Friday, March 4, 2011

Life Expectancy Versus Medical Costs Charts Are Often Wrong

A comment I posted about the following chart on the But Then What blog, "The Unassailable Math Of Health Care" by Tom Lindmark and on Bronte Capital blog, "Health care and fiscal reform" by John Hempton:

The chart as presented is misleading if not outright wrong. Life expectancy is not an internationally standard measurement. When the measurement of life expectancy is standardized among OECD countries, the US has the highest life expectancy.

The US includes deaths of short-lived premature births and short-lived high-risk births in life expectancy numbers. Other OECD countries do not include these and other short-lived births. The exclusion of these under 1-year-old babies' deaths increases OECD life expectancy averages.

Deaths come from three causes; accidents, homicides and disease/illness/heath.

The US has a much higher accident death rate, including auto, and homicide rate than other OECD countries. Accidents and homicides tend to be higher among younger adults. The US has a younger average aged population than other OECD countries, which leads it to have more homicide and accident deaths and consequently a lower life expectancy. Japan's longer life expectancy measure comes from an older population having fewer homicides and accidents.

The US also has more wide-open spaces and highways, which lead to more auto related deaths than OECD countries.

When each country's life expectancy is recomputed to eliminate the effects on life expectancy averages of the different accident and homicide rates death causes, and short-lived births, the US has the highest life expectancy among OECD countries. In other words, the higher US rate of accidents, homicides and high-risk premature births negatively distort US life expectancy numbers. For example, Ohsfeldt and Schneider among others have recomputed life expectancy numbers and the US does much better than the OECD charts.

While there has been an effort to standardize medical related costs, one area where there is still a big difference is medical education costs.

The US government does not pay a doctor's cost of a medical education. In OECD countries, the government often pays the cost of a doctor's education. The OECD country cost of educating doctors is not included as a medical cost. OECD countries count that cost as an education cost. In the US, doctors pay for their own education. Doctors are making a capital investment in themselves and as such price their services to recoup their costs and to make a fair return on that investment in addition to their economic base salary for the value of their services. In other words, doctors are compensated for their previous investment. In OECD, doctors do not make the same economic investment in themselves and as such do not need to recoup their education costs. OECD does not get a free ride. The cost of educating doctors is pay for from taxes on their citizens instead of through doctors' fees. A fair comparison of medical costs in OECD countries and the US should include in OECD medical costs, the costs of educating doctors.

In reality, when one matches apples to apples and oranges to oranges, medical costs in the US as compared to other OECD countries are not too high for our life expectancy.

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