Friday, October 28, 2011

Healthcare Cost Dynamics

In a recent posting in the Globe and Mail by Auld, the author makes the following argument:

The idea that a healthy lifestyle substantially decreases demand on the health care system has been repeatedly shot, stabbed, and poked at with sharp sticks, but it won't just die.

The zombie argument goes like this: poor health causes more use of the health care system. Poor health can be caused by an unhealthy lifestyle -- smoking, overeating, lack of exercise, and so on. Therefore, unhealthy lifestyles cause increased use of the health care system.

Therefore, policies which induce people to choose healthier lifestyles are rigorously justified since they mitigate such external effects and reduce demand on the public health care system.

The zombie notion that promoting healthy lifestyles is a good way of reducing demand on the health care system should be put to rest.

To simplify it he argues that:

Consider smoking, perhaps the most commonly studied health-affecting behavior. It is very well-established that smoking causes poor health. We can estimate the amount of health care used treating smoking-related illnesses by comparing disease rates for smokers and non-smokers and attributing some fraction of cases of various diseases to smoking. …

However, all people -- and I do not mean to shock anyone -- die some time, even including people who live very healthy lifestyles. Preventing someone from dying of a smoking-related illness only means that they will die of a non-smoking related illness. The effect of smoking on lifecycle health care costs is the difference between costs which are incurred if the person smokes and the costs which would be incurred if the person doesn't smoke. Whether improvements in lifestyle increase or decrease lifetime health care costs depends in a complicated manner on how a healthy lifestyle affects length of life and health care costs at any given age. Whether smoking or other unhealthy behaviors increase or decrease health care costs is an empirical question.

The evidence suggests that unhealthy lifestyles tend to increase health care use at any given age and reduce life expectancy, so more is spent per year but for fewer years.

Thus the argument is simply that:

1. We all die at some time.

2. Spending money to delay death is a waste.

3. In fact bad behavior results in earlier death and thus lower total lifetime costs.

Now perhaps some facts from Medicine would help. Let me compare what we could do in say 1967 when I first started studying the field and today, almost 45 years later.

1. Lung Cancer: Once detected first with a simple chest X ray and then with a lavage of the lung, a very painful process then and now, we might operate, after all whenever a surgeon sees a patient they see the opportunity to cut, but it was almost always nonproductive. Thus the patient died in 3 to 6 months and the best you could do was use morphine which just shortened the inevitable. The advantage was they really did not need much care, the medications were minimal and they ged before Medicare or Social Security kicked in.

2. Type Diabetes and Sequelae: Here is a counter example. In 1967 there frankly were few obese people, and children were almost never obese. Thus there was a low incidence in Type 2 Diabetes. In fact we treated Type 1 and almost ignored Type 2 until it was too late, namely kidney failure. There were no kidney transplants and dialysis was just coming out. However now with the epidemic of obesity and the resulting Type 2 diabetes and its sequelae, we have more patients, and we can now keep them alive for quite a long time at a tremendous cost. Here is a counter example to the lung cancer cases. If we were to change behavior then we could indeed save money. In a way this is the total counter to lung cancer.

3. STDs: Sexually transmitted diseases are causes of a variety of chronic and fatal diseases. Hep B, AIDS, HIV syndromes, Herpes, HPV, cervical cancers and oral-pharyngeal cancers to name a few. Now will promoting better health help here? Possibly, especially since AIDS maintenance is quite costly, and the Hep B liver cancers can be costly, etc it is possible to demonstrate a savings in a lifetime. Remember we all eventually die of something.

4. Alcohol and Other Drug Abuse: This has been an on and off again issue. Cirrhosis is a terminal state for some, it is the liver effectively decomposing and raising all the toxins in the system. Alcohol is a significant factor. Can health living deal with this? Possibly, but like  other drug abusers they generally peak out in mid-life and become terminal.

5. Cancer Screening: This is the preventive care problem as evidenced with the current debate over PSA screening. Does cancer screening as part of a healthy lifestyle work? Let me give a low cost example. Melanoma is growing in North American and may most likely continue. The incidence is increasing but the survival is also. Early detection, a semi-annual skin exam, for a ten minute procedure, can find the lesions while still Melanoma in situ and the lesion can be excised while still 100% curable. That is a good investment, and the lifestyle part of that decision is to stay out of the sun, perhaps less of a problem for Canadians than for Australians.

6. Congestive Heart Failure: Cholesterol, triglycerides, and the many other elements which give rise to cardiac problems leading to congestive heart failure are now part of management of a healthy life style. Why? Well in 1967 when you were diagnosed with Stage IV congestive heart failure you were sent home to put your affairs in order with some relatively inexpensive morphine. That’s all. Today we can manage it for quite a while even to the limit of getting a new heart. We are bombarded with ads saying to exercise, watch our weight, take lipid lowering drugs and the like. Does this save costs? Good question. The unhealthy behavior of eating pizza every day, smoking, processed foods, fats etc may lead to an MI, congestive heart failure, but now we can keep you going at a substantial cost. In 1967 we just sent you home!

Note what is happening, we are being able to keep people who live unhealthy lifestyles alive but at a tremendous cost. This is a clear example of externalities. Namely they get to live the lifestyle and we all end up with the costs. 
Let me give one more conflicting example. A 50 year old man decides to take up jogging because he thinks it is good for his heart. At 60 he gets prostate cancer and we pay for that. At 70 he gets retinal failure and we pay for that. At 80, now his hips are gone, and we pay for double hip replacements. Then the surgery was compromised and we have dual hip infiltration of some nosocomial infection, we pay for that. The list goes on. If he had not jogged he would not have needed the hip replacement and he may have even died at 55 from heart problems. So what is the answer?

Thus to reiterate the author:

Whether improvements in lifestyle increase or decrease lifetime health care costs depends in a complicated manner on how a healthy lifestyle affects length of life and health care costs at any given age. Whether smoking or other unhealthy behaviors increase or decrease health care costs is an empirical question.

In fact the question, as shown above, is also disease dependent as well.

The question that Chris Auld's article raised in my mind was: why? Why is it so hard to convince people that public health measures, like reducing smoking, might lead to increased health care costs in the long-run? I can think of a number of explanations.

1. Policy makers are stupid. That's not a good economic explanation; the basic premise of economics is that people are (usually) not (that) stupid. But it might be right.

There may be some validity here, I spent my time in Washington and saw for myself. But generally policy makers in the US are responding to a great number of influences and it is the amalgam of these influences which result in a final policy. Stupid, possibly, but influenced definitely.

2. Policy makers aren't stupid, but they want to raise money by suing tobacco companies.

Yes, that is a possibility. But what of the other healthy lifestyle issues. Take alcohol, we banned it under the Constitution, we saw what that did. The costs and social destruction was monumental. Could we argue the same for drugs as the libertarians do? Possibly.

3. Policy makers are paternalistic. Unhealthy behaviors are bad, either because they are morally reprehensible (the sin of gluttony), or because unhealthy behaviors make people unhappy. The zombie argument - "quit smoking for the good of the health care system" - is trotted out in order to induce people to behave better. Or in order to justify our moralistic views.
3a. Because people believe unhealthy behaviors are bad, the idea that these behaviors could be beneficial - that they could, for example, reduce health care spending - causes cognitive dissonance. Thus people refuse to believe it.

Now this is not a simple question. I have often tried to understand what makes a libertarian and what makes a progressive. Progressives believe that Government, assuming they are in charge, knows best and can do what needs be done. Libertarians view Government as a necessary evil and that the individual knows best. So what makes one person a libertarian and another a conservative, my two children are one of each, so it cannot be environment or genetics. Paternalistic may be for some but not all.

4. Policy makers have high discount rates. The person who quits smoking today will soon be at lower risk of suffering a heart attack - and at increased risk of living long enough to get Alzheimer's disease. But if a policy maker has, say, a 10 percent discount rate, $100,000 in health care expenses in 20 years’ time is equivalent to less than $15,000 in health care expenditures today. So present costs matter far more than future costs.

Yes, they do have high discount rates, Cust the costs now and just push it down the road to someone else. Yet if we have a good CBO one would think it would be their job to ferret out those costs and let the public know.

5. Policy makers only care about certain costs. Some types of illness place large burdens on Canada's publicly funded health care system - cancer, for example, which is largely treated in hospitals. Other forms of illness place burdens on informal caregiving networks. If you or someone you love is diagnosed with Alzheimer's for example, it will generally be up to you to provide home care, or arrange and pay for at least part the cost of long term residential care. If quitting smoking reduces cancer treatment costs by $1 and increases long-term care costs by $1.50, the publicly funded health care system might still have saved money. 

Possibly, and in fact in the US the concern is about deficit at the current time and long term debt. Not total costs. Frances ends with:

I don't know what the right answer is. But I did find Chris Auld's exploration of the issue well worth reading.

Like Frances I also do not know the right answer. In the end we are all dead.