Young Economics.

Animal Healthcare Spending is Out of Control!

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Via the indispensable Econlog, I find this:


Megan McArdle explains why this is interesting:

Kudoes to AEI for publishing a graph that seriously undercuts one of the major conservative arguments about health care:  that the main problem is consumers who don’t bear their own costs.  Veterinary spending is subject to few of the perversities that either left or right suppose to be the main problems afflicting health care spending.  Consumers pay full frieght most of the time.  They are price sensitive, and will let the patient die if keeping him alive costs too much.  There is no adverse selection.  There is no free riding on mandatory care.  Government regulation is minimal.  Malpractice suits are minimal, and have low payouts.  So why is vet spending rising along with human spending?

Does this graph show that the argument about consumers not facing their own costs must be false?  Or are the two issues — vet spending and human healthcare spending — so different from one another that we can’t draw any conclusions here?  There are no doubt many differences that we would want to control for; this graph isn’t a very sophisticated analysis.  Still, when people say that healthcare spending increases are ‘out of control,’ they tend to look at this aggregate trend.  Veterinary spending has the same upward trend, and approximately the same rate of increase (about 2.5x over the whole period).

And what does this say about some of the ‘liberal’ arguments about healthcare? The market for veterinary services doesn’t have the complex insurance schemes with large administrative overhead.  Without insurance, and therefore without adverse selection, no one spends money evaluating insurance claims for dogs.  Yet total spending is rising in line with spending on human healthcare, which does have those problems.  And those are supposed to be the areas where, according to some, big savings would be realized under a universal system (well, those along with monopsony buying power for drugs and stuff).

Of course the magnitudes are totally different, but the sheer size of total spending on human healthcare isn’t itself the issue.  If the increasing share of national income going to healthcare spending is driven mainly by rising incomes and technological progress, and not by problems with the structure of the health and insurance industries, then the spending problem is only a problem because the spending is being done by the government.  If people were choosing to spend a higher share of their income on health, we wouldn’t say it was a problem.  But when we’re talking about the government budget, it becomes a matter of political tradeoffs rather than individual consumption tradeoffs.  What policies — if any — should the US government implement to deal with this problem?


Written by Alex

July 13, 2009 at 4:35 pm

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