> 1-3 decades ago is a long time. Medical technology and a number of other factors are different.

I mean 1-3 decades worth of growth in AIC, i.e., approximately projecting each countries’ growth out how long will it take them to reach the material living conditions the US enjoys currently (~2017). In some OECD/affiliated countries it’s 40+ years and in a small handful of others it’s *maybe* as little as ten (note: Switzerland and Luxembourg respectively “only” spent around 20% and 28% less than the US in 2015).

> To really get definitive you would need another large OECD country with the same per capita income in the same time period.

I disagree, RE: speculativeness. Obviously we can only make quantitive educated guesses until this happens, but the same very much applies to arguments against the US system (the vast amounts of money we’d presumably save if only we aped the modal OECD country) and reliable data are much more consistent with differences in AIC.

For example:

1) Changes in US health spending track well with changes in disposable income in long term. When US disposable income falls NHE falls with it and when disposable income rises NHE rises (albeit with a modest lag factor of 2-3 years) [note: CMS uses disposable income in their models over GDP].

2) Similar patterns are seen elsewhere, vis-a-vis disposable income/related and NHE. In the last financial crisis those countries that experienced particularly large negative shocks in their disposable incomes (e.g., greece, italy, etc) saw their NHE plummet (and I’d expect some “stickiness”)

3) Up until the mid 70s/early 80s US NHE was not exceptional when measured in per capita terms or even % of GDP. The apparent divergence in NHE coincidences neatly with the divergence of AIC. What else changed markedly enough to explain this?

4) The pattern of increasing health share is quite robust and there is no sign of this slowing down (The apparent assumption that the more middling OECD countries must be at end-stage development or some such is bizarre and largely without merit…. why should this pattern change for even richer countries like the US?)

5) Though new technology is very likely to be the primary means by which countries increase their NHE in the long run, it is probably not a major cause in and of itself. The observed cross country differences are much more consistent with differences in adjusted household consumption and/or disposable income. In a very plausible polynomial specification and +/- year fixed effects, you might notice: the AIC terms barely change; the model fit does not improve markedly; and the year FE are pretty negligible over a 20+ year span. Put differently, if technology itself were itself a substantial cause I would expect NHE conditional on (constant) AIC to shift up markedly with time (i.e., higher intercept) due to constant technological improvements and we largely don’t find this.

6) The best available data pertaining to cross sectional and time series price data suggests actual volume increase explains essentially all of the observed cross sectional differences in NHE and essentially all of the increase in expenditure domestically. (Which is likely in large part use of novel medical devices, drugs, procedures, etc and increasing consumption of those that already exist…. technology, in other words, but if tech is causal why does this volume correlate nearly perfectly with AIC in the long run?)

7) Despite the fact that I’d expect substantial spillovers within national boundaries (redistribution of health spending/resources, standard of care, insurance pooling, etc and thus lower elasticities), there is also substantial variation between states that is quite well correlated with how prosperous those states are.

8) There are also reasonable theoretical reasons to expect to find patterns like these (see this for instance).

> All we really know today is that given the current global economy and current availability of medical technology these other countries are providing medical care of identical effectiveness both at a lower per capita rate and a lower % of AIC.

But these countries are not one big undifferentiated mass and there is plenty of evidence that technology utilization and the like varies strongly with how prosperous a society is in the long term! Despite the fact that the richer OECD countries spend much more than the poorer members (and actually do a lot more in most cases) it appears as if there is no relationship between NHE and life expectancy past a certain point due to rapidly diminishing returns (though I think there are some modest confounds due to higher AIC-> increasingly lopsided caloric balance -> obesity/diabetes/etc and that there are other dimensions to NHE that people care about besides pure mortality measures, like elective surgeries/treatments that may subjectively improve quality of life even though not moving the needle much on mortality).

Norway and Luxembourg, for instance, spend more than twice as much Israel and Malta and see significantly shorter life expectancies. The point being if you’re going to assume away confounds and assume the rest of the world basically has health care figured out you’re going to have to explain patterns like these too. If there spending is actually rational and well managed (for some definition thereof), why aren’t they getting the same bang for their buck? Are you willing to argue that southern europe has better health care systems relative to pretty much all of northern europe (better outcomes and generally much less spending) despite the fact that they are usually less institutionally capable in most dimensions and that it’s just coincidence that their consumption/disposable income is notably less….?

Countries that today enjoy levels of consumption comparable to what the US did 1-3 decades earlier allocate quite similar shares of AIC towards NHE (more in many cases) and there’s no evidence of this slope flattening as they get richer (if anything quite the opposite!)

1-3 decades ago is a long time. Medical technology and a number of other factors are different.

I think its fundamentally speculative to assume that per capita AIC drives AIC% of healthcare expenditure. You’ve only got one large country OECD data point (the USA) and your assuming that per capita income is the driver.

The driver(s) could just as easily be medical technology. Or aging. Or several at once. Per capita income rises over time everywhere. You could pair it up with just about any metric that also rises over time. There isn’t enough evidence here to reach your conclusion.

To really get definitive you would need another large OECD country with the same per capita income in the same time period.

Instead, I think this speculation could go on forever. Each year AIC% will rise in all these countries, but our AIC% will continue to remain significantely above theirs. Each year their AIC per capita will be lower then ours, because its not like that is going to change anytime soon.

Put another way, can you think of a real life test that would answer this theory definitively and that we are likely to actually observe?

All we really know today is that given the current global economy and current availability of medical technology these other countries are providing medical care of identical effectiveness both at a lower per capita rate and a lower % of AIC. They also do it while eliminating a billing system that causes infinite frustration and medical bankruptcy.

https://randomcriticalanalysis.wordpress.com/2016/10/05/predicting-health-care-expenditures-in-oecd-data-with-non-linear-model-specification/

> I question healthcare as a superior good. We don’t see much actual benefit to this higher spending whether measured in absolute or relative terms.

When I say it’s a superior good I mean this purely descriptively to point out that the (raw) elasticity of NHE with respect to GDP (or AIC, disposable income, etc) is clearly much greater than one. Whether countries ought to spend like this is somewhat of a different question (depends on values, assumptions, etc), but my point is AIC is clearly a stronger predictor of NHE than GDP and largely explains US, i.e., it suggests the cause of high US NHE lies largely outside of the idiosyncratic differences of our health system.

> When I take a look at this graph

That WorldBank/ICP derived graph implies elasticity much greater than one, but we don’t need to rely on this alone. As I documented in my blog post at some length, we find the same thing with OECD panel data (more reliable statistics plus temporal dimension). I think this animated GIF is particularly instructive because you can clearly see NHE rising faster than AIC for ~all countries that have experienced significant growth in AIC (which tends to argue against endogenous differences being a significant explanation the slope found in cross-sectional analysis) and that most countries seem to be following a very similar long term trend. Countries that today enjoy levels of consumption comparable to what the US did 1-3 decades earlier allocate quite similar shares of AIC towards NHE (more in many cases) and there’s no evidence of this slope flattening as they get richer (if anything quite the opposite!)

> Most of your dots in-between the USA and those countries are tiny little banking/oil states (Luxembourg, Norway, Switzerland)

That’s part of my point though! US consumption levels are so much further ahead than the rest of the OECD in recent years, even if you subtract things like health and education out completely, that few are even in the same ballpark (same goes for adjusted household disposable income), ergo comparing NHE per capita and the like isn’t really the indictment of the US health system that many think it is. Although we have essentially no truly comparable peers, we can:

(1) compare historical trends for US and other countries [as mentioned above] Despite the fact that the presumed flaws of US haven’t much changed, US NHE wasn’t always particularly exceptional. This corresponds quite well to the increase growth in household material living conditions.

(2) use OECD panel data to train a model to predict NHE for non-US OECD countries and compare fitted values to observations for the US. I did this here with a non-linear specification and found the US was even closer to fitted values (note: time/technology effects appear to be very modest as real AIC explains almost all growth–technological adoption is the primary means by which countries increase expenditures, but same technology gets cheaper with time and without increased real AIC countries tend not to increase expenditures by much more than you would expect)

> Ones where you use AIC because its way lower then GDP.

I use AIC and find it to be a credible explanation of NHE because I have found it to be a much stronger predictor at multiple levels of analysis. Once you know AIC (or adjusted household disposable income) the remaining components of GDP offer virtually no additional incremental validity. Even if you crudely subtract NHE out of these measures first the conclusions are much the same.

Incidentally, when comparing against the likes of Norway etc with GDP the issue is not so much that US AIC share of GDP is exceptionally high (it’s really pretty close to OECD average), but that these small oil/banking countries have exceptionally low AIC shares of GDP and this actively confounds the GDP trend (especially w/ range restriction in cross-sectional analysis on the handful of richer OECD countries).

> I’d note that these are countries full of very wealthy people

And yet US households have much higher financial wealth than all but maybe Switzerland and has higher household savings rates as compared to household disposable income than the EU as a whole (and DI is much higher in the US). I mean I’m not saying cultural differences in propensity to consume play no role in AIC whatsoever, but it’s just not an especially large one.

Countries differ for quite substantially other reasons, in terms of economic structure, size/scale, threats, etc, that makes naive comparisons of GDP as measure of the material welfare of domestic households quite misleading. I do not believe it is a accident that essentially all of export dependent countries in oil, banking, etc diverge systematically from trend and that AIC explains ~all of these apparent outliers quite well.

In any event, if you really want to learn more about this topic and why AIC and adjusted household disposable income are likely to also be theoretically superior predictors than GDP I highly recommend you read this long paper by Joseph Stiglitz, Amartya Sen, and other notable economists on GDP and its alternatives (they specifically recommend these measures, albeit under a slightly different name for AIC)

When I take a look at this graph:

https://randomcriticalanalysis.files.wordpress.com/2016/09/rcafdm_54_who_and_worldbank_nhe_pct_aic_by_aic.png

I see the USA at ~23% of AIC. Then we have Germany, UK, Canada, France, and Australia (just choosing some large OECD pack countries) clocking in at say 13-16%. That’s using your preferred metric of AIC.

How are these in alignment? One number is higher the the others, and that is even using AIC as a denominator to make the US look better. The explanation you seem to offer is that “healthcare is a superior good”, and that as countries get richer their AIC% (keep in mind, I’m still talking %) goes up.

That seems speculative though. Most of your dots in-between the USA and those countries are tiny little banking/oil states (Luxembourg, Norway, Switzerland). Ones where you use AIC because its way lower then GDP. I’d note that these are countries full of very wealthy people (who can afford expensive healthcare) and that have high savings rates compared to the USA (which I think is relevant to societal well being).

I’m not sure that’s enough to conclude that once Australia is as rich as the USA it will have the same level of AIC% spending on healthcare.

Maybe they will be able to maintain their level of AIC% relative to the USA even as AIC per capita increases. I guess we won’t know till it happens.

Imagine a world where the USA maintained an OECD level of AIC% spending that was significantly lower. That 8% or so could be used for a higher savings rate, extra material goods, etc. Things that really improve quality of life.

I can buy that my new car with the blindspot sensor is a superior good to an older model of car, but then again I can measure that in how my insurance rate went down because drivers have fewer crashes.

I question healthcare as a superior good. We don’t see much actual benefit to this higher spending whether measured in absolute or relative terms. I’m not just talking life expectancy, outside of a few areas there doesn’t seem to be much measurable quality of life improvement. As a lifetime consumer of much healthcare and working in the industry it feels like a lot of wasteful spending is going on because its all other peoples money.

Example: Was Crestor really better then Lipitor? Back when it was a brand we were paying over $200 for Crestor and $4 for Atorvastatin, but health plans were falling over each other to offer Crestor. And yet whenever we could pass the cost onto the consumer all of a sudden people didn’t need Crestor anymore, all that statins are the same it turns out! The doctor that prescribed me Crestor did say that the tits on the drug rep they sent over were pretty good though.

I didn’t feel like I got worse care while living in Japan, its not like there was something I needed in America that I couldn’t get there, even though they spend much less. Not having to deal with the byzantine American medical billing system was also a giant quality of life improvement.

Maybe if they ever get as rich as us their AIC% will go up, but its just a conjecture at this point based on basically ourselves and a few tiny countries where AIC diverges wildly from GDP.

Wow. Just wow.

How far off do you think it is?

I’m not going to agree with him on housing, but on education my first estimate would be 100%.

(Current) GDP does not tell you everything you should want to know about a country. Norway, for instance, is heavily reliant on exploiting finite oil reserves to generate their GDP and once these reserves deplete (or if oil price plummets) their GDP will plummet…. so they engage in considerable consumption smoothing (I submit this isn’t mostly something unique to Norwegian culture/governance but a fundamental difference in economic circumstance). Luxembourg, on the other hand, is a small city-state with a large non-resident work force and huge finance/banking sector, i.e., much of this GDP isn’t really available to domestic households to consume or save….