Estimating a Health Production Function for the US: Some New Evidence

1. Estimating a Health Production Function for the US: Some New Evidence Jess Stewart Ricky Thomas Ashley Usry

2. Health Care spending has increased rapidly over the past several decades, becoming a major economic problem. • Medical Care Expenditures increased from $26.9 billion in 1960 to $1.03 trillion in 1996. • Gross Domestic Product increased from 5.1% to 13.6% during this time • In 1999, Health Care Financing Admin projected that spending would rise to $2.1 trillion by 2007, accounting for 16.6% of GDP • The US spent $2.1 trillion by 2006, share of GDP was 16% • By end of 2009, spending is expected to reach $2.5 trillion, accounting for 17.6% of GDP • By 2012, Medicare & Medicaid will account for 50% of spending • By 2018, studies estimate spending will reach $4.4 trillion!

3. Should medical care be allowed to consume such an increasing portion of goods & services produced in the US? Since health economists have long been interested in the impact of medical care and other factors on health outcomes, Thornton has attempted to estimate an aggregate, multifactor health production function. This production function will estimate the over-all effect of medical care utilization on the health status of the population. In other words, it will determine if healthcare spending is an important factor in determining mortality. The information obtained will shed light on the benefit the nation as a whole is getting from increased spending on medical care services and indicate whether investments in alternative health programs may have a larger return than medical care.

4. Determinants of Health Status Medical care expenditures Income Education Cigarette consumption Alcohol consumption Marriage Urbanization Manufacturing Crime

5. Aggregate Health Production Function ln(Di) = β0 + β1ln(Mi) + β2 ln(Si) + β3 ln(Li) + β4ln(Ei) + β5 Ci + ui

6. Health Care Spending (% of GDP 2005) • 1. United States 15.3 • 2. Switzerland 11.6 • 3. France 11.1 • 4. Canada 9.8 • 5. New Zealand 9.0 • 6. United Kingdom 8.3 • 7. Japan (2004) 8.0 • 8. Mexico 6.4 • 9. Poland 6.2 • 10. South Korea 6.0

7. Life Expectancies (2009) • Japan 82.12 • Canada 81.23 • France 80.98 • Switzerland 80.85 • New Zealand 80.36 • United Kingdom 79.01 • South Korea 78.72 • United States 78.11 • Mexico 76.06 • Poland 75.63

8. Does spending help? Longest Life Health Expenditure (GDP) 8.0 9.8 11.1 11.6 9.0 15.3 (#1) • Japan 82.12 • Canada 81.23 • France 80.98 • Switzerland 80.85 • New Zealand 80.36 • 8th… U.S. 78.11

9. Estimation Results Key: Yellow highlight=Significant Results

10. Conclusion • The idea that the increased spending in the medical industry will decrease the death rate has clearly been shown not to be the case • The key factors for the reduction of the death rate are: Income, Education, Alcohol Married Households • Alcohol Consumptionand Crime are significant causes of death (negative impact on HS) • The most significant attribute to decreasing the death rate is the amount of married households

11. The Moral of this Economic Story The money we are pumping into healthcare is yielding little to no increase in the life expectancy of the U.S. So, if you want to live longer, get an education, stop smoking and get married.