Health, consumption, and household disposable income outside of the OECD

Previously I have shown that household gross adjusted disposable income and actual individual consumption (AIC) are superior predictors of national health expenditures (NHE) and that they largely explain why US national health expenditures (NHE) are so high.  However, my analyses have been restricted to the handful of mostly highly developed countries affiliated with the OECD for time series and the World Bank’s International Comparison Program (ICP) for cross section for ~all countries in 2011. I know of no simple ways to retrieve AIC or adjusted household disposable income outside of OECD in readily comparable formats, so I decided to spend a little time constructing these estimates for a much broader array of countries using the official system of national accounts tables available from the UN statistics division, which mostly covers between 1990 and 2014.

This analysis is largely a reproduction of prior work, but I felt I would write this up because:

  1. the data themselves are useful (sharing data & code this time around)
  2. it provides additional support for my general position vis-a-vis the utility of these measures in this context
  3. time series nature of the data helps demonstrate the non-linear relationships between these measures and NHE

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On popular health utilization metrics

This Commonwealth Fund report has been widely cited for explaining why US health expenditures are so high.

The analysis finds that the U.S. spends more than all other countries on health care, but this higher spending cannot be attributed to higher income, an aging population,
or greater supply or utilization of hospitals and doctors. Instead, it is more likely that higher spending is largely due to higher prices and perhaps more readily
accessible technology and greater obesity.

Since I have already spoken to the incomes argument at some length and explained why I find overall “high prices” to be unpersuasive as it pertains to NHE in general and the US specifically, I will instead focus narrowly on this utilization argument since there are a number of similar analyses with identical/similar indicators.

The report proffers this table as an explanation for why high utilization cannot explain high US health expenditures.

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Similar analyses are found elsewhere:

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source

My problem with these sorts of analyses is that these sorts of indicators do not themselves account for enough NHE directly or correlate with NHE well enough to claim to account meaningfully for utilization and other major non-price drivers of NHE (if you wish to remove quantities of technology, prescription medicines, etc from “utilization” for semantic reasons).  When (1) your utilization measures can only account for maybe 10-15% of the variance (2) only relates to a modest proportion of NHE in most developed countries and (3) one ought to know there are other major cost drivers to account for, it’s pretty silly to claim that your half-hearted attempt to explain the variance honestly means it cannot be utilization and that it must be (mostly) the result of some US specific prices.

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Some useful data on the dispersion characteristics of US health expenditures

Some people (1, 2, 3, 4)  have made hay out of data showing total health spending in the United States is heavily concentrated on a small fraction of the population:

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source

My intuition and knowledge of the health care industry has long led me believe this likely not too dissimilar from what goes on in other developed countries (the young and/or reasonably healthy simply do not need or want much in the way of health care).   If nothing else it seems unreasonable to use this data to argue the US is an outlier without at least going through the exercise of comparing it to other countries.  Unfortunately the OECD and related entities provide little in the way of public data along these lines, so I have not been able to do this analysis myself.

However, I recently stumbled across a blog post from IFS regarding a study they published that speaks directly to these and related topics, so I thought I would briefly share this and related information in a quick-and-dirty blog post (full-text copy here).

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Disposable income also explains US health expenditures quite well

few months ago I argued consumption, specifically Actual Individual Consumption, is an exceptionally strong predictor of national health expenditures (NHE) and largely explains high US health expenditures.  I found AIC to be a much more robust predictor of NHE than GDP and at least an order of magnitude stronger than other components of GDP when disaggregated (collectively and separately) in multiple regression analysis.

However, because some people are inherently suspicious of consumption per se and because others are under the impression this is primarily about financing (health) consumption out of savings/debt, I think it useful to also demonstrate these patterns as it relates to household disposable income (tl;dr they’re very well correlated and produce very similar results in the long term)

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