Monday, April 25, 2011

Why Medicare Cost Control Will Never Work

As part of a series of ongoing attempts to sharpen my argument for why Medicare as structured can't work, even if you institute cost controls, let's briefly return to our repeated attempt to graph the average health care cost for one extra year of life, at various ages.

But this time I have a picture!  This semi-log graph plots age against how much health care costs, on average, to live one extra year.  (Note that all of these numbers are going to be arm-waves, and they're going to be averages.  Look at the shape of the curves, not the actual numbers, and you'll get the idea.) 

Let's look at this.  First, note that all of these curves end abruptly at some value.  This value is the average life expectancy for someone born in the year specified for the individual curve, but there's a better way to think of this number:  It's the point at which medical science simply can't help you any more, no matter how much money you're willing to pay.  This number is important, because today it denotes the only consensus value for when public policy says it's OK to stop paying to extend people's lives.  In other words, by policy, we assume that everybody's life has infinite value, but we acknowledge that at some point we luck out, because everybody dies before they can consume so many medical resources that the whole system collapses.

If you were born in, say, 1820, before any semblance of modern health care, medical care cost virtually nothing, because it was pretty useless.  You were born, you lived, and you died at about age 35.  Medical science couldn't extend your life at all.

By the time people were born in 1920, we'd gotten over the first hump:  You paid considerably more for childhood and early adult health care, but that allowed you to live up until age 45 with routine maintenance.  After 45, though, health care got linearly more expensive, until you died around age 70.  In other words, we could do some stuff for you to make sure you lived to old age, but by the time old age set in, medicine was powerless to do much for you.

A baby boomer born in 1950 not only paid more for childhood and young adult health care, but, when they began to age, their health care became exponentially more expensive.  Now death could be staved off once old age was achieved--at least for a while, and given heroic amounts of money.  Life expectancy rose into your early 80s.  This is close to where we are today.

So what about the kids born in the next 10 or 15 years?  We might guess that intervening at a younger ages will be necessary to ensure a very long and healthy life, but still, as they age, we can guess that the cost of each additional year of life will increase.  However, we can also guess that the cost of living to the same age will cost less and less over time, so each extra year of life is cheaper for the 2025 kid than it was for the 1950 kid--at least to start with.  But we can also expect that the new, jazzy medical science that lets Mr. or Ms. 2025 live to (in this case) 110 costs more and more, eventually far surpassing the 1950 curve.

OK, all you calculus fans:  If you integrate under the curve for as far as its defined, you derive the total amount spent on health care for each individual over his entire life.

Now, imagine if you will, that we eventually extend life indefinitely.  Is there any reason to think that the trend of ever-increasing expense for ever-longer life will be interrupted?  We can certainly expect that the cost of living to the same age as some cohort born earlier will cost less as technology improves, but there are two things that completely trash this from a policy perspective:

  1. The cost to achieve ever-longer life continues to rise.
  2. It goes on forever.
When integrating under the curve yields an infinite value, the only way that society can afford to pay for your medical care is if you produce at least as much value as you consume in health care.  (I could add in food, clothing, and shelter, but they're all mouse nuts compared to the health care.)

So we're now finally in a position to posit the Radically Moderate Laws of Health Care Costs:

Law #1:  For each individual, the average cost of extending life by some increment is greater than or equal to the cost of extending life by the previous increment.
Law #2:  The only way you can live forever is if you pay for it yourself.
 I think that covers it.

Let's now think about cost controls for Medicare.  As long as we maintain the current policy of paying for everything, forever, you may be able to flatten the curve, but you can't avoid Law #1.  (In practice, if you flatten the curve too much, you wind up with shortages, which ultimately reduces life expectancy.  So you can make Medicare costs sustainable, but only if you're willing to shorten their lives.)  So, at some point, Medicare has to be capped.  Not cost controlled--capped.  We're going to decide that we'll only pay so much as a society to extend the life of each of our citizens.  After that, Law #2 kicks in.

But of course there's a good side to Law #2:  As (rich) people demand--and pay for--better and better technology, the life extension cost curve flattens more and more, making longer and longer lives available even to those depending on the government for health care.  In other words, they get more bang for their capped buck.

So there you have it:  the topsy-turvy world of health care policy, where living longer is a public policy disaster, and the best way to extend life for future generations is to limit it for prior generations.  But even so, this so far outstrips the results of cost controls that there's really no alternative.

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