CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Using Deceptive Numbers on Health Care in the NYT

Using Deceptive Numbers on Health Care in the NYT

Monday, 18 February 2013 18:02

It is really easy and apparently fun for some people to use scary numbers about health care costs. The trick is to take numbers over a long period of time that are not adjusted for inflation or income growth. Of course no normal person has any idea what their income will look like in nominal dollars 50-60 years out, so you can scare people to death with this sort of stupid trick.

That is what David Goldhill, the chief executive of GSN, did in an op-ed in the NYT. He told readers about a newly hired 23 year-old at his company who is earning $35,000 a year:

"I have estimated that our 23-year-old employee will bear at least $1.8 million in health care costs over her lifetime."

Do any NYT readers have any idea what this $1.8 million figure means either in today's dollars or as a share of this worker's lifetime income? The answer is almost certainly no. It is unlikely that even 1 percent of NYT readers (I know they are highly educated) has any clue what $1.8 million means over this worker's lifetime.

The question then is why did the NYT let Goldhill use the number? He surely could have used a standard discount rate and converted it into 2013 dollars. Alternatively he could have expressed the number as a share of the worker's lifetime income. The NYT was incredibly irresponsible to let Goldhill just include this $1.8 million number with no context.

It is probably also worth noting that this recipe for curing health care costs would be quickly dismissed by anyone familiar with current expenses. He wants to restrict insurance to catastrophic care (will he arrest people for providing normal insurance?), but he seems to have missed the fact that the overwhelming majority of health care costs fall into this category. His plan may deter people from getting necessary check-ups and preventive care, but would have little impact on the costs that are driving up the country's health care bill.

He apparently is also unfamiliar with the experience with health care costs in other countries, which pay an average of less than half as much per person as the United States, while getting comparable health outcomes. The U.S. would be looking at large budget surpluses rather than deficits if per person health care costs were comparable to those in other countries.


Comments (9)Add Comment
written by watermelonpunch, February 18, 2013 6:19
Good gravy!
Is this guy featured in a Facepalm Image?

Gobbledeegook numbers + complete fail on grasping health care costs = CEO of Dumbassville.

This guy needs to start reading more, and writing less.
written by david goldhill, February 18, 2013 8:06
I'm not sure it would have any impact on your POV, but the editors removed what i thought an equally valid number -- that if health care costs grew by ZERO from now to her death, my employee's total costs would be $1.15 million -- no need for a discount rate there, yes? Even the $1.8 million # assumes that health care costs grow by 0 in ten years (there are no gov't estimates beyond that period). What causes her costs to rise are not an absurd growth assumption but rather her having a family. And as to your point about health costs as % of comp, it's roughly 30% of what i call her true comp, that is her cost to the employer.

As far as your other comments, the idea that catastrophic costs are most of health care spending is a classic piece of outdated conventional wisdom. But even the 30% of spending that traditional experts concede is non-catatrophic is now about $750 billion a year -- or what would itself be our single largest consumer industry.

As far as other countries, you may be aware that almost all are struggling with growth in health care costs -- they look good only compared to us (with the exception of course of Singapore, which has a system similar to the one I'm proposing and spends 4% of GDP on care). And as to your point on "comparable health outcomes," after a certain level of competence (achieved by all developed countries), its highly unclear that health spending by developed countries have ANY measurable impact on health. Which, of course, is why no developed countries' spending on health corresponds to outcomes. To have a measurable impact on health, societies need to invest in disposable income growth, nutrition, exercise and recreation, education, and family stability -- all priorities robbed by our weird determination to drive as much of our income into health care as humanly possible.
david david david...the fix is in...
written by pete, February 18, 2013 10:50
Follow the money. The SEIU, whose memebers receive generous health care benefits, were main supporters of Baccus-Pelosi Care (I don't use Obama, he correctly thought it a dumb idea in the primaries). Why, you ask? Why would the SEIU want others to have better health insurance (not necessarily care)? Duh...could it be more SEIU employees?

Government regulation, in practice, is generally about capturing rents. In this case the SEIU levered in guarantees of increased union workers in health care. This in spite of 20% real unemployment in the U.S. Sigh. Great article, David!

Main problem with macroeconomists like Dean, or Krugman, is the failure to understand marginal effects. The macroeconomist looks at the average firm or person, rather than the marginal. This is true with health care. You show them the (simple) math, and they just are stunned like deer in the headlights.

A cynic would argue that this weird health care law was designed to fail to attempt to bring us to UK or Canandian care. Problem is, while their folks can come to the U.S. for care when their queues grow, this will be eliminated if our docs cannot offer care other than public care like in those locations.
Numbers that are honest
written by Dean, February 19, 2013 3:00

very few people have projections of wage and income growth. That is why a number like $1.8 million, which obviously includes considerable inflation and income growth, is incredibly deceptive. It is just a scare number, providing no information whatsoever to the overwhelming majority of people who will see it.

If you have some research that shows health care spending is no longer skewed to a small minority of unhealthy people, I would be interested in seeing it.

You may not like the costs of the Germany, Canadian, UK etc. systems, but all of them would be easily affordable to the U.S.. I'd be happy to show you the arithmetic on that.
written by Noni Mausa, February 19, 2013 6:07
Pete, just so you know, very few Canadians come to the US for health care, generally only a combination of urgency and ready cash will do it.

Conversely, most Canadians are horrified of the possibility of having a health emergency while vacationing in the states, which can in many cases saddle them with a house-selling level of debt. Buying travel insurance generally can't be counted on to defend against many US hospital bills.

And almost no Canadians would consider exchanging their health coverage for the coverage that Americans get - or don't. Supplementing it, okay, but trading? Never.

By and large, Canadians are sorry for ordinary Americans, and there's dang little in the news to effect that opinion.
Who's Stunned in the Headlights Pete?
written by Last Mover, February 19, 2013 6:24

Main problem with macroeconomists like Dean, or Krugman, is the failure to understand marginal effects. The macroeconomist looks at the average firm or person, rather than the marginal. This is true with health care. You show them the (simple) math, and they just are stunned like deer in the headlights.

LOL! Health care has been proven a total market failure again and again. That's why it can't operate at the margin. There's no price for consumers to react to because they don't even know what the price is. They don't even know what the product or service itself is. And that's common even when the "market" is at its best because it's still a third party making most of the decisions by necessity, whether provider or insurer - even if there were plenty to choose from, which there's not.

Stated differently, in narrow areas where health care markets can work, they're either grossly exaggerated as applicable to all health care (like laser eye surgery) or routinely suppressed (like getting pharma drug discounts from abroad).

From there the fraud and abuse kicks in to destroy whatever was working, for example providing a full third of health care that is entirely unnecessary, stimulated by the gross overpricing and collection of economic rent from the absence of, not the presence of government regulations.

Government regulation, in practice, is generally about capturing rents.

It can be, but given the massive market failure for health care itself, regulation is a godsend that's essential for health care to work. It's called economic efficiency, the highest possible output per unit of input at a given price. It's achieved under single payer in other countries and poorly in the USA under Medicare and the VA for sub-populations.

It's those other successful developed countries that actually understand how health economics works at the margin. It's all about regulation from the supply side. Pay the insurers and providers enough - but not more than necessary - and they will provide necessary and sufficient health care on the whole.

Further, as a rule in these countries, health care is not "overconsumed" at "artifically low prices" because by definition at the margin, demand is controlled largely from the supply side. Specifically, broad based essential health is provided under these conditions for most. Those who want more at the margin are free to go elsewhere and pay more.
Huge savings!
written by julio, February 19, 2013 4:38
I get it! We let him offshore his health care to France, and he'll save $900,000!
written by Fed Up, February 19, 2013 11:29

Figure 1

"However even with lower than projected costs, the United States still is spending far more per person on prescription drugs than other wealthy countries. In 2012 the United States was projected to spend $883 per person on prescription drugs.5 This is nearly twice as high as per person spending in other wealthy countries. Figure 1 shows the ratio of per person spending on prescription drugs in the United States to spending in Canada, Denmark, Germany, and the United Kingdom. For example, Canada spends a bit over 70 cents for each dollar spent in the U.S. per person on prescription drugs. The United Kingdom spends just under 40 cents, and Denmark only about 35 cents per dollar spent in the U.S."

And, "The reason that other countries spend so much less on prescription drugs is that their governments negotiate prices with the pharmaceutical industry. While governments are granting the industry patent monopolies that prevent competitors from selling the same drug at a lower price, they do not allow drug companies to charge whatever price they want. In principle, the U.S. government could adopt the same approach with Medicare. Medicare provides a huge market, far larger than most countries. This should allow it to negotiate prices that are the same or lower prices than what other countries pay."

When you do the economics of medications, could you break it down by name-brand vs. generic?

Does the USA spend about the same amount per person as other countries on generics?
Time article Feb 20, details what Dean has been saying all along
written by Carpenter Joe, February 21, 2013 8:10
It appeared as link at Think Progress tonight. http://healthland.time.com/201...illing-us/

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.