might surprise some to learn that, while I find merit in both arguments, I generally (very generally) side with Caplan on this one. Many of the newer drugs come at high costs with small marginal benefits. Consider some new drugs for colon cancer:

Until recently, the standard therapy for colon cancer was fluorouracil, administered with a vitamin called leucovorin. The treatment cost $500 all told in today's dollars, said Saltz. Now patients with inoperable colon cancer are treated with a combination of newer chemotherapy drugs and targeted therapies, including Avastin and ImClone Systems Inc.'s Erbitux. The average life expectancy of patients has doubled to 22 months, Saltz said, but the cost of treatment has swollen 500 times to $250,000.

$500 for your first 11 months, and then $250,000 for the marginal eleven? That's a curve that gets really steep really quickly. Now I'm not going to get into a debate on whether that's worth it or not (the answer is: it depends), and especially not into an argument about drug prices. The point is, quite simply, add up a lot of examples like this, and you get a high marginal cost with marginal benefits that approach zero.

Also drugs like statins have a number needed to treat of around 35 to prevent one heart attack over five years (I think this is right). A definite gain, but consider, people generally take these drugs for two decades or more, and the drugs are everyday and expensive - this puts a high ceiling on marginal costs. Contra that, over large populations, heart disease only can take a few years off life expectations, when not everyone gets a heart attack, and even less die from it - this puts a much lower ceiling on the marginal benefits. A lot of chronic diseases suffer from this statistical bias as well (I should probably do more research to give more examples, but the hot tub is about to close and I need to wrap this up).

And I won't get into all the harm done by medicine that we just haven't found yet.

However, Kling's point about disaggregation is well taken and does need to be explored to the fullest. Ideally this is what academic centers should be doing most of, but in our haste to spend public dollars on political winners, we've gone and screwed up all the incentives. It's certainly possible (and quite plausible, I think) that if you did the hard research and cancelled out things like Erbitux, you'd be left with a lot of medical care that provides significant marginal mortality benefits at low cost.

I'd like to pose a question for the two, in hopes that they keep this debate going. Don't you have to recognize the non-mortality benefits of medical care? Medicine doesn't always make us live longer, but it can make us live better. Preventing a lot of non-fatal heart attack may not change average mortality that much, but it sure makes life quality better. And then there is psychiatry, which can provide a lot of benefits at virtually no decreases in mortality. And what about plastic surgery, arthritis, orthopedics and physical therapy, dentistry; the list goes on. Same thing. When you actually sit down and separate all the fields of medicine and health care, very few sectors are actually even aiming for improved quantity of life. A good portion of surgery and pediatrics and a smaller part of internal medicine (mostly cardiology and nephrology) have shown good headway by this measure. But to ignore the marginal benefits of quality of life brought by some health care sectors underestimates the overall marginal benefits. In other words, life expectancy gains aren't everything.

Another question: what about gains in real mortality that could be eaten by a shift in choices? Steve Landsburg argues that the development of cholesterol-lowering drugs has helped usher in the increase in obese and overweight individuals. He says that by lowering the price of being fat, you get an increase in fat people (and any increase in mortality that come from obesity). It makes sense to me. Given the amount of mortality risk people were willing to assume by a certain set of dietary habits, it's quite possible, that when you reduce these risks, people would change their behavior to bring the risk back up to the set point. The measured benefit could either be a decrease in mortality or an increase in unhealthy eating with unchanged mortality or anywhere in between. (It's like the classis economic problem with seat belt laws) Couldn't this change in behavior (which you have to call a benefit) be something like a "marginal mortality benefit equivalent" or some other such wonky phrase?

And finally, with relation to the expensive treatments above that offer little measured marginal benefit in mortality - don't you have to count some of the potential benefits down the road that will come of today’s low benefit treatments? Take the colon cancer drug for instance. In ten years, instead of increasing life expectancy by eleven months at a cost of a quarter million dollars, maybe the price will be more like $5,000 and will effectively cure a small subset of patients that is detected upon further research. This is certainly a likely scenario for a fraction of treatments. This could drastically change the balance of marginal costs and benefits.

That all for now - here's more form Mark Steckbeck at TheLiberal Order.

Update: And yet more from Mark.
Update: Related post here.
Update: Follow-up here. Share this

Josh (Wild Pegasus), as a

Josh (Wild Pegasus), as a statin user and an amateur economist, I must strongly disagree with you when you say "I don't think statins have anything to do with weight gain." Behavior is all about incentives, and now that my cholesterol has been nearly halved, from 280 to 160, there is far less incentive for me to eat right, exercise and do all the other heart-healthy stuff I SHOULD be doing. I have a choice: I can either pay my $50 copay and get my Lipitor, or I can modify my health habits, or I can risk premature death from heart disease. Since I'm not too wild about the latter, and I'm too lazy/undisciplined to do the second, I'll choose the drugs.

Trent, your point about "quality of life" is right on. I'll look forward to Kaplan/Kling's response!

Maybe, maybe not, Josh, but

Maybe, maybe not, Josh, but I think the type of relationship still exists, if not there then elsewhere. How much has advances against STDs and various types of birth control increased health an how much has it just allowed younger people to have more sex earlier? Certainly possible. There are others I could come up with I'm sure.

I don't think statins have

I don't think statins have had much effect on weight gain. I hardly think, if you asked a fat person why he was fat, he would say, "Because statins lower cholesterol, making being fat less unhealthy!" I suggest two things instead:

1. The medical industry and the government have been aggressively promoting the high-carb, low-protein, low-fat diet as a means of reducing heart disease and weight. In fact, the proper human diet should be low-carb, moderate-protein, high-animal-fat. Getting the human diet exactly wrong has encouraged millions to eat wrongly, and to pack on the pounds.

2. The penetration of sit-down entertainment has exploded. The Internet, cable television, and video games all serve as exercise-free methods of entertainment. All of them are fairly recent, and all of them saw swift penetration.

Combine the exactly-wrong human diet with inactivity, and you've got a nation that needs two trips to haul ass.

- Josh

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