The Cost of Chronic Disease

An economist's perspective on making America healthy again

by Matthew E. Kahn

As of 2023, roughly 194 million U.S adults had at least one chronic condition. Chronic diseases, such as diabetes and hypertension, cost the United States economy billions of dollars each year. It has been estimated that 80 percent of the Medicaid expenditure is spent to improve the health of people with chronic diseases.

While increasing affordable access to new drugs such as the weight loss GLP-1 medications offer the promise of achieving significant weight loss, our society’s ability to reduce the costs associated with chronic conditions continues to be tied to encouraging behavioral change.

Throughout our lives, our health is influenced by the complex interplay between our genetic makeup, our investment in life skills, our choices regarding nutrition and exercise, our exposure to pollution and extreme weather conditions, and our access to affordable and effective medical care and medications. At every stage of life, we face trade-offs regarding how much time and effort we are willing to invest in our health.

Early Life Learning and Skill Formation in Order to be Healthier in Middle Age

Genetic predispositions can significantly influence our risk of chronic diseases as we reach middle age. Young people are often aware of the medical conditions that their parents and grandparents have faced, and this awareness provides a useful indicator of the risks they may encounter. Whether individuals choose to proactively protect themselves depends on several factors. Economic research highlights that parental involvement and early life interventions can help young people develop self-control and discipline. This "grit" enables individuals to avoid temptations and to be more self-disciplined in mid-life. This reduces their risk of facing chronic conditions.

It has been estimated that 80 percent of the Medicaid expenditure is spent to improve the health of people with chronic diseases.

Economics research has extensively studied risky behaviors among teens and young adults, specifically in relation to nutritional choices and smoking. The rational addiction hypothesis posits that people are less likely to start smoking or indulge in excessive junk food consumption if they anticipate that the prices of these products will rise over time. Conversely, easy access to cheap, tasty fast food contributes to these behaviors. Some public finance economics research has explored how policies such as sugary drink taxes can change behavior.  When he was the mayor of New York City,  Michael Bloomberg championed these policies.

Expanded Medical Care Access for Middle-Aged People

In recent decades, access to medical care has increased for many Americans. A growing number of individuals are dealing with prediabetes, which can be identified through blood tests indicating elevated blood sugar levels. To lower the risk of developing diabetes, proactive measures such as weight loss, reduced sugar intake, a healthier diet, and increased physical activity can be beneficial. In recent decades, the health performance of many diagnosed diabetics has improved such that their risks of complications have declined relative to earlier birth cohorts of diagnosed diabetics.

Designing Effective Methods for Addressing Chronic Disease While Acknowledging Our Diversity

When newly diagnosed with a chronic disease, some people are highly motivated to engage in behavioral change. Those who are more educated, possess greater self-control, and have a support network are more likely to pursue this path. Other people may be technological optimists who believe that advancements in medical care will rescue them by subsidizing their access to medications that can mitigate the side effects of their condition.

In this age of Big Data, empirical economists have increased opportunities to test new ideas for cost-effectively bringing about behavioral change.

In this age of Big Data, empirical economists have increased opportunities to test new ideas for cost-effectively bringing about behavioral change.  One recent study set in India provided financial incentives to people at risk of becoming a diabetic to walk more steps each day.  Since the study was careful to use a randomization approach to determine who was offered the walking incentive, the existence of a control group means that the researchers can test the hypothesis that well designed financial incentives are a cost-effective way to spur behavioral change among those with a key chronic condition.

How Can the Government Incentivize Behavioral Change?

Arnold Schwarzenegger recently said; “If you stop movement, then this is the first step to death,” he said. “If you rest, you rust,”

This famous Republican is using his social media platform to nudge his fans.  Unfortunately, I doubt that this is sufficient to change behavior and encourage greater personal responsibility in building up one’s health.  Basic economic logic predicts that the incentives of both “carrots and sticks” are needed.  A carrot would be to offer financial payments for those who engage in healthy habits that can be objectively measured such as walking steps being measured by Cell Phone GPS systems. This intervention could eventually pay for itself by lowering future Medicare and Medicaid expenditures.

As the United States now spends roughly 17 percent of GNP on health care, it is important to consider alternative “rules of the game” regarding insurance pricing.  If insurers could charge different prices for annual health premiums based on personal attributes such as one’s blood sugar level and one’s weight, then this would introduce a strong financial incentive for people to invest more in being healthy.  Our current system’s rules preclude this.   Both the rates of chronic disease and their private and social costs are rising. Facing this reality, what steps are the American people willing to introduce to bend this curve?

Matthew E. Kahn is the Provost Professor of Economics at the University of Southern California and a Visiting Fellow at the Hoover Institution and a Senior Scholar at the USC Schaeffer Institute.

The Ripon Forum is published six times a year by The Ripon Society, a public policy organization that was founded in 1962 and takes its name from the town where the Republican Party was born in 1854 –Ripon, Wisconsin. One of the main goals of The Ripon Society is to promote the ideas and principles that have made America great and contributed to the GOP’s success. These ideas include keeping our nation secure, keeping taxes low and having a federal government that is smaller, smarter and more accountable to the people.

SOURCE: https://riponsociety.org/article/the-cost-of-chronic-disease/