Health care as a capital investment

The developed world is currently debating what to do about government deficits (for example, here). Because health care spending is a large and rapidly growing component of government spending, concern about deficits leads to discussion of health care spending. Aaron Carroll recently wrote an important series of posts documenting how Americans pay too much for their health care. It is also important, however, to look into what we are getting for all the money we are paying.

I sense that many people view health care spending as an unfortunate necessity. If someone spends $25,000 to remodel their kitchen, there is a benefit: they have a terrific kitchen to point to. If someone spends $25,000 on a coronary artery bypass graft procedure, it feels like a loss: all you get is a nasty scar. But this is the wrong way to see things.

One thing we get from some health care is more years of life. David Cutler (summarized here) showed that modern methods of treating cardiovascular disease (CVD) have extended the lives of a great many adults. A year of life is the ultimate consumption good: Life itself is a wonderful thing, and it facilitates -- to put it mildly -- every other wonderful thing. Priced appropriately, the increase in life expectancy attributable to better health is among the most valuable things our economy produces.

Moreover, health can be viewed as capital, and health care as a capital investment. Austin Frakt summarizes a study of cardiovascular disease (CVD) the presents data showing that "health spending and, in particular that aimed at lowering CVD mortality, may increase growth if it reduces CVD mortality." Now, how can spending on heart disease increase economic growth? Productivity is all about human capital: people and their skills. If a person does not work because they are sick or dead, society loses the use of that person's skills, and the enterprise she belonged to has to find or train someone else to do the job. Health care preserves capital that promotes growth, like maintenance for an expensive machine.