national health accounts
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National Health Accounts
Joseph P. Newhouse
Harvard University
Main Points
Should account for non-market inputs, especially time
Comparisons of spending across time and space can yield useful inferences
Decomposing change in medical spending into price and quantity requires measurement of output by episode
A Caveat
My experience is with the US accounts, and my examples reflect a developed country bias
But I think the conclusions apply generally
Non-Market Transactions
The accounts measure goods and services traded in the market True of both health accounts and national
income and product accounts (NIPA) Latter often used to measure changes in well
being
Well Being and Non-Market Transactions
Time is an important input into health care, but time has an opportunity cost that is not captured in the accounts
Time as a Complement
Time is sometimes a complement to market inputs Own time spent traveling to and receiving care Time of family members assisting others
– Mother taking child to physician Time spent recovering from illness (“Take 2
aspirin and go to bed”)
Time Making Production of Health More Efficient
This is a role usually assigned to education But people spend time trying to get more
health out of a given set of market inputs For example, time spent talking with others
about providers of care or otherwise seeking information
Time spent gathering information on health effects of lifestyles; health sections in the press
Time as a Substitute for Market Inputs
Informal care of frail elderly Health promotion; wellness (e.g., exercise)
Difficult boundary lines here (e.g., sleep)
Measuring Time Used in Production of Health
Suppose one wanted to add time to a satellite account; this would require separate time use survey
Issues of valuation; persons not working Issues of boundaries Joint production
Exercise might have other benefits
Conclusion on Time
The accounts understate by an unknown, but probably non-trivial amount the resources devoted to health care
Recent NAS publication on satellite accounts including time inputs; see next slide (book also covers medical price indices)
Beyond the Market: Designing Non-Market Accounts for the United States; Washington: National Academy Press, 2005.
A Recommended Book
Usefulness of Accounts
Some would cite comparing levels of spending across countries Sometimes such comparisons have arguably
had an effect; e.g., UK decision to increase spending to OECD average
Rates of Change
Within country one can not only calculate share of GDP (already available from NIPA), but how rate of change varies among health care sectors For example, share of spending going to
pharmaceuticals But public sector spending known from budgets
Comparative Rates of Change
I have found comparative rates of change useful I am struck by the similarity of rates of change
both across countries and over time
*Italy missing data before 1990. Germany 1970-2002, Japan 1960-2001. Source: OECD Health Data 2004 and US GDP deflator.
Annual Real % Cost Increase per Capita, G-7*, 1960-2002*
4.0
5.3
3.4
7.1
4.2
5.1
0
1
2
3
4
5
6
7
8
Rea
l % p
er Y
ear
Can Fra Ger Jap UK US
Country
% AnnualIncrease in RealPersonal HealthCare Spendingper Person,1960-2002
Average=4.9%
Sources: CMS National Health Accounts. Newhouse, JEP 1992(3), Stat Abst, Ec Rpt Pres. GDP Deflator.
Similar Increase in Real US Annual $/Person by decade
3.7 3.7
6.2
4.55.2
3.0
5.3
0
1
2
3
4
5
6
7
%/p
erso
n/y
r (r
eal)
40s 50s 60s 70s 80s 90s 00-03
Decade
% AnnualIncrease in Realper capitaPersonal HealthCare Spending
Average = 4.4%
Medicare and Medicaid enacted
Managed care
Costly advances: Newhouse, Jnl Econ Perspectives, 1992.
What Do These Data Tell Us?
Any explanation of the cost increase in medical care needs to hold across countries and decades Differences among countries in financing
institutions are not the explanation Costly advances in medicine explain much of
the increase and probably will continue
Cutler, Your Money or Your Life, Oxford, 2004; Nordhaus: The Health of Nations; NBER, 2002, W8818.
The Increase Was Probably Worth It
The roughly similar rates of increase everywhere are a crude market test
In US case confirmed by Cutler: CVD and neonatal mortality advances alone can justify the entire US $ increase post 1950
Nordhaus: Value of US Δlife expectancy 1900-95 Value of ΔNational Income
A Question to Ponder
Would you rather have 2005 health levels and 1955 incomes or 1955 health levels and 2005 incomes? No formal survey, but Nordhaus’ informal
survey suggest many opt for the former, consistent with his finding
– Choice of former goes up with age
Price index bias: Berndt et al., Handbook of Health Econ; Newhouse, NBER W8168, Academia Ec Rev March 2001.
Defects of Current Price Indices
Current medical price indices suggest much of expenditure increase is a price increase Implies falling productivity in medical care Sometimes used to justify expenditure caps
But official price indices are badly biased upward for many reasons, including the omission of health gains
Heart attack price: Cutler et al., QJE, November 1998.
Toward Better Price Indices
Need to construct price indices from Δcost of episode and Δoutcomes Price indices based on medical inputs such as
MD visit cannot account for Δquality of care– For example, better scanner looks like Δprice
Heart attack work suggests falling price of heart attack treatment; need to carry out similar work for other conditions
Conclusions
Useful expansion of National Health Accounts to measure time used in the production of health
Comparative measures across countries at a point in time and within countries across time can yield useful inferences
Need to base price indices on episodes, not prices of medical care inputs
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