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A quarterly magazine of urban affairs, published by the Manhattan Institute, edited by Brian C. Anderson.

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The Reaper Is Cheaper
Preventing disease is praiseworthy, but it may not reduce health-care costs.
21 July 2009

President Obama has made many promises about his health-reform agenda, but none looms larger than: “You will save money.” Not only has the president promised to lower consumers’ health-insurance bills; he says his plan will trim federal spending as well. Thus, when the head of the Congressional Budget Office (Congress’s fiscal watchdog) testified last Friday that none of the bills under consideration in the House or Senate would rein in spending—and that all would likely increase it—the president’s reform push took a heavy hit. The CBO’s assessment underscored an important reality about health care. Lowering health-care costs (which have been rising faster than inflation for decades, except for a brief period in the 1990s) while improving quality is possible, but it’s awfully hard, for one simple reason: when it comes to health-care spending, death is the only really cheap option.

William Osler, a renowned nineteenth-century doctor and the first physician-in-chief at Johns Hopkins Hospital, once remarked, “Pneumonia may well be called the friend of the aged. Taken off by it in an acute, short, not often painful illness, the old man escapes the ‘cold gradations of decay,’ so distressing to himself and to his friends.” If Osler were alive today, he might call pneumonia the friend of Medicare accountants, since it kills victims quickly, in contrast with the lingering and expensive chronic illnesses that account for about three-quarters of all Medicare spending.

Few policymakers working on health-care reform in Washington stop to consider the obvious corollary: dying early is cheap, and keeping people alive long enough to collect Medicare is expensive. Instead, experts talking about health spending promulgate what I call the Eat Your Vegetables Theory: we can save gobs of money by focusing on technological fixes (like electronic health records) and disease prevention, which will yield a healthier population that is cheaper to treat. The savings generated can then be used to subsidize coverage for millions of the uninsured. But this approach is unlikely to work as advertised: as Osler’s dictum suggests, increasing prevention efforts may wind up costing more.

Take pneumonia. We have relatively cheap and effective treatments for it, especially vaccines and antibiotics. As a result, many older Americans who might have died from pneumonia in Osler’s day now live years or decades longer—long enough to qualify for Medicare and then develop much more expensive ailments like diabetes, cancer, and Alzheimer’s. Researchers at the RAND Corporation noted the conundrum across several studies and came to roughly the same conclusion: “Medical innovations will result in better health and longer life, but they will likely increase, not decrease, Medicare spending.”

In one study, the researchers postulated three different scenarios for the health costs of seniors entering Medicare from 2002 to 2030. Scenario A took into account everything that we know today about the health of the current cohort of seniors entering Medicare and future enrollees, up to 2030. (This is a mixed bag. Seniors’ health started improving in the 1980s, but rates of chronic diseases have been increasing rapidly in recent years, and newer enrollees are likely to be sicker and thus more expensive.) Scenario B assumed that future cohorts would be as healthy as those in the 1990s. And Scenario C (the most optimistic) assumed that seniors’ health would continue to improve. Under rosy Scenario C, the researchers found, health spending would be $10,275 per Medicare enrollee in 2030—just 8 percent lower than under Scenario A. Why? Healthier seniors live longer and accumulate more costs; also, costs are rising faster among less disabled seniors, presumably because they use more new drugs and devices that prevent them from becoming disabled (knee replacements, for example).

In another study, RAND researchers looked at how ten important medical innovations likely to emerge in the near future might affect Medicare spending in 2030. These included anti-aging compounds for healthy people, cancer vaccines, tiny defibrillators implanted near the heart, better treatments for stroke and cancer, and Alzheimer’s prevention. Every hypothetical innovation, the researchers found, would increase Medicare spending. Even the cheapest, an anti-aging compound taken by healthy people that would cost just $11,245 per life-year saved, would increase health-care spending by 14 percent in 2030—because there would be 13 million more beneficiaries collecting benefits.

Finally, RAND examined the effects of fighting four risk factors for heart disease. If we could get all the elderly to stop smoking and control their diabetes, their health would improve, of course, but costs would rise, again because those ex-smokers and diabetics would eventually be vulnerable to other health problems. If we effectively treated hypertension and slashed obesity rates by 50 percent, however, health would improve and costs would fall. Reducing obesity produced the clearest gains because obesity, though it sharply increases costs, doesn’t reduce longevity significantly.

What all three studies suggest, then, is technological innovations or disease prevention will likely result in slight savings or even increased costs (though obesity may be the exception to this trend). This doesn’t mean, of course, that we shouldn’t keep inventing drugs and devices to keep people alive longer, or that we shouldn’t develop better prevention strategies. It just means that we should stop pretending that good health is always cheaper. Sometimes, you really do get what you pay for.

Paul Howard is the director of the Manhattan Institute’s Center for Medical Progress.

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