Is high health care spending a bad thing?

More or less every day we hear that health care costs are too high, that health care spending must be reduced, that the high cost of health care is "draining" or "crippling" our economy. It's true that, as we saw in another post, the US spends far more per capita on health care than other countries. But we could tell a similar story for defense spending, or spending on cars —and we hear nothing about how excessive defense or automobile spending is "crippling" our economy and needs to be lowered.

(A note to ideologues who are already composing a blistering rebuttal: I'll resort to for-the-sake-of-argument, rhetorical constructs like this frequently. Before you get worked up about something, please read the whole post carefully to see what point I'm really making, and why I may have thought it worthwhile to pursue certain lines of thinking or prop up seemingly nonsensical arguments for a while.)

So when we see high per-capita health care spending, there are a lot of ideas we might have:

1. Health care is a "superior good." People are willing to pay more for better health care. We spend more on health care because our health care is better.
2. Health care is a superior good. People will spend more on it the more wealth they have. We spend more on health care because we are overall a wealthier nation.
3. Health care spending presumably responds to, well, health. If we're spending more on health care it must be because we're sicker, and we should find out why that's so.
   
4. Health care is like any other kind of spending. It's no more intrinsically harmful than defense or automobile spending. After all, if I spend a dollar on health care, it goes into the pocket of my neighbor the doctor and he spends it on a movie, buoying the economy. (This was the argument of a recent WSJ editorial. I'd like to have the reference if anyone has it.)
   

These might all sound plausible. But in fact the McKinsey study I cited in an earlier post disproves most of them:

1. If our health care is higher-quality, you'd expect to see healthier people. The easiest metric, though a crude one, that I can think of is life expectancy. Unfortunately our high per-capita spending on health care doesn't lead to correspondingly higher life expectancy overall. The US fares poorly on life expectancy compared to McKinsey-selected peer countries. It does worse still when you focus on particular subgroups. Though aspects of our health care system are the best in the world, the extra dollars are not, overall, leading to better outcomes.
2. This is true. But the McKinsey calculations took this factor into effect and adjusted for it (somehow — I'll admit I haven't read the fine print to find out how yet). Our significantly higher per-capita spending in the report includes this adjustment factor.
3. The US is not in fact sicker than its McKinsey-selected peers — slightly less so for certain classes of disease, and generally about on par, certainly not 50% worse off.
4. This one is more nebulous, but health care spending is not like other kinds of spending. By and large, health care dollars don't come directly out of a consumer's pocket. They are typically drawn out of some sort of spending pool, one managed by a private or government insurer. This has a multitude of consequences, but here are just two. Firstly, in many insurance plans, especially more generous ones with low deductibles and copays, consumers will have relatively little price sensitivity since their own out-of-pocket cost is low and the actual cost of procedures is deeply buried. Secondly, the buying "habits" and characteristics of other consumers can profoundly affect my cost in a way I can't opt out of: systematic increases in real or perceived cost or risk WILL lead to higher insurance premiums, which will absolutely be passed along to me and my employer. There are good reasons to think that insurance pools of some sort are the right way to pay many health care costs, but it means that the health care marketplace behaves quite differently from, say, the handbag marketplace.
5. Finally, some amount of health care is a government-funded entitlement, so cost increases eventually will hit the US budget and thus eventually the US taxpayer, providing one more way in which health care costs are not like lumber costs.
   

So is our high level of health care spending bad, and if so, why? The answer seems to be the following:

The US spends significantly more wealth-adjusted per-capita dollars on health care than any other country in its peer group, yet achieves life expectancy results that lag that group, in some cases markedly.

If we wanted to convert this to a metric on which we performed poorly relative to others, we'd probably want a metric like "years of average life expectancy per wealth-adjusted per capita health care dollar." Wonkishness aside, the bottom line appears to be that we spend more, and get less, at least if "life expectancy" is the good we think our health care dollars are purchasing.