Did rising health care expenditures damage the U.S. savings rate?

Maybe so:

The U.S. saving rate declined by 8 percent between 1980 and 2009. We document that the decline can be explained by rising health expenditures. Using exogenous variation in medical expenses generated by FDA drug approvals, we document that a 1 percentage point increase in health expenditure generated a decline in saving rate of 0.9 percentage points. We then estimate a model of household decisions to evaluate the mechanisms behind the decline. We find that the rise in health expenses and drop in saving rate are driven by progress in health technology, reduction in co‐payment rates, and improvements in income processes.

That is by Yi Chen, Maurizio Mazzocco, and Béla Személy, via the excellent Kevin Lewis.

Comments

Many people in the other thread argued that we should pay more for health care because each year of extended life by pharma only costs $3000 but forget that insurance is collective buying. Like other forms of bundling, this way of conducting business in America is bankrupting its citizens by forcing us to pay for things we don't want at premium prices and greatly diminish individual utility. I don't want 100 channels of cable TV when I only watch at most 10. The corporate bureaucrats that act as both judge, buyer, and death panel need to be scrutinized by regulators. I'm a single issue voter so I will vote for Warren, Trump, or any politician who has the temerity to take on our crooked health system.

Warren and Trump have about as much in common as Hatfield and McCoy. Please don't vote.

They have in common that neither is a Cherokee.

Buffett could be descended from the Omaha Native American people.

'reduction in co‐payment rates'

Guess from which perspective the reduction has occurred? B-B has also increased the health care ration for everyone through progress in health technology, as endlessly trumpeted in the American media.

There's nothing implausible about the idea that health consumption can be paid for out of savings, but it's odd to call this "damage". Would we say "Did rising investment damage the US savings rate?" or "Did rising education damage the US savings rate?" analogously?

Of course, the housing bubble and pursuant financial catastrophe had nothing to do with declining savings rates.

The measured period was from 1980 to 2009.

If you make it really expensive to die, then nobody will die. The power of economics.

My first doubt was addressed clearly, an older population on average is not the cause: "The ratio of consumption to income increased for all generations, because health expenses increased for all age groups and not only for the elderly".

Fig 12 Non-health consumption as share of income is SCARY.

Maybe the thing to be looking at is not cost but efficiency. Which is the most efficient healthcare system in the world?
Raw materials and front line labour are the basic costs, the money going round offices and call centres are "friction and windage" of any system.

Efficiency is tough to talk about - a richer country with more disposable income may do inefficient things because it can afford to, and individuals may be more inefficient with their spending by spending on themselves when they are not the easiest to treat. Lots of healthcare is going to be really inefficient, but its not going to matter if its a long shot if its your money and your only shot!

Efficiency can't be measured by outcomes either, without a precise knowledge of inputs. Shorter lifespans don't indicate less efficiency.

The best you can do is look at prices. They don't seem too high - https://randomcriticalanalysis.com/2018/01/06/its-not-the-prices-stupid-a-response-to-austin-frakts-and-aaron-carrolls-nytimes-article/

The savings rate collapsed along with the economy at the end of the aughts. For a short time during the recovery it exceeded 10%, and has receded to the historical level (about 7.5%). https://fred.stlouisfed.org/series/PSAVERT

Which is more likely the most significant cause of the declining savings rate from 1980 to 2009: (a) increased health care expenditures or (b) stagnant or declining real wages and easy credit policies intended to boost consumption and prevent a recession.

+1, I think the answer is both, it's important to point out that rising health care costs combined with stagnant real wages (not declining) would seem to be a larger factor than just rising health care costs.

Why has none of the states introduced the possibility of voluntary euthanasia? It would presumably be a money-spinner for an early adopter.

I'm disturbed by the constant, mindless equivocation between health expenditures and costs. They are not the same. Expenditures are Price times Quantity (or Quality) hence rising expenditures could be the result either of increased costs or increased quantity consumed. The aging population demands more life saving or improving health care. Greater availability of drugs, surgeries, treatments, therapies, and diagnostics increases quantity.

High expenditures are not a bad thing. If you can't buy a longer and better life, then what the hell good is money for anyway? And if your enjoyment of life is ruinous to your health, then expenditures are the cost side of the CBA for the course of action you freely chose.

Expenditures on anything come from dissaving. The only thing this study tells us is that health care has become the most important expenditure, and well it should be.

I agree with your point in general, but American health care has well known market failures. So to the extent that rising expenditures are caused by these market failures, that is a bad thing and is of no benefit to anyone except those collecting the excess profits.
Buying a longer and better life is all well and good, but in a lot of cases we are clearly paying much more for the same old treatment.

"reduction in co‐payment rates"

My "co-payment" rates have increased since the 80s, as have most of the people of my boomer age group.

In particular, I saw the rise of "real" HMOs which were taking market share in New England rapidly due to low co-pays and expanding direct provision with reduced friction for doctors and patients, through the 80s, with insurers fighting hard to block and kill HMOs, as well as the Blues which had carve outs in most states as the insurer without ratings or denial of coverage, used by welfare systems.

Both got stuck paying taxes on imputed insurance profits to enable for profit insurers the ability to compete, thanks to "reforms" in the late 80s.

That plus economists cllaiming patients were demanding too many colonoscopies, pelvic examples, prostate tests because they were free, so patients needed to pay more out of pocket, resulted in increasing out of pocket costs, lots more friction to get care, and switches to for profit "competition" to reduce insurance premiums that starting circa 1999 rose faster than ever, doubling for eemployers in seven your for big groups, and generally worse for small and medium employers.

Of course, over the same since 1980 period, debt became almost mandatory instead of taken as a last resort.

I grew up when debt was bad, and it was virtue to become debt free, and absolute last thing you did was increase the debt on real estate.

That meant, in the old days, saving was a top priority because that's how you paid for things that did not generate income. Ie, kids saved to pay cash for a car or bike. Only when you had a job and needed the car to get to work without depending on parents or bus service or walking, could a car loan be justified, but parents almost certainly had to cosign.

"through the 80s, with insurers fighting hard to block and kill HMOs, "

Say what? HMO's were killed by consumers preferring PPO's to HMO's. The insurance companies didn't care. They make money regardless of how you structure the plan.

The sharply rising cost of higher education seems like a more likely culprit to me; was that controlled for?

"The U.S. saving rate declined by 8 percent between 1980 and 2009"

I'm guessing they mean 8 percentage points rather than 8 percent. Odd that later on they use the right terminology. I just bring this up since at my job people conflate the two terms all the time and I never can clearly tell what they are trying to say.

/rant

An interesting study, but not surprising.

We have known that the American system costs more and produces less than alternatives.

But all along we have taken perverse pride in this. Our savings rate is destroyed, we're the best!

Not like those socialist Germans with their compulsory insurance and high savings rate. Losers.

Yo used to think it was just western highway bandits who said

Your money

Or

Your life.

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