[fojkltck] Health care spending might be paradoxical

The AMA came out against health care reform (Robert Pear, "Doctors' Group Opposes Public Insurance Plan", New York Times, June 10, 2009), and one can cynically look upon it as, if health care reform results in healthier people, then that's less revenue for the health care industry, so it makes sense that the AMA, a trade organization whose first priority is to represent doctors and their paychecks, is against healthier people. Health care reform also seeks to cut waste in the health care industry, which would also result in less overall revenue for the industry.

But under a certain set of rather depressing theoretical assumptions, the above short-sighted analysis could be wrong. Healthier people might ultimately spend more on health care simply because they have more money to spend. We assume that healthier people have more money to spend because of lack of lost wages due to illness and working more years by not dying earlier. Now, the depressing assumptions: People inevitably get sick as they get old. Living a healthier life only postpones the onset of sickness in old age. These sicknesses of old age become more severe and frequent and thus more expensive to treat as you get older. No matter how much money you start with, there will eventually be a medical treatment that will drain you, assuming you don't die suddenly. Having more money simply means being able to afford more treatments before you die bankrupt. And people will generally always be willing to spend money not to die because self-preservation is the strongest instinct.

Therefore, all your lifetime savings are inevitably going to go to health care regardless of how healthy of a life you live, or how much money you make. Thus, to maximize health care revenues over the long term, the AMA should support healthier people who will make more money, the money which will inevitably be paid to the doctors the AMA represents.

In economics parlance, the "income effect" outweighs the "substitution effect" in this scenario.

Geriatrics