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