Useless rantings of a few disgruntled S'poreans...

Better red than dead

Will the inexorable rise in medical costs around the world someday pose a major challenge to contemporary capitalism? I submit that in the not-so-distant future, moral, social, and political support for capitalism will be severely tested as would-be egalitarian health systems face ever-rising costs.

Rising incomes, population ageing, and new technologies for extending and enhancing life, have caused health costs to rise 3.5% faster than overall income for many decades now in the United States. Some leading economists project that health expenditures, which already constitute 16% of the US economy, will rise to 30% of GDP by 2030, and perhaps approach 50% later in the century. Other rich and middle-income countries, although typically spending only half what the US does today, won't lag far behind.

Countries in Europe and elsewhere have shielded their citizens from a part of this rise by piggybacking on US technological advances. Ultimately, though, they face the same upward cost pressures.

Hasn't the start of the 21st century marked the death of all other ideologies, with China's raw capitalism putting pressure on gentler forms in Europe and elsewhere? The problem is that attitudes towards healthcare are fundamentally different.

Many societies view healthcare as a right, not a luxury. When medical expenses constituted only a small percentage of income, as was typically the case 50 years ago, an egalitarian approach to healthcare was a small extravagance. The direct and indirect costs were relatively minor and affordable.

But as health expenses start taking up a third of national income, healthcare socialism starts becoming just plain Marxism: to each according to his needs. Even China's authoritarian capitalism will someday feel the pressure, as its rural populations, who currently have little access to doctors or hospitals, eventually explode with discontent.

One often hears about rising healthcare costs in the context of future government budget projections, with old-age health costs expected to dominate growth in government expenditures in coming years. But a careful look at the projections by, say, the US Congressional Budget Office, show that the aging of our societies is only a part of the problem, and not the larger part. The real issue is whether societies are willing to provide elderly people with equal access to ever newer and improved medical techniques.

A change on the horizon that will exacerbate current frictions is the growing importance of individualised health care. For most of modern history, relatively inexpensive public health precautions, such as providing clean drinking water and routine vaccinations, have been the main factor pushing up life expectancy. Public health measures have trumped the importance of individual care.

But today, the balance is shifting. Heart operations are already a major factor in extending life in many rich countries. Sophisticated x-ray diagnostic techniques such as CT scans make it possible to detect many cancers at a treatable stage.

Some drug researchers predict that with continuing advances in understanding the human genome, doctors may eventually be able to predict illnesses 15-20 years in advance, and begin prophylactic treatment immediately. (With some experts predicting that individuals will routinely live beyond 110-115 years by mid-century, one might wonder what all this will do to other social conventions such as marriage, but I will leave this thought to another day.)

In addition to reducing mortality, new medical techniques can also have a huge effect on the quality of life. Roughly 250,000 hip replacements are performed in the US each year. Under-60 patients are becoming more important as newer artificial joints prove their capacity to withstand more active lifestyles.

At $6,000, the average cost of a hip replacement is only a thousandth the cost of what it supposedly took to implant a bionic arm, eye, and two legs on the fictional The Six Million Dollar Man in the popular mid-1970's TV show. Of course, hip replacement patients don't get superhuman speed, strength, and vision - at least not yet. If Tour de France officials think they have big problems now with steroids, just wait 10 years.

In principle, greater use of market mechanisms to allocate health care can slow or even temporarily reverse the rise in healthcare costs. But improved efficiency has its limits. Ultimately, the evidence suggests that societies spend ever-larger fractions of their income on health over time, in contrast to food expenditures, for example, which fall as countries become wealthier.

Spending pressures, in turn, lead to acceleration of innovation. This raises long-term wellbeing all around, but exacerbates short-term inequalities and frictions.

I am not arguing against healthcare capitalism, but warning that support will become fragile, far more so than for, say, globalisation nowadays. Most countries rely far too much on command and control, and provide far too few incentives for patients and providers to make efficient choices. Nevertheless, it remains to be seen whether healthcare pressures will ultimately cause the current trend towards free (and freer) market capitalism to reverse, with a very large chunk of the economy reverting to a more socialist system. Some societies might decide that it is better to be red than dead.

In cooperation with Project Syndicate, 2007.

posted by at82 @ 8/08/2007 03:02:00 AM