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Of Mice and Men



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Megan McArdle has a post in which she points to an AEI chart that uses a survey of U.S. consumers to show that aggregate consumer veterinary services spending has risen at about the same rate as aggregate medical expenditures over the past quarter century. Her interpretation is:

Kudoes to AEI for publishing a graph that seriously undercuts one of the major conservative arguments about health care: that the main problem is consumers who don’t bear their own costs. Veterinary spending is subject to few of the perversities that either left or right suppose to be the main problems afflicting health care spending. Consumers pay full frieght most of the time. They are price sensitive, and will let the patient die if keeping him alive costs too much. There is no adverse selection. There is no free riding on mandatory care. Government regulation is minimal. Malpractice suits are minimal, and have low payouts. So why is vet spending rising along with human spending?

Two reasons, presumably: technological change and rising income.

There is surely something to this, but it’s not the whole story.

The only detailed data that I know of comparing spending per year by companion pet type is a report from the American Veterinary Medical Association (AVMA) that compares 2007 with 2001.

By my calcualtions, over this period aggregate spending on companion pet care (dogs, cats, birds and horses) has risen 23%. Aggregate medical expenditures rose more than 50% over the same period. So, first, if we use the AVMA actual tabulation, rather than asking people what they spent in a survey, a normal-English definition of vet spending rose at less than half the rate of medical spending.

Second, pet population grew a lot faster than human population over this period. There were about 16% more companion pets in 2007 than 2001, while there were only about 6% more people. The net result is that the growth in mean vet services per animal was only about 6% over this period (from about $120 to $127 per animal per year), while growth in medical spending per person over this period was well over 40% (from about $5,200 to $7,400 per person per year).

In some sense, of course, this is partially a product of rising income: people have more money to spend on pets, and this drags along some vet costs with it. But there is not a lot of evidence (at least from this chart) that disproves the idea that making people pay for healthcare out of their own pockets would lead to a ceteris paribus reduction in health care expenditures.

None of this is argument against a couple of Megan’s key points: Innovation in health care requires market incentives, and bureaucratic measurement of “health outcomes” is unlikely to point resources in a direction that maximizes human welfare.



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