Code Red: Two Economists Examine the U.S. Healthcare System

October 5, 2009

Some Good News about the U.S. System!

Filed under: Health services research,Health spending,International Comparisons — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 12:50 pm

Like Rodney Dangerfield, the U.S. healthcare system gets no respect.  There is no denying that we spend twice as much per capita as anywhere else in the world.  And our health statistics are nothing to crow about, with average life expectancy and below average infant mortality.   For those whose heads spin when trying to compute a tip at a restaurant, this is enough data to draw damning conclusions.  For those of even the slightest analytic bent, the statistics raise more questions than they answer.

Here is the most important question of all:  What would our health statistics look like if we didn’t spend as much as we do?  Or how about this corollary:  What would life expectancy and infant mortality (and other measures of health status) be in an obese, work-obsessed, poverty-ridden, drug and violence-prone nation that did not lead the world in health spending?

(I recall my recent visit to Paris, where perhaps 2 out of every 100 people I saw on the streets was obese.  And those two were Americans – I could tell from the Hawaiian shirts and Fodor’s guides!)

It has been difficult for researchers to sort out the reasons for elevated U.S. spending and subpar U.S. health outcomes.  The system?  Maybe.  Health behaviors? Maybe.  What is cause and what is effect?  It boggles the mind.  But a recent study by Samuel Preston and Jessica Ho from the University of Pennsylvania provides compelling evidence that perhaps we really do get our money’s worth out of the U.S. system.  I am not the first to blog about this study, but I think it is important enough to do all I can get the message out.

Preston and Ho correctly observe that aggregate data mix together system effects and health behaviors.  So they drill down to a handful of conditions where, in their words, “behavioral factors do not play a dominant role.”  They find that mortality rates in the U.S. from prostate cancer and breast cancer have both declined precipitously over the past 20 years when compared with the rest of the developed world.  U.S. mortality rates from prostate cancer are nearly 25 percent lower than elsewhere and rates for breast cancer are now slightly lower.  Preston and Ho attribute these success stories to aggressive use of diagnostic and therapeutic technologies.   Examining all malignancies, Preston and Ho find that 5 year survival rates in the U.S. are about 63% (women) and 66% (men) versus 56% and 47% in Europe.  They cannot determine whether this is due to earlier detection or better treatment in the U.S.; either way, the U.S. comes out the winner.

It is possible to put these health gains into dollars.  Economic studies suggest that a year of life is worth $100,000 or more in other goods and services.  Canada, England, and other nations that explicitly put a dollar value on life peg it closer to $50,000.  On average, each cancer patient in the U.S. has about a 13 percent higher chance of living at least 5 years.  In expected value, this is worth at least $32,000-$65,000.  Not a bad return for our higher spending.

For any number of reasons, Americans are an unhealthy lot.  We are our health system’s worst enemy and we spend a lot of money to repair the damage.  Preston and Ho’s study suggests that we are emerging with something quite valuable.  We are emerging with our lives.


  1. A lot of thoughts about this information;
    Can we do better?
    Is it sustainable with the rapidly rising costs?
    What about the high percentage of uninsured people who come into the system sicker and experience less desirable outcomes?

    Comment by Larry Rine — October 11, 2009 @ 10:51 am

  2. An important question is whether any of the proposed reforms run the risk of doing more harm than good. If we do nothing else, expanding coverage while raising taxes (or taxing gold plated plans) will allow us to do better. But that assumes we are willing to pay for other folks’ health care. But if this drives up costs, the cure (rationing? single payer?) could be worse than the disease.

    Comment by dranove — October 12, 2009 @ 2:23 pm

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