Let the healthcare debate continue…

There are plenty of worthwhile discussions amongst economists and policy-makers about the best way to fund health care. A debate that goes on largely outside the policy-makers’ domain, however, is whether increased health care spending actually improves health care at all. There is a sizable body of research which suggests that increased health care spending doesn’t improve outcomes one iota! If this is true then it makes the whole health care funding debate largely irrelevant.

The real problem with these rather counter-intuitive results is endogeneity bias: often large spending in a particular geographical area indicates that people with serious health problems live in the region. If this is the case then the cross-sectional sample is not randomly selected and the results will be biased. Thankfully, some brainy econometricians came up with a way to instrument for the endogeneity problem and they find that health care spending IS positively correlated with health care outcomes. So now we can all get back to arguing over our entrenched, ideological positions on health funding again. Phew!