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September 28, 2006

The Costs of Health Care

From the New York Times an important piece of information on health care costs.

[T]he best way to reduce health care spending is to reduce health care itself. Which is exactly what we’re starting to do. The growing number of families without health insurance are, in effect, families who have been kicked off the country’s health care rolls. Many will go without available treatment, will get sicker than they need to get — and will thereby save the rest of us money.

Yup, health care costs money. And if people are indeed treated then they live longer and consume even more health care. Preventative health care is great, but it doesn't actually save money in the long run. Vaccinate everyone, get all eating properly, not smoking and boozing themselves into an early grave and guess what: if you still give them high tech health care when they still stubbornly persist in getting some other disease (cancer, Alzheimer's, whatever) then your health care system will cost more, not less. Because more people will be living longer to need such care.

As Brad Delong points out:

Not even most forms of preventive care, like keeping diabetes under control, usually save money, despite what many people think. The care itself has some costs, and, more important, patients then live longer than they otherwise would have and rack up medical bills....

Which leads us to a very interesting question. What the buggery bollocks was this all about?

Attorneys General Master Tobacco Settlement

If people dying, rather than living to consume yet more health care, saves the health care system money, then how can anyone go to court and insist that people dying has cost the health care system money that needs to be compensated?

BTW, yes, I do know the answer to this. The tobacco companies might even have raised this point if the settlement weren't so carefully crafted. They did not, as is commonly assumed, have to pay out of either their current revenues nor their profits, past, accumulated or future. Rather, they were allowed (and given anti-trust immunity for doing so) to raise their prices in concert to fund the settlement. The advertising restrictions also lowered their costs: and had the very handy side effect of barring future possible competitors from using advertising to try and enter the market.

End result? Those who smoke pay higher taxes on their smokes to pay for the extra health care costs that they don't in fact cause. A result that could have been achieved if each state had simply raised their tax on smokes, but then that wouldn't have given $40 billion (or whatever the number was) to the lawyers.

Ain't legislation by tort lawyers great?

September 28, 2006 in Health Care | Permalink


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The NYT has a story related to the one you quote, one that effectively "buries the lede" (which is really a chart, and you have to dig to find it -- see link below). How do Bush free market health insurance solutions stack up against Clinton's track record? Not very well. When you look at the actual figures, Bush Peaks flank Clinton Valley when plotting changes in the cost of health insurance against inflation rate.

Posted by: Madison Guy | Sep 28, 2006 8:06:36 PM

Surely you're not in favour of taxation on cigarettes?

Tim adds: Pigou

Posted by: Matthew | Sep 28, 2006 8:55:22 PM

"Surely you're not in favour of taxation on cigarettes?"

If there were no excise duties on cigarettes and tobacco then smuggling cigarettes would cease to be a profitable business and another booming South Yorkshire industry would slide into recession:

From yesterday's news:

"ILLICIT cigarettes with a street value of £7.5 million pounds have been seized and half a dozen people arrested in a series of raids across South Yorkshire."

In fact, South Yorkshire smugglers are performing a valuable societal service - smokers die younger and therefore cost the NHS less for providing healthcare and, of course, smokers take out less in pensions. But it's pity if they don't have the opportunity to pay taxes on their cigs.

Posted by: Bob B | Sep 28, 2006 10:11:27 PM


What is your evidence that preventative healthcare costs more in the long run?

In fact, all the evidence shows that people with healthier lifestyles require less medical treatment overall during their lives. People with unhealthy lifestyles are much more likely to require long term (and expensive) treatment for chronic diseases.

Living longer healthily does not cost more. Living longer unhealthily does and the prime factor in health (in western countries) is the lifestyle of the individual.

The statement about preventative treatment for diabetes is nonsense. This is palliative, not preventative, treatment, and does nothing to prevent people from developing diabetes most of which, in the west, is caused by lifestyle factors(generally obesity).

Tim adds: Going with the evidence of of the economists quoted.

Posted by: HJHJ | Sep 29, 2006 8:33:28 AM

I think we can be pretty certain that South Yorkshire is aiming to make its own unique contribution to promoting diabetes too:

"Two mothers who handed out fast food to school children in a backlash against a school's healthy eating policy will meet the school's headteacher today in attempt to resolve the row. Julie Critchlow and Sam Walker have been accused of undermining the Jamie Oliver inspired crusade against junk food in schools by handing out burgers, fish and chips, and fizzy drinks through the fence at Rawmarsh Comprehensive School, in Rotherham, South Yorkshire."

Besides, by reports they have also been working diligently there on connections between sugar and smoking:

"More than a million smuggled cigarettes have been found stashed inside a food tanker full of sugar by HM Revenue & Customs (HMRC) in Sheffield. The haul was discovered after officers raided a warehouse in the city centre."

And just to make quite sure, if smoking or diabetes don't get you in Yorkshire then alcohol will:

"Across England and Wales the number of deaths put down to conditions such as alcoholic liver disease and alcohol poisoning have increased by 18.4 per cent, but in Yorkshire and the Humber - the region which saw the biggest increase - alcohol-related deaths rose by 46.5 per cent between 2000 and 2004."

I'm not altogether clear yet on how this also features but it's probably part of the same plot to attract more government spending to Yorkshire:

"Sheffield is the car crime capital of the UK and the Ford Orion is the most frequently stolen older car. Car owners in Sheffield are more than five times as likely to have their vehicle stolen than owners anywhere else."

Posted by: Bob B | Sep 29, 2006 10:32:58 AM

"Going with the evidence of the economist quoted"?

Oh, come on, Tim. You mean Brad DeLong who doesn't even know the difference between preventative and palliative care and thus reaches exactly the wrong conclusion?

Diabetes, most of which is caused by poor western lifestyles, is the perfect example of what I was saying: Not only does it reduce life expectancy but it requires long term and expensive treatment. If you avoid diabetes, you tend to both live longer and incur less medical treatment costs.

Posted by: HJHJ | Sep 29, 2006 11:44:38 AM

Excise taxes on tobacco - or alcoholic drink - are not, of course, the only means by which government policies distort market prices and thereby create profitable opportunities for criminal arbitrage operations between the differences in prices gross and net of taxes.

Cigarette smuggling is but one route for garnering criminal profits from arbitraging the price differentials created but government regulations can also create similar opportunities. One again, South Yorkshire has displayed its enduring spirit of pioneering criminal enterprise.

Take this illuminating example from a few years back of how government regulations create price differentials between food approved fit to meet the health standards required for human consumption and food condemned as unfit. Food fit for human consumption will sell for a substantially higher price than food declared unfit and this creates a profit opportunity if unfit food can be sold back into the food chain as happened in this case:

"Health officials are trying to reassure the public after a multi-million pound fraud in which pet food was sold as meat fit for human consumption. The government's food safety guardian, the Food Standards Agency, said evidence suggested that the scam had been a one-off.

"Five men are due to be sentenced on Friday for selling 1,300 tonnes of condemned meat to butchers, supermarkets and restaurants all over the UK. . . Inspector Gary Blinkhorn, of South Yorkshire Police, which investigated the fraud jointly with Rotherham Council, described the pet food case as a 'heinous crime'."

Posted by: Bob B | Sep 29, 2006 12:20:58 PM