Using imprecise language, I managed to confuse some folks in my discussion of that lame GDP report from the other day. I wrote:
As more people get insurance coverage and treatment, this will show up as more spending and higher GDP. At the same time, cost controls, which have initially been found to be quite effective, push the other way.
Sentence one, fine. Sentence two, confusing, because it sounds like I’m just saying something about slower growing prices when the issue is real, i.e., price-adjusted, GDP. What I had in mind was real utilization of health care, as shown in the figure below, which feeds right into GDP through consumer spending. As you can see it was a big negative in the quarter, but you can also see what an outlier it was.
Source: White House CEA
The point of the excerpted sentences is that while greater coverage will bring more people into the health care system, other reforms to health care delivery—ones that favor quality over quantity—are targeted at reducing wasteful utilization (see this discussion of examples of these reforms and their impact on spending).
Some of these reforms will, in fact, mean less real GDP. For example, working with discharged patients to improve their aftercare appears to be significantly reducing hospital readmission rates (see figure in above link). Since aftercare is cheaper than a hospital readmission this means less real spending and less GDP (though one could argue that this is an artifact of GDP measurement, which doesn’t distinguish between wasteful and efficient spending).
This reminds me a bit of the dustup we had a few months ago over CBO’s finding that the provision of premium subsidies will unlock the job lock of some workers, enabling them to work less and still maintain coverage. This too will reduce GDP against a no-premium-support counterfactual.
But in both this and the readmissions’ case, these folks are notably better off. Therefore, to oppose such reforms because they lower GDP suggests a bit of a fetishistic relationship with this big aggregate called GDP. And this being a family blog, we cannot entertain such fetishes.
[Note: if you want to learn a lot more about all of the above–delivery reforms, the role of IT, the search for quality over quantity—and learn it in a way that goes down extremely easy and is even fun and hopeful, read David Cutler’s The Quality Cure. Yes, he’s a health care economist, but he starts Chapter 3 by asserting “Economists are foolish…” which suggests his PhD has not lobotomized his common sense. If you’re at all interested in this material, you’ll thank me for this recommendation.]