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Is the Quality-Adjusted Cost of Health-Care Higher Today than in 1980?

Posted By Don Boudreaux On January 27, 2013 @ 3:28 pm In Growth,Myths and Fallacies,Standard of Living | Comments Disabled

My e-mail assailant “Aaron the Aaron” writes again.  The thrust of his latest note is to accuse me, in my post earlier today [1], of “throwing around irrelevant hypotheses” (I believe he means “hypotheticals”) that only “confuse people to divert their attention away from a reality which you and [Mark] Perry bend over backwards to deny.  You [Boudreaux and Perry] do not fool those of us who think for ourselves.”

The paragraph singled out by Mr. Aaron as being especially irrelevant and diversionary is this one:

Suppose that in 1980 the only form of health-care available was band-aids.  No MDs, no dentists, no hospitals, no antibiotics, no anything except band-aids.  Fast-forward to 2013, a time during which health-care includes all that we denizens of 2013 actually have access to – band-aids; primary-care MDs; pediatric gastroenterologists; MRI machines; statins; antidepressants; lasik eye surgery; erectile-dysfunction medications; on and on and on.  A statistician finds that people in 2013 spend much more on health-care than they did in 1980.  Is it proper to conclude from this correct statistical finding that the rise in health-care expenditures – this rise in health-care costs – is a problem, a curse, something that we should lament?  Suppose that between 1980 and 2013 the portion of household income spent on non-health-care basics (e.g., food, clothing, transportation) fell – a fall that is offset by the rise in the proportion of household income spent on health care.  Is it correct to conclude that, because the portion of middle-class household income spent in 2013 on the sum of non-health-care basics plus on health care is unchanged from the portion spent on these items in 1980 that middle-class households are no better off economically today than they were in 1980?

I confess that I think this paragraph to be the most relevant, and strongest, one in my post.  The reason is that, while not as extreme, something very much like the hypothetical that I describe in the paragraph played out in reality.

I did a quick google search to find which medicines and medical procedures are widely available today that were either not available at all, or available only on a very limited basis, as recently as 1979 (the year when I began my senior year of college, by the way – so not so long ago!).  My search was quick – a qualification that means that, should someone spend more time researching the matter, I’m confident that he or she will be able to expand the following list.  The list below is in no particular order.  (I leave out any mention of HIV medications and treatments because HIV was undiagnosed as such in 1980.  But, of course and happily, since HIV/AIDS was first diagnosed convincingly in the early 1980s, there have been major medical advances in treating that dreadful disease.)

- statins (for controlling cholesterol)

- Prozac, Lexapro, Paxil, and other effective anti-depressant medications

- cyclosporin (an immunosuppressant)

- lasik vision-correction surgery

- artificial hearts (the first successfully transplanted one being the Jarvik-7, in 1982)

- magnetic resonance imagining (MRIs)

- Viagra, Cialis, and Levitra (for erectile dysfunction)

- automated external defibrillators (AEDs)

- Gardasil (a vaccine for preventing certain kinds of cervical cancers)

- disposable contact lenses

- laparoscopic surgery (My understanding is that, although sometimes used prior to the 1980s, its use since then has skyrocketed.)

- the morning-after pill

- greatly improved prosthetics

I could list more improvements in health-care, and I welcome Cafe patrons – either in e-mails to me or in the comments section – to add to the list.  (Oh heck, I will list one more, albeit one that I do only from memory – a vivid memory from the 1970s: greatly improved dental treatments.  No one who recalls having his or her six-month dental check-up or having a cavity filled in, say, 1978 and who still goes to the dentist – and maybe who still needs to have a cavity filled – can help but notice the astonishing improvement in dental care, if only in the comfort to the patient of the procedures.  Those of us born before, say, 1965 surely recall the long-lasting, full-face-numbing feeling that accompanied having a cavity filled – a long-lasting, full-face-numbing feeling that was preceded by a much more painful, than today, procedure for numbing the tooth.)

So to Aaron the Aaron’s implicit question: what’s the relevance of all this?  Answer: What is today classified as “heath-care” is both broader and of generally much-higher quality than was health-care in 1980s.  Therefore, the fact that Americans spend more on such care, both absolutely and as a portion of household incomes, in no way remotely proves – or is even evidence – that this trend in health-care spending over the past three or four decades means that Americans are thereby economically worse off on this front.

I do not here question the claim – made, for different reasons, by people on both the right and the left – that the price of health-care today is excessively high.  I accept that claim; I’ve no doubt that it is correct.  Yet despite the unnecessarily high cost of medical care today compared to what it ‘should’ be, the case remains unclear, at best, that the full rise in health-care expenses over the past few decades should be counted against the fall in expenses on most other categories of goods and services in order to justify the conclusion that ordinary Americans are today no more economically well-off than they were in 1975 or 1980.

Ask again a question that Mark and I posed in our Wall Street Journal essay [2]: If given the choice, would you choose today to buy only 1980 health-care at 1980 nominal prices (even with your 2013 nominal income!) or only 2013 health-care at 2013 nominal prices?  If you would choose the latter – or even if you think that you might choose the latter – then you cannot conclude that the fact that Americans today spend more in real terms on health-care than they did in 1980 means that quality-adjusted health-care has gotten more expensive.  If you, like me, would choose 2013 health-care at 2013 prices (over 1980 health care at 1980 prices), then I know of no sounder evidence that, at least by your assessment, the quality-adjusted real price of heath-care today is lower than it was in 1980.

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URLs in this post:

[1] my post earlier today: http://cafehayek.com/2013/01/some-notes-on-the-thesis-of-economic-growth-for-the-middle-class.html

[2] our Wall Street Journal essay: http://professional.wsj.com/article/SB10001424127887323468604578249723138161566.html?mod=WSJ_Opinion_LEADTop&mg=reno64-wsj

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