The Problem of Diminishing Marginal Benefit in Healthcare

Why is it so bad for health spending to increase? After all, health care is good and noble. By the way, it also creates good-paying jobs.

My answer, excerpted from Segment 6 of my Video Series, is that healthcare spending is good, of course, but only up to a point. Past a certain point it is not worth the cost, it sucks money from other important purposes, and it fuels social and political unrest.

Let’s look at each of these arguments. First, are we getting our money’s worth?

Here’s the slide from the last lecture showing the benefit from each additional dollar spent. This is what economists call “marginal benefit.” If you’ve already spent 1,000 dollars, what more do we get by spending 10 or 100 more dollars? The answer is, we get less and less, the more we spend.

On the left side is the column of highly valuable health services like public sanitation and immunizations. For very few dollars spent, we prevent disease and save lives. The next column, moving right, are routine services that give good value for the money spent, like kidney dialysis, chemo for treatable cancers and heart bypass up to age 70. The next column are lower-value services like keeping dying patients in uncomfortable ICU beds. Then we reach a cut-point where we get no added benefit from extra spending, what economists call the “flat of the curve.” This is unnecessary testing, treatments, or drugs, which are wasteful. Here is a list of examples.

Doctors and specialists have recently gotten together to identify some worthless habits of care that can be eliminated. They call it the Choosing Wisely campaign, and are trying to get all doctors to break the habit of getting these. Here are some other examples.

The last column shows that sometimes giving too many treatments or drugs can actually be harmful. As a geriatric specialist taking care of the elderly, I can tell you that over my years of practice I have definitely cured more people by stopping unnecessary drugs than by overprescribing.

The bottom line is that most experts agree that the US is not getting any more bang by spending more bucks, and in some cases actually doing more harm than good.

Disclaimer:  This information is presented for the purpose of public policy discourse.  It is not intended as medical advice. For diagnosis and treatment of any medical condition, the reader should consult a healthcare professional.