Paul Howard

The Reaper Is Cheaper

Preventing disease is praiseworthy, but it may not reduce health-care costs.
21 July 2009

President Obama has made many promises about his health-reform agenda, but none
looms larger than: “You will save money.” Not only has the president promised to lower
consumers’ health-insurance bills; he says his plan will trim federal spending as well.
Thus, when the head of the Congressional Budget Office (Congress’s fiscal watchdog)
testified last Friday that none of the bills under consideration in the House or Senate
would rein in spending—and that all would likely increase it—the president’s reform
push took a heavy hit. The CBO’s assessment underscored an important reality about
health care. Lowering health-care costs (which have been rising faster than inflation for
decades, except for a brief period in the 1990s) while improving quality is possible, but
it’s awfully hard, for one simple reason: when it comes to health-care spending, death is
the only really cheap option.

William Osler, a renowned nineteenth-century doctor and the first physician-in-chief at

Johns Hopkins Hospital, once remarked, “Pneumonia may well be called the friend of
the aged. Taken off by it in an acute, short, not often painful illness, the old man escapes
the ‘cold gradations of decay,’ so distressing to himself and to his friends.” If Osler were
alive today, he might call pneumonia the friend of Medicare accountants, since it kills
victims quickly, in contrast with the lingering and expensive chronic illnesses that
account for about three-quarters of all Medicare spending.

Few policymakers working on health-care reform in Washington stop to consider the

obvious corollary: dying early is cheap, and keeping people alive long enough to collect
Medicare is expensive. Instead, experts talking about health spending promulgate what I
call the Eat Your Vegetables Theory: we can save gobs of money by focusing on
technological fixes (like electronic health records) and disease prevention, which will
yield a healthier population that is cheaper to treat. The savings generated can then be
used to subsidize coverage for millions of the uninsured. But this approach is unlikely to
work as advertised: as Osler’s dictum suggests, increasing prevention efforts may wind
up costing more.

Take pneumonia. We have relatively cheap and effective treatments for it, especially
vaccines and antibiotics. As a result, many older Americans who might have died from
pneumonia in Osler’s day now live years or decades longer—long enough to qualify for
Medicare and then develop much more expensive ailments like diabetes, cancer, and
Alzheimer’s. Researchers at the RAND Corporation noted the conundrum across several
studies and came to roughly the same conclusion: “Medical innovations will result in
better health and longer life, but they will likely increase, not decrease, Medicare
spending.”

In one study, the researchers postulated three different scenarios for the health costs of
seniors entering Medicare from 2002 to 2030. Scenario A took into account everything
that we know today about the health of the current cohort of seniors entering Medicare
and future enrollees, up to 2030. (This is a mixed bag. Seniors’ health started improving
in the 1980s, but rates of chronic diseases have been increasing rapidly in recent years,
and newer enrollees are likely to be sicker and thus more expensive.) Scenario B
assumed that future cohorts would be as healthy as those in the 1990s. And Scenario C
(the most optimistic) assumed that seniors’ health would continue to improve. Under
rosy Scenario C, the researchers found, health spending would be $10,275 per Medicare
enrollee in 2030—just 8 percent lower than under Scenario A. Why? Healthier seniors
live longer and accumulate more costs; also, costs are rising faster among less disabled
seniors, presumably because they use more new drugs and devices that prevent them
from becoming disabled (knee replacements, for example).

In another study, RAND researchers looked at how ten important medical innovations
likely to emerge in the near future might affect Medicare spending in 2030. These
included anti-aging compounds for healthy people, cancer vaccines, tiny defibrillators
implanted near the heart, better treatments for stroke and cancer, and Alzheimer’s
prevention. Every hypothetical innovation, the researchers found, would increase
Medicare spending. Even the cheapest, an anti-aging compound taken by healthy people
that would cost just $11,245 per life-year saved, would increase health-care spending by
14 percent in 2030—because there would be 13 million more beneficiaries collecting
benefits.

Finally, RAND examined the effects of fighting four risk factors for heart disease. If we
could get all the elderly to stop smoking and control their diabetes, their health would
improve, of course, but costs would rise, again because those ex-smokers and diabetics
would eventually be vulnerable to other health problems. If we effectively treated
hypertension and slashed obesity rates by 50 percent, however, health would improve
and costs would fall. Reducing obesity produced the clearest gains because obesity,
though it sharply increases costs, doesn’t reduce longevity significantly.

What all three studies suggest, then, is technological innovations or disease prevention
will likely result in slight savings or even increased costs (though obesity may be the
exception to this trend). This doesn’t mean, of course, that we shouldn’t keep inventing
drugs and devices to keep people alive longer, or that we shouldn’t develop better
prevention strategies. It just means that we should stop pretending that good health is
always cheaper. Sometimes, you really do get what you pay for.
Paul Howard is the director of the Manhattan Institute’s Center for Medical Progress.