Healthcare: Does Prevention Reduce Costs?

One of the common memes in the health debate is the claim that increased spending on preventative medical care (e.g., cancer screening) can reduce overall health spending.

That idea is very attractive, since it seems to offer a free lunch: greater health at lower cost. It has just one small problem, though: it isn’t true.

As the Congressional Budget Office describes in an analysis released on Friday:

Although different types of preventive care have different effects on spending, the evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall.

That result may seem counterintuitive. For example, many observers point to cases in which a simple medical test, if given early enough, can reveal a condition that is treatable at a fraction of the cost of treating that same illness after it has progressed. In such cases, an ounce of prevention improves health and reduces spending—for that individual. But when analyzing the effects of preventive care on total spending for health care, it is important to recognize that doctors do not know beforehand which patients are going to develop costly illnesses. To avert one case of acute illness, it is usually necessary to provide preventive care to many patients, most of whom would not have suffered that illness anyway. Even when the unit cost of a particular preventive service is low, costs can accumulate quickly when a large number of patients are treated preventively. Judging the overall effect on medical spending requires analysts to calculate not just the savings from the relatively few individuals who would avoid more expensive treatment later, but also the costs for the many who would make greater use of preventive care.

In short, an ounce of prevention may save a pound of cure for the patients it helps. But those ounces of prevention can add up to tons of costs when spread over millions of patients.

And that’s not all.

If you approach this issue from the perspective of costs to the government, you also have to consider another factor:

Even if the provision of preventive medical care saves money, potential savings from expanded federal support might be limited depending on how frequently that service is currently provided. Many studies of preventive care compare the costs and benefits of a preventive service with the costs and benefits of doing nothing. In practice, of course, a great deal of preventive medicine is already being performed—examples include periodic screening for colon or breast cancer, the use of cholesterol-lowering drugs that help prevent serious heart disease, and the use of vaccines—and many insurance plans already cover certain preventive services at little or no cost to enrollees.

Consequently, a new government policy to encourage prevention could end up paying for preventive services that many individuals are already receiving— which would add to federal costs but not reduce total future spending on health care.

In other words, physicians and insurers aren’t complete idiots. Many types of valuable preventative care are already done for a substantial fraction of patients. If the government introduces a new policy to pay for more prevention, there’s a real risk that the government will end up paying for the prevention that would have happened anyway (this is often known as buying out the base). And that extra spending, for no health benefit, may mean that the overall program increases federal health spending — even if the extra preventative services are beneficial.

The bottom line is that increased preventative care can affect the federal budget in three distinct ways. First, there is the happy case, in which the prevention benefits a patient, leading to greater health and lower costs. Second, there is the unhappy case, in which the prevention adds costs but yields no benefit for the patient. Third, there is the buying-out-the-base case, in which the preventative care would have happened anyway, but now the government is picking up more of the tab. Policymakers tend to focus on the happy case. But serious analysts have to consider all three.

This conclusion may seem familiar to my regular readers of. As I noted recently, a similar framework applies when thinking about the economics of doing mortgage modifications. Policymakers tend to focus on the potential happy cases (e.g., instances in which a mortgage modification will keep someone in their home and shield the lender from unnecessary costs of foreclosure), but often overlook the unhappy cases (homeowners who can’t be saved) and the buying-out-the-base cases (homeowners who would have been saved anyway).

For completeness, I should note that CBO also considers another budget impact from prevention: successful preventative health may increase lifespans — a good result, to be sure, but one that may increase spending in other programs such as Social Security and Medicare.

I should also emphasize that the discussion above focuses on what appear to be the typical cases. There may certainly be specific instances in which increased federal spending on prevention could reduce costs, and if there is evidence, CBO will score them accordingly.

Comments

[YoYoMama:]

So I guess we all would prefer to die from undetected cancer rather than receive the screening that could save our life.

I guess it's so much cheaper for all to treat the later stages of cancer and pay for end-of-life-treatment (which accounts for 27% of all Medicare expenses) than catch the cancer in the early stages where it's more treatable.

Wow. I'm astounded by your logic and overwhelmed with your compassion for your fellow man.

Aug 10 10:03 AM

[secmaven:]

Pathetic! Do you realize that if every person in the US ingested 1000 IU of Vitamin D3 every day that health care costs associated with all major "dis" eases such as heart "dis" ease and cancer would be reduced by 50%. But such a simple and effective preventative health care measure will never be adopted. The cash flow to the so called "health" care industry cannot be reduced, and so the US will grind on and on ranking 30th in the world in longevity an spending twice per capita of any other country. It is all about money.

Aug 10 04:25 PM

[Crocodilian:]

There is an important distinction between "early detection" and "prevention". In many cases, early detection may be clinically useful (or not) but it does not reduce costs. Breast cancer would be one example; prostate cancer another.

But _prevention_ is something else entirely. The Robert Wood Johnson Foundation and the CBO have both come up with numbers showing that obesity is driving a tremendous amount of healthcare spending. Address obesity promptly, early and effectively and the savings are real and identifiable. A nation with a %40 obesity rate is going to have much more diabetes than one with %20

Aug 11 01:21 AM

[bigmoney:]

I wonder how much expensive medical testing occurs that the doctors consider legit, or whether they are just hedging against lawsuit. Guy goes into doctors office complaining of chest pain. Is this heartburn or heart disease? No worries. Just juice him up on imaging dye, and run him through the CAT scanner.

Aug 11 02:21 AM