The Agenda

Expenditures vs. Outcomes

At, I came across the following, which strikes me as a good distillation of a familiar line of thinking:

This is the simple math that I see: If you cut tax rates, the rich pay less. If the rich pay less, somebody pays more. If nobody pays more, then the government shrinks. If the government shrinks, the beneficiaries of government lose. Who are the beneficiaries of government spending? Three out of every five dollars goes to old people (e.g. Social Security), sick people (e.g. Medicaid/Medicare), and poor people (e.g. income security programs). If we cut government, the poor, sick, and old will probably lose out.

This is an interesting way to think about the budget path. One potential source of confusion, however, is that health expenditures are shaped by the larger ecology of medical providers. Caring for sick people, and indeed caring for people who aren’t necessarily sick, is much cheaper in some contexts than others. It is not obvious that we should pay attention to expenditures as the metric for how much or how well we care for the sick. Rather, it might make sense to consider hard outcomes. We have reliable evidence that integrated medical providers offer high-quality care at lower cost than fragmented medical providers, regardless of whether we’re dealing with a multi-payer or single-payer environment. It makes perfect sense that providers would want us to think that higher spending levels mean better care. That doesn’t mean we should embrace this narrative ourselves.

A disproportionately large share of health expenditures are devoted to people at the end of life, many of whom are very sick indeed. Yet are we caring for them less if, drawing on an idea from Lorens Helmchen, we allow them to choose to devote resources that would otherwise go to aggressive (and expensive) treatments that would likely fail to a cash payment, smaller than the cost of the treatment in question, that could be passed on to loved ones? It’s not obvious to me that this is true. If we deploy salaried medical professionals rather than independent physician-entrepreneurs to address health needs, are we caring for the sick any less? Again, it’s not obvious to me that this is true.

Moreover, there is the important fact that lifetime incomes across individuals vary, a subject that has been much-discussed in recent years. If we decided that people with high lifetime incomes should be obligated to provide more for their own retirement than, say, people with very low lifetime earnings, an idea that has been advanced by Andrew Biggs, are we hurting the elderly? Or are we protecting the poor elderly and expecting the affluent elderly to take on more responsibility in a way that might actually enrich them and their families? 

Note that that are rich sick people and poor sick people. It seems reasonable to devote more resources to poor sick people than rich sick people. The transfer state we have now doesn’t do a good job of distributing resources across these groups in a very sensible way. Similarly, there are rich old people and poor old people. Once again, we don’t distribute resources across these groups in a very sensible way, and if anything we’re doing a worse job of it now than we had two or three decades ago. 

Poor people are absolutely a concern. But are programs devoted to poor people driving the increase in federal expenditures? John Cochrane draws attention to charts that illustrate a quite different pattern. 


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