How Realistic Is Paul Ryan’s Proposal

I had thought that making making ever more elaborate attempts to prolong the lives of sick old people was the source of spending growth. Yes, I know you said “price growth”, but aren’t the two effectively the same in this case? I don’t think anyone’s claiming that the medical sector is extracting monopoly rents.

I suppose you’re not the first person I’ve heard make that claim — rather, you’re the first economist. But perhaps I’ve just been living in a bubble. Presumably someone has already made a go at estimating the magnitude of said rents?

“The medical sector is extracting monopoly rents. ”

I’m glad somebody is saying it. I think the claim is well-supported by the Atul Gawande article:

http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande

In which he explores, in great investigative detail for a particular region, how local doctors and hospitals extract such rent-like payments from the system.

If the problem was simply keeping old people alive, then places with demographically more old people would have vastly higher costs. Yet Florida, which has the largest proportion of old people in the nation, is 19th in the nation in health care expenditure. In fact, I ran a regression of 2004 per capita health care costs (supplied by HHS) against 2010 projected proportion of population over 65 (supplied by US Census). The results show extremely poor correlation between aged populated and health care costs.

Here’s a graph I threw together:

From Misc

(Hopefully that comes through.)

The calculated significance level of the regression is 0.1232, indicating only 88% confidence that the relationship is positive (spending to old people), far below the level usually required to declare reasonable certainty in these cases. Other factors must be at work.