Saving Money or Just Saving Lives? Improving the Productivity of US Health Care Spending

Posted: 1 Sep 2012

See all articles by Katherine Baicker

Katherine Baicker

Harvard University - Department of Health Policy & Management; National Bureau of Economic Research (NBER)

Amitabh Chandra

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Jonathan S. Skinner

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: July 2012

Abstract

There is growing concern over the rising share of the US economy devoted to health care spending. Fueled in part by demographic transitions, unchecked increases in entitlement spending will necessitate some combination of substantial tax increases, elimination of other public spending, or unsustainable public debt. This massive increase in health spending might be warranted if each dollar devoted to the health care sector yielded real health benefits, but this does not seem to be the case. Although we have seen remarkable gains in life expectancy and functioning over the past several decades, there is substantial variation in the health benefits associated with different types of spending. Some treatments, such as aspirin, beta blockers, and flu shots, produce a large health benefit per dollar spent. Other more expensive treatments, such as stents for cardiovascular disease, are high value for some patients but poor value for others. Finally, a large and expanding set of treatments, such as proton-beam therapy or robotic surgery, contributes to rapid increases in spending despite questionable health benefits. Moving resources toward more productive uses requires encouraging providers to deliver and patients to consume high-value care, a daunting task in the current political landscape. But widespread inefficiency also offers hope: Given the current distribution of resources in the US health care system, there is tremendous potential to improve the productivity of health care spending and the fiscal health of the United States.

Suggested Citation

Baicker, Katherine and Chandra, Amitabh and Skinner, Jonathan S., Saving Money or Just Saving Lives? Improving the Productivity of US Health Care Spending (July 2012). Annual Review of Economics, Vol. 4, pp. 33-56, 2012, Available at SSRN: https://ssrn.com/abstract=2139252 or http://dx.doi.org/10.1146/annurev-economics-080511-110942

Katherine Baicker (Contact Author)

Harvard University - Department of Health Policy & Management ( email )

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National Bureau of Economic Research (NBER)

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Amitabh Chandra

Harvard University - Harvard Kennedy School (HKS) ( email )

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United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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IZA Institute of Labor Economics

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Jonathan S. Skinner

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States
603-646-2535 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
603-646-2535 (Phone)

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