…because I’m an economist and a mom–that’s why!

Thinking More Broadly and Creatively About Cost-Effective “Preventive” Care

September 1st, 2009 . by economistmom


In today’s Washington Post, Lori Montgomery writes about a new study that “raises questions” about whether preventive health care actually saves money.  I’m not that surprised that there would be doubt about the cost savings or even “cost effectiveness” (whether the benefits of improved health outcomes are “worth” the costs), because I think the study focuses on a rather narrow type of “preventive” care.  (Incidentally, I learned just today that “preventative” and “preventive” are equally appropriate forms of the word.)  From Lori’s story (my emphasis added):

Preventive services for the chronically ill may reduce health-care costs, but they are unlikely to generate the kind of fantastic savings that President Obama and other Democrats have said could help pay for an overhaul of the nation’s health system, according to a study being published Tuesday.

Using data from long-standing clinical trials, researchers projected the cost of caring for people with Type 2 diabetes as they progress from diagnosis to various complications and death. Enrolling federally-insured patients in a simple but aggressive program to control the disease would cost the government $1,024 per person per year — money that largely would be recovered after 25 years through lower spending on dialysis, kidney transplants, amputations and other forms of treatment, the study found.

However, except for the youngest diabetics, the additional services would add to overall health spending, not decrease it, the study shows…

That doesn’t sound like the kind of “prevention” I’d hope we’d be working harder on, which is to prevent the disease (avoid being diagnosed in the first place), not just prevent more expensive (further) treatment of the disease after the diagnosis.  Whenever I think of how “preventive” care could save a lot in health care costs, I think about how getting people to lead healthier lives–eating better and exercising more–would reduce obesity and the incidence of obesity-related diseases.  Similarly, although I’m no (medical) doctor, I believe that healthier diets (avoiding processed and preserved foods, eating more anti-oxidant rich foods) can probably reduce the incidence of cancer, and that “well-tested” (over thousands of years!) mind-body practices such as yoga can reduce the need for health care ranging from psychotherapy to back surgery.

Those much broader notions of “preventive” health care (ways to avoid the disease) are sometimes put into an entirely different category from the “treatment of disease” options and seem to have been studied with much less statistic rigor.  For example a CBO letter on the issue of preventive care released last month distinguished between “preventive medical care” and “wellness services” this way (emphasis added):

Preventive medical care includes services such as cancer screening, cholesterol management, and vaccines. In making its estimates of the budgetary effects of expanded governmental support for preventive care, CBO takes into account any estimated savings that would result from greater use of such care as well as the estimated costs of that additional care. Although different types of preventive care have different effects on spending, the evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall...

Wellness services include efforts to encourage healthy eating habits and exercise and to discourage bad habits such as smoking. As with preventive care, CBO’s estimates of the budgetary effects of expanded governmental support for wellness services endeavor to account for any savings that would result from greater use of those services as well as the costs of those services. However, evidence regarding the effect of wellness services on subsequent spending on health care is limited, and CBO is continuing to evaluate the evidence that does exist.

So in other words, we don’t know much about the cost-effectiveness of “wellness services” which are what I consider the truly “preventive” form of health care.

A brand new Brookings Institution paper on “Bending the Curve” (the health cost curve) includes the broader notion of “preventive” care as a “key reform” they recommend to “support…better individual choices,” leading with the recommendation to “target obesity reduction.”  But the CBO letter explains that even though it’s clear that reducing obesity would surely help reduce chronic disease and hence health care spending, it’s not clear how much government can do to influence the individual choices that lead to obesity, and whether any of those possible policy interventions would turn out to be cost effective:

[D]esigning government policies that are effective at inducing people to be healthier is challenging. Even successful efforts might take many years to bear fruit and could involve significant costs. Moreover, many employers already support some wellness services for their employees, and new government efforts to encourage such services could end up paying for services that some individuals are already receiving—which would add to federal costs but not reduce total future spending on health care. As with preventive medicine, the net budgetary effect of government support for wellness services depends on the balance of two factors—the reduction in government spending for people who reduce their future use of medical care and the costs to the government of providing or subsidizing wellness services…

That’s why I think we need to think more broadly about what we are trying to prevent with “preventive” health care, and we need to think more creatively about ways the government can encourage the anti-obesity efforts of individuals in the most cost-effective manner possible.  There need to be more analyses of the health-cost-curve-bending “bang per buck” of preventive health care spending, similar to the way economists are used to evaluating different options for fiscal stimulus–sort of like what’s in the table in this analysis from the New England Journal of Medicine, but encompassing a broader variety of truly preventive measures.  I think one way the government could discourage obesity without spending a lot of money (without subsidizing Weight Watchers or health club memberships) would be to engage in an aggressive anti-obesity PR campaign.  Is there an anti-obesity equivalent to the anti-smoking public ad campaign of 1980 that featured Brooke Shields with cigarettes in her ears (as pictured above)?  (Hey, that got me to quit…unfashionable or antisocial?!!…)  Is there a way to make being fat “totally un-cool” without it being judged as “politically incorrect” or just downright “mean”?

34 Responses to “Thinking More Broadly and Creatively About Cost-Effective “Preventive” Care”

  1. comment number 1 by: SteveinCH

    Pretty much everyone admits that inducing people broadly to change their behavior is very difficult for government to undertake and yet, the argument is made that this process will help us somehow “bend the curve” on healthcare costs. This despite the fact that the evidence, such as it is, is decidedly mixed in terms of effectiveness.

    The broader point however is about responsibility and accountability and, to me at least, presents the crux of the current health care dilemma. What is tragically missing from the current discussion is whether responsibility for “bending the curve” through behavioral change sits with the individual or with the state. If it sits with the individual, a PR campaign, effective or not, is about as far as one can go and expectations for outcomes should be modest at best. This makes the argument for bending the curve weak.

    The alternative is that we choose to give the state authority over the way we live our lives because we are giving it accountability for paying for treatment for some/all of us. It is not unreasonable to suggest that we should give up autonomy over some decisions if the state is going to pay for the consequence of those decisions but such a view would be anathema to a large number (and perhaps a large majority) of Americans.

    Healthcare reform therefore is stuck on the horns of a dilemma. To bend the cost curve, we must have individual behavioral change. To have individual behavioral change to any degree, we must exert control over behavior but we are unwilling to say we must exert that control in order to get the outcome. The administration therefore persists with the fallacy of “bending the curve” without any plan for the required behavior change from the citizens.

    The alternative requires an equally unpleasant truth. In this approach, we give the individual the accountability for paying and the authority for deciding on their own choices. In this world, some people make bad choices and have bad outcomes, including outcomes where they cannot pay and ultimately live shorter lives as a consequence. At the moment, both sides are trying to split the middle and providing obfuscation at best about the choices we face as a society.

    As an aside, obesity is particularly difficult as a social issue for two reasons…first the linkages to morbidity are clear on average but much less clear in individual context as it is possible to be “healthy” and moderately obese or “unhealthy” and of normal weight. In addition, there is quite a cottage industry that argues that obesity is not the result of individual choice but a disease state unto itself. Threading the needle with PR with this as a cultural backdrop will be particularly challenging.

  2. comment number 2 by: Brooks


    Perhaps you missed this from my earlier comment on the other thread, but to repeat what I said: Even “wellness services” that produce lifestyle changes that improve health like reduction of obesity and smoking cessation don’t reduce long-term federal spending, because healthier people live longer and thus receive more Social Security and Medicare benefits, etc. (I know that sounds cold, but I’m just talking about net effect on spending, not about what’s desirable, all things considered) See and The research on obesity that I’ve seen reaches the same conclusion (I don’t have links handy).

    So CBO is missing a huge factor — the large federal government savings from people dying earlier (middle age or earlier in their senior years) — when it says:
    As with preventive medicine, the net budgetary effect of government support for wellness services depends on the balance of two factors—the reduction in government spending for people who reduce their future use of medical care and the costs to the government of providing or subsidizing wellness services

    We also need to think in NPV terms since “investing” in preventive/wellness services, even if ultimately cost-saving, requires additional spending that (1) has a high probability and (2) occurs sooner, and the anticipated savings have lower probability and come much later, and in the meantime we have direct and indirect costs associated with the additional debt.

  3. comment number 3 by: Brooks

    Oh, and as just a side note, it’s been clear to me (IMHO) for a long time that the most effective anti-smoking message targeting teens would be one that not only portrayed smoking as “uncool”, but which simply said what every teen knows: (1) No one actually likes inhaling cigarette smoke when they start, and (2) the only reason teens start is out of personal insecurity in social settings and the need for a social “crutch” to compensate for their insecurity, so (3) when you see someone [some high school kid] smoking, you’re looking at someone who is so insecure that he (or she) chooses to trash his health and stink up his clothes and breath because he’s too afraid and insecure to handle himself socially without a crutch (and security blanket), someone who is so scared and who considers himself so uncool that he tries to substitute a cigarette for a personality.

    The above message, executed well, would basically convert the cigarette into something that makes a kid feel and look cool to a label that says “Loser”.

    By the way, it cracks me up when I see someone wearing “Marlboro gear” (e.g., a jacket with the Marlboro logo prominently featured) that was obtained by accumulating “miles” from consumption of Marlboro cigarettes. Why not just wear a t-shirt that says, “I’m darn proud that I consumed enough of a known carcinogen to earn this stupid t-shirt” !

  4. comment number 4 by: Brooks


    Good point. As with many issues involving the role of government, there are conflicts between a desire for fairness (and thus a desire to avoid moral hazard that produces negative externalities) vs. compassion (i.e., not leaving everyone to whatever consequences they face just because their situation appears to be mostly their “fault”*), and between providing incentives for efficiency (on a number of dimensions) vs. a desire for at least some degree of equity. I think most people (and I know I) see the ideal as between the extremes of purity in either direction, although there may be a significant percentage of people in the U.S. whose ideal would be a complete disassociation between an individual’s behavior and his healthcare cost (but I assume many of them would still favor “sin taxes” on stuff like cigarettes that would, in effect, be a deviation from this pure disassociation).

    On a separate and broader note not involving (clear) fault but regarding containing healthcare costs and increasing efficiency (in terms of allocating resources per utility delivered and in other ways), I would contrast my friend Barry’s recent healthcare experience with my own. Last year I injured my rotator cuff. Having insurance, I immediately got an MRI. Then physical therapy, which didn’t work. Then I got a cortisone injection, which didn’t work. Now my doc recommends something called “pulse radiofrequency”. I have little financial incentive not to get all these treatments, and as far as I know, my doc makes more money the more I get.

    Barry, on the other hand, has a medical savings account with a $5,000 deductible. He had back pain recently. His doc recommended an MRI. He asked the MRI folks how much it costs, since he would have to pay for it and needed to decide if it was worth it to him (as opposed to some alternative, including waiting to see if the pain subsided on its own). The people he asked were surprised by the question, with one remarking that “No one has ever asked that question”. He held off on the MRI. A couple of weeks later he felt fine and has felt fine since. Obviously one can’t rule out the possibility that he has some problem that might recur and that the MRI would have revealed it and led to treatment that could solve/mitigate it, yadda, yadda, but the point is that he, as a consumer, was in the position of assessing, with the help of experts, the costs, benefits and risks involved with getting the MRI immediately vs. not and deciding if it was worth it to him, and he quite possibly avoided a high cost, low benefit service.

    * I just put “fault” in quotes because there is a whole other can of worms that is the question of “free will”. Way too much of a tangent to get into here, but feel free to email me if you wish to discuss.

  5. comment number 5 by: economistmom

    Brooks: I distinguish “cost effectiveness” from “cost savings.” If preventive care is to be “cost effective,” that means it maximizes social welfare net of economic cost–not necessarily that it results in negative net economic costs (an absolute savings in health care costs). Like Alice Rivlin said in the movie IOUSA (to paraphrase): that people are living longer is a good thing, despite the fact that it costs the federal government more money. As our nation grows economically richer, we should want to devote more of our resources to health care or anything else that improves our “quality of life” and is a “luxury” good (one we spend a larger fraction of our income on the richer we get). Environmental quality is another example of something we might choose to buy more of as we get richer, even if it reduces the size of our measured economy (as traditionally measured by GDP), because we decide it nevertheless improves our quality of life and “social welfare.” But even if we decide we are willing to “pay for” these improvements in social welfare, we still want to buy those increases in as “cost effective” a way as possible–to get the most “bang per buck” (in this case “added social welfare per buck”). So I refuse to consider cost-effective investments in preventive health care, which would improve our health and longevity and generally how good people feel, as a “waste” of money just because it might cause us to live longer and make our lives absolutely “more expensive.” You get what you pay for! ;) (Call me an atypical economist…)

  6. comment number 6 by: Brooks


    Sure, I agree with that distinction and I don’t think it’s controversial. Obviously some things that increases costs are worth the incremental spending because of the (non-monetary) benefits they provide. And if we are seeking to maximize our overall well-being we’ll seek to get the most bang (utility) for the buck, and the cost-effectiveness of healthcare is part of that equation. Your making that point certainly doesn’t make you an “atypical economist”; the contrary would, because the implication would be that nothing is worth spending money on or that we aren’t better off getting more benefit (utility) from our spending.

    But the distinction is extremely important in the context of the current policy debate, particularly given that advocates of “reform” are claiming significant savings in federal spending (apparently untrue) and thus significant favorable long-term budgetary impact (apparently even more untrue, when the longevity factor is included). And when you say (emphasis mine) “Whenever I think of how ‘preventive’ care could save a lot in health care costs, I think about how getting people to lead healthier lives–eating better and exercising more–would reduce obesity and the incidence of obesity-related diseases” and when CBO says “As with preventive care, CBO’s estimates of the budgetary effects of expanded governmental support for wellness services endeavor to account for any savings that would result from greater use of those services as well as the costs of those services”, you are both speaking not of “cost-effectiveness”, but of budgetary impact.

    And I want to address your reference to a “‘waste’ of money”, which I think is a reference to (and inadvertent mischaracterization of) something I said on another thread. I wrote:
    Prevention programs generally do not reduce costs. Sure, it’s cheaper to prevent some health problem or catch early than to treat it later, but obviously many receiving the preventive care do not have that particular problem and will not get it even without a particular form of preventive care (i.e., the preventive care is largely wasted on most people).

    I did not mean that, if broad-based preventive care is a net cost rather than a net savings, it is a “waste of money”, just that the money spent providing the care to the sub-group that didn’t benefit from it is wasted. Overall, even if is a net cost to provide some type of preventive care to some population, the benefits obviously could be worth the cost and the overall spending for that program or policy wouldn’t be “wasted money” just because some unforseeable portion of it will be wasted.

  7. comment number 7 by: economistmom

    But I don’t get what you’re saying, Brooks…. “Budgetary impact” is part of what determines “cost effectiveness.” It’s still the “buck” part of the (social welfare) “bang per buck.”

  8. comment number 8 by: Brooks


    What I mean is that it is one thing to say that a type of spending (e.g., providing more preventive care) has a favorable budgetary impact — i.e., it reduces spending over the long-term (to be precise, in NPV terms) — and a very different thing to say that this spending is “cost-effective” if by that you mean that it increases spending even over the long-term, but that it produces non-monetary benefits relative to the cost that make it a good value compared to alternative spending, or as you put it “the benefits of improved health outcomes are ‘worth’ the costs”. Budgetary impact refers only to spending figures* (does doing X increase spending, decrease it, or is it neutral). “Cost-effectiveness” as you’re defining it is part of maximizing welfare, even if that means higher spending.

    It seems that the distinction you’re making is that even if preventive care has an adverse budgetary impact — increasing spending even over the long-term — it still could be “cost-effective” in terms of benefits (utility) per dollar vs. some other type of incremental spending (by public or private sector). I’m not disputing that possibility, just making an important distinction between that argument for more preventive care vs. the argument that it will save us money over the long-term.

    And yes, if the net impact is an adverse budgetary impact — higher spending even over the long term and thus additional debt and all associated adverse consequences of that additional debt and the incremental sacrifices that will be caused or imposed as a result — then a rational view that this incremental spending is “worth it” would take into account the adverse consequences of this additional debt and all that flows from it.

    So, in a nutshell, arguing that a broad-based expansion of preventive care would have favorable budgetary impact means essentially that it would reduce spending (in NPV terms) over the long term and thus mitigate our long-term fiscal imbalance.

    And arguing that such preventive care is “cost-effective” per my understanding of your definition means that, although it may exacerbate our long-term fiscal imbalance (and the experts apparently say it would), it still might be worth it in terms of our welfare (because being healthier is worth something).

    Does that clear it up?

    * To be precise, budgetary impact obviously involves the revenue side as well, and theoretically one would also factor in GDP and revenue gains from reducing productivity loss from sick workers who could have been kept healthy via preventive care.

  9. comment number 9 by: SteveinCH

    Sorry guys, cost effectiveness with other people’s money is different than cost effectiveness with your own.

    If I’m using the bank’s money, it doesn’t matter what welfare goals I think I accomplish, it’s a strict NPV conversation. If I’m using mine, I’m free to make whatever tradeoff I want between economic and noneconomic return. This becomes particularly true as we stretch the “general welfare” or interstate commerce clauses as rationale for action.

    Oh, and by the way, who defines and by what metric cost effectiveness? It’s a fine concept but is very difficult to practically measure or apply and, unfortunately, involves a range of value judgments that I would prefer not to empower government to make on my behalf.

  10. comment number 10 by: economistmom

    Well, call me naive, but I think the role of government is to maximize “social welfare”–not GDP or the budget balance (not even that!) or any other NPV dollar flow. On the issue of health care, I start from the premise that as a society we have decided that we hold this as a social goal: we would like ourselves to be healthier and live longer (not to die sooner just to save society money), presumably because that increases our overall happiness (”utility”) or more broadly and communally our “social welfare.” Now, one can still talk about “cost effectiveness” relative to that defined social goal, and it doesn’t necessarily depend on putting a dollar metric on that social goal we are trying to achieve; we’d still want to achieve that social goal at the least possible monetary cost–which would make it an “economically efficient” policy. So the policy process starts with an admittedly normative judgment about what are these non-monetary “social goals” we want to pursue in order to maximize social welfare, but then it moves to a positive evaluation of which particular policies would most efficiently achieve those goals. (I think the same way about environmental policy, because I notice how economic arguments about such policy often start with the anti-environment position that environmentally-motivated fiscal policy would reduce GDP–and so “why would one want to do that?”…People tend to forget that presumably we go down that policy path in the first place because we value the quality of our environment, even if it’s hard for us to put a price tag on it.)

  11. comment number 11 by: Unsympathetic


    Why did the doc recommend the MRI? Because in today’s litigious society, he will get sued if he does not consider EVERY possible medical complication and plan accordingly for it. You want to reduce cost to the system regarding theorized extra tests? Then reduce doctoral exposure to malpractice.

    You don’t get it both ways. Although it sounds good to believe in the fantasy world of “Doctors actually want to injure their patients to earn an extra buck,” that’s simply a strawman argument because it completely discounts the legal ramifications of a doctor missing a complication.

    The reason any test is proposed that you might 3 weeks later perceive as “extraneous” is because in some percentage of the human population, that test comes back positive.. and the doctor is responsible to the medical review boards for FINDING that result.

    Each and every day, if a doc misses a diagnosis / condition, he is liable to have his license revoked permanently.. and he will therefore no longer be able to earn a living.

    Unless and until you change the AMA’s procedures on medical review boards, I highly doubt you’ll be able to substantively eat into anyone’s perception of “docs order too many tests.”

  12. comment number 12 by: Unsympathetic

    And just so we’re clear.. in medicine, if a test has a possibility of returning a hit 1 in 1000 times, it’s deemed completely worthwhile. Again, if you don’t like that, go change the AMA. That doesn’t mean “go talk to them” - not only won’t they change, I wish you good luck with that discussion.

    Malpractice AND medical review boards are both completely left out of the discussion to date, and yet they are what doctors fear more than anything else.

  13. comment number 13 by: Underwriterguy

    Wouldn’t it be wonderful to have this level of discourse in the MSM or at a town meeting rather than the personal attacks and scare tactics that prevail? Guess it would have to be reduced to a 4th grade reading level.

  14. comment number 14 by: Brooks


    You may be misunderstanding me.

    Re:Well, call me naive, but I think the role of government is to maximize “social welfare”–not GDP or the budget balance (not even that!) or any other NPV dollar flow.

    Yes, I agree, and I don’t think any rational person would disagree. I wasn’t saying that we should not adopt any policy that will increase spending over the long term regardless of the level of utility it provides. Such an approach would imply that, by the same token, we should eliminate any government spending that doesn’t pay for itself over the long term in terms of incremental revenues. I’m not saying anything of the sort. I suppose only an extreme libertarian might have such a policy preference, and even then it would probably be an argument framed in terms of utility.

    Again, I’m simply pointing out an important distinction, particularly for purposes of the current policy debate. Those who contend (contrary to expert conclusions) that broad-based expansion of preventive care will save us a lot of money in the long term are contending that there is no trade-off over the long term: we can have better health without higher spending over the long term, and furthermore, that it will reduce spending enough to substantially offset the cost of a policy they want the nation to adopt (their healthcare “reform” including a large expansion of federal coverage and subsidies). That is categorically different from the argument that there is is trade-off, that broad-based expansion of preventive care will cost more over the long term but it’s worth it because it improves our health enough to increase our overall welfare (despite the monetary cost), and that such preventive care would not offset a substantial portion of the cost of the healthcare “reform” they are advocating, meaning that the merits of that policy, too, should take into account some net cost that doesn’t erroneously factor in the invalid assumption of long-term savings from this preventive care.

    So again, I’ve said nothing about whether or not I favor or oppose a broad-based expansion of preventive care. My point is just that (2) those who are claiming that it will produce substantial savings over the long term are apparently wrong, and (2) that as we consider adopting some type of healthcare “reform”, we should consider it based on valid assumptions about cost (as best we can guess, using expert analysis), not on erroneous assumptions that artificially favor adoption of “reform”, as would the apparently erroneous assumption of substantial savings from preventive care.

    Saying something will increase costs but is worth it, while obviously an argument one can make, is obviously very different from saying that it will not only deliver benefits, but will actually lower costs over the long-term and is thus a win-win, all gain, no pain over the long-term.

  15. comment number 15 by: Brooks

    Obviously I meant to number “(1)” and “(2)” above, not “(2)” and “(2)”.

  16. comment number 16 by: SteveinCH


    I won’t call you naive but I will respectfully disagree. I do not think the role of the Federal government is to maximize social welfare. To take that position in my view is to tear up the Constitution. The powers of the Federal government are limited for a reason.

    Even were it to be the case, the question still remains how you define the return in social welfare terms. Without a definition, it is impossible to align on the relative ROI of different policy choices.

    I’ve yet to see any real discussion about how to define the noneconomic return of government policy in the area of health care. I’ve seen QALY metrics but I don’t understand them well enough to know if they are right and I suspect there are value judgments built in (particularly in the QA part) with which reasonable people might disagree. Without alignment on such a measure, understanding the relative value of policy choices is impossible.

  17. comment number 17 by: SteveinCH

    One more thought, if one is going to make an ROI-based argument, one needs to actually measure the return relative to the plan or target. When the return is conclusively proven on an incremental basis (ignoring sunk costs and sunk benefits) to be below the “target”, the program should be abandoned.

    Part of the argument against even an ROI-based approach (based on appropriate definitions of social welfare) is that programs are never canceled and therefore there is no downside limit on the government’s ability to spend at negative incremental ROI.

  18. comment number 18 by: Brooks

    And just to try a bit more to ensure that I’m clearing this up…

    There are two distinct questions with regard to both a broad-based expansion of preventive care and adoption of the proposed healthcare “reform” (including the large expansion of federal coverage and subsidies).

    1) What would be the net budgetary effect over the long term?

    2) If the answer to #1 is “An adverse budgetary effect”, are the benefits worth this cost? (i.e., Does incurring this cost increase our welfare, net of the adverse effects of increasing our debt?).

    Obviously one can argue that the answer to #2 is “Yes, it’s worth it (despite the harmful effects of increasing our debt to the extent that it would)”, but that is categorically different from erroneously answering to #1, based on invalid net cost assumptions, that it would have a favorable budgetary impact or a neutral one or one that would cost less (net) than expert analysis says it would.

    I’m not saying “don’t buy it”, just “make the right assumption about it’s price as you consider buying it”.

  19. comment number 19 by: Brooks

    “its”, that is.

  20. comment number 20 by: SteveinCH


    Clear to me that you are objecting to the current form of the argument as opposed to the policy itself. For that, you would need a definition of the social welfare outcome.

    Ultimately of course, we all will need to reach a judgment about the policy outcome on the basis that the answer to (1) is almost assuredly negative and therefore we will have to reach a judgment about whether that negative number is worth it in terms of societal outcomes.

    I’m not saying don’t buy it either (although I’m close to saying it) but since I have neither the R nor the I defined, I’d go with my bias that an undefined ROI is more likely than not to be a bad ROI.

  21. comment number 21 by: Brooks


    I’ll address more of your comments later (gotta run now to a lunch meeting), but I do want to point out one quick thing, lest you think I was implying earlier that someone with your perspective is irrational when I said in reply to Diane that “I don’t think any rational person would disagree [that the role of government is to maximize “social welfare”–not GDP or the budget balance]“. My point, in short, was that, as government decides whether or not to spend money on something, the basis for the decision should not be merely whether or not it increases spending (or GDP) over the long term, but whether or not it would likely make “the people” better off, or put differently whether or not a well-informed, rational public would consider it worth the cost.

    Sure, there will always be the question of relative efficiency (in terms of productivity and in terms of allocation of resources) of government doing something vs. the private sector, and there will always be the legitimate philisophical/ideological question of invidividual liberty vs. the collective good or the welfare of some segment, but my point was just that there are some things government should do and people should be forced to pay for in taxes (at the very least where there would be a “free rider” problem otherwise, but I’d go further than that in terms of my personal philosophy/ideology), and the criteria for go/no-go on some type of government spending should involve the public welfare, not just the net effect on spending.

  22. comment number 22 by: SteveinCH


    Not to worry. I didn’t imagine you were implying I’m irrational I leave that to my wife (who does more than imply on occasion)

  23. comment number 23 by: SteveinCH


    Not to worry. I didn’t imagine you were implying I’m irrational I leave that to my wife (who does more than imply on occasion)

    I agree with your point by the way about good decision making not merely being about GDP. My point maybe is that assessing policy choices relative to each other requires a return metric, which, in many cases as it relates to government action, we seem to lack.

    Enjoy your meeting.

  24. comment number 24 by: SteveinCH


    Given the discussion, I thought you might enjoy if you haven’t already seen it.

  25. comment number 25 by: Brooks


    Thanks. Yes, I follow and participate at Hennessey’s (excellent) blog, and I saw that post. Haven’t read Part 2 yet, but in Part 1 Keith, as usual, does an excellent job at framing the issue (which isn’t to say that he frames issues in the only good way possible, but he frames them in a very good way, and walks readers through his logic very clearly).

  26. comment number 26 by: SteveinCH


    Just read part 2. It’s an good read. I don’t think I agree with all of it but the thrust is interesting and helpful for the debate imo.

  27. comment number 27 by: Arne

    Brooks: “Even “wellness services” that produce lifestyle changes that improve health like reduction of obesity and smoking cessation don’t reduce long-term federal spending, because healthier people live longer and thus receive more Social Security and Medicare benefits, etc”
    Healthier people also contribute more to increasing the GDP. Which effect is stronger?
    Also, people in generally poor health require more care over much of their lives - not just when they are dying. Again, which effect is stronger?

  28. comment number 28 by: Brooks


    The studies seem to have accounted for both factors in reaching their conclusion. See the CRS report.

  29. comment number 29 by: Jason Seligman

    First I have to say I love this post. It has really stuck in my craw this summer to hear people talk about diagnostics or maintenance and call it “Prevention.” Really quite silly, but perhaps a useful manipulation if all you want to do is cast doom and gloom about. Second, if we are talking health care let’s keep it healthcare — that is what we are trying to wrestle with here, not pension payments. The difference is that health care is consumed across the lifecycle.
    But since many have begged that point, okay, let’s DO go there for a sec. When people say, “you don’t save money with prevention because it costs you down the road on social security payments, that is just simply inane for several reasons.

    -1- If you are the sort to think about returns from social security then the work of Kotlikoff et al should impress you that returns are pretty dang low. Affordable even, at current payroll tax rates for PRODUCTIVE members of the work force who contribute.
    -2- Remember disability—the phenomena about which modern retirement was manifest… what would you say to extending the useful working careers of the otherwise disabled? I’d say it would bring down insurance costs, and improve the state of SSAs disability trust fund, sounds good.
    -3- Further following Arne’s well placed comment, wellness contributes to productivity, so that should not be an issue UNLESS medical care costs grow at a rate that is higher that their productive contribution to GDP… But that IS what has happened, and what threatens to continue to happen, unless health care costs are reigned in. How best to do that? By regulation or a public option? That is what should be sorted out. Not whether but how.
    -4- Do not confuse compensation with thievery. As far as I am concerned doctors and anyone else for that matter can go on making a great living, a better living as long as their contributions are valued through the miracle of mutually beneficial trade. Now I acknowledge that this is a funny market and some parties feel obligated to purchase at any price (you do not quibble price when you are significantly enough sick or injured), and further do not have enough information to make good decisions, so trade may be less free and less beneficial, this is usually remedied by regulation–at least in part, but see 3.
    -5- Don’t confuse regulation with “Death Panels” It may not always pay to help Grandma get on insulin earlier, but on net the returns from reducing (Prevention) disease prevalence among 25-55 year olds should save enough to afford grandma’s care. But that is as much a moral as a financial issue. In so much as we failed to offer grandma that same healthcare system in the first place, it is a relatively small (that is to say large but one-time) expense to compensate her for the societal differential through compassionate care. There is precedent, here, both in the law, and in nature. For example, regarding law, the method of computing SSAs PIA inherently addresses productivity gains to the betterment of those near to elder-status. Additionally, regarding nature, there is the well known case of the barber whose productivity has not increased along with salary, but who nonetheless enjoys a compensating differential that (I suppose) motivates entry to beauty school… That is to say that once you fix the systemic health care inflation issue, you can afford to help grandma. That is where the Sarah Palin’s of this world have substituted fear for intellect. I say Boo to the Sarah’s and her flock.
    -6- And finally, I say yea to Olympia Snow. After all, prevention should be where Republicans shine. The last Administration did a great thing when they started emphasizing basic rural health care, because there is a great deal of value to basic health services, especially among the young and middle aged in places where labor is something done with your hands and your back. Early health and education are cornerstones of the creation of a true meritocracy.

    Considering the end of comment -5- and -6- helps you realize that somehow a radical spur of the Republican Party has convinced Right-to-Lifer’s that they are better off without healthcare… you do not need to stomach all of these weakly constructed half-arguments, simply think about the difference in your own productivity when you are well, and when you are not.

    I am not a medical doctor. I do not play one on TV, but if I were to give a prescription it would be this: Be Healthy Wealthy and Wise. Be a critical thinker. Sheep get slaughtered.

  30. comment number 30 by: Brooks


    You can make all the direction statements you wish — i.e., this factor or that one works in the direction of savings — but ultimately it comes down to relative magnitudes and the combination of factors and the resulting bottom line impact.

    Regarding preventive care and regarding wellness services, I offered links to those who have sought to quantify relevant factors and who have concluded (1) that broad-based preventive care generally increases total costs over the long-term — and that it clearly does not produce the huge net savings that advocates of “reform” are claiming as they seek to make the cost of their proposed “reform” seem less than it actually would be — and that (2) wellness services generally don’t save taxpayers money in the long-run either.

    By all means, people should point out factors that they are concerned may have been left out of these analyses, but (1) you should check if that’s actually the case or if those factors were accounted for*, and (2) even if some factor were neglected that would move the results in a particular direction, that doesn’t enable one to rationally jump to the conclusion probably invalidates the general conclusion, even if it affects the data as a matter of degree.

    Check the links I provided. Check for consideration of “productivity” and “sick days” and “disability” and any other factor that you think may have been neglected and that you think may change the general nature of the conclusions. And if you find that something was indeed excluded, seek to quantify it and state the degree to which it affects those general conclusions (or find someone’s writing that has done so).

  31. comment number 31 by: SteveinCH


    Even were it true that preventative care and wellness services tended to decrease an individual’s lifetime, NPV adjusted, healthcare costs (and to Brooks’ point, it does not appear to be conclusively true), it still does not make the case that any particular set of reforms is preferable to the current system.

    To make that case, you would need to

    1. Understand the actual magnitude of the savings under any of several policy options.

    2. Compare the costs and benefits of those savings (defining benefits based on economic and societal factors).

    3. Select a preferred policy from among the various choices.

    Thus far, there has been no informed discussion of number 1, never mind numbers 2 and 3. In the absence of that, it is quite difficult for me to conclude that I should surrender both income and choice to the Federal government.

    To give you a very small example of what I am talking about. Take the issue of subsidies for coverage under the individual mandate. Why do the subsidies extend to 300 or 400 percent of the poverty line? Because the insurance policies are expensive. And why are they expensive? Because of the number of mandates included. You could dispense with most of the support if you went to a catastrophic policy with a high deductible. Where’s the comparison of costs and benefits under those two approaches? Have you seen anything? I have not.

    In effect, we are being given a “take it or leave it” 17 course dinner. This is the way things are customarily done in Washington (which is why the bills are 1000 pages long). If you want me to support something, it would be helpful to know the options you considered and rejected and the benefits you expect before arguing that you have found the correct solution.

  32. comment number 32 by: Brooks


    I’d add to your comment that, if we had single payer, we’d start off with that “17 course dinner”, and eventually, when the federal debt and deficit sh*t hit the fan and cuts became necessary, to a large extent the cuts would be made in a way that (1) distributes the sacrifice per political considerations rather than based on fairness/equity or any other arguably noble basis, and (2) favors the less visible sacrifices regardless of actual cost-effectiveness and value (e.g., cuts in payments that cause less innovation in medical equipment and drugs).

    And of course, it would be government rationing rather than private insurers limiting coverage as they compete with other private insurers to provide superior (or at least competitive) coverage per premium dollar, just as a competitor in any industry limits quantity and quality so it can get/keep price down and provide better value by eliminating/minimizing costs that most customers for that product or service don’t consider worth the increment in price. That’s the concept that some folks are missing when they equate government rationing with private suppliers limiting quantity or quality at a given price. The latter is done to (roughly) maximize customer value by aligning costs (proportionately) with price through the “invisible hand” of customer decisions in the market, whereas the former is essential command economy-style decisions by politicians and government staff ostensibly on behalf of all the customers.

    As a note, I’m not suggesting that the health insurance market is as smooth and flexible in terms of choice, switching costs, etc. — i.e., as much of a free market — as are most markets, but it’s certainly more of a free market than would be single payer.

  33. comment number 33 by: Arne

    Brooks, the study you linked answwers the question of whether taxes collected are consistant with costs born by the government. Most of the cost of smoking is born by the smoker. Under a single payer system the $40B in retirement savings would be more than offset by bearing all medical costs. Not that we have single payer, but it is clear that changing the underlaying payment system would change factors enough to turn the results of that analysis around.

  34. comment number 34 by: Brooks

    I don’t follow your argument. Perhaps you could clarify.