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June 25, 2009

Living Longer and Prospering, for Less

New drugs and medical procedures account for much of the increase in the longevity of Americans — and haven’t increased the cost of care.


In the last century, life expectancy at birth in the United States has risen impressively, from more than 43 years in 1900 to 77 years in 2000. Life expectancy has continued to grow in the last 15 years, but the increase has varied considerably across states, from one-third of one year in Oklahoma to more than four years in New York.

Doctors and other health care professionals are surely interested in accounting for the growth in life expectancy and the disparities between states. Economists, too, are increasingly interested in investigating longevity. These dynamics are particularly critical now, as healthcare reform reemerges high on the U.S. domestic agenda.

For decades, per capita GDP was the standard unit by which economists measured economic growth, long held to be one of the most important benchmarks for quality of life. Suspecting that GDP may be too narrow a definition, many economists are now starting to consider other measures that might more fully reflect growth. For example, the World Bank’s Human Development Index calculates economic prosperity by looking at life expectancy and educational attainment along with per capita GDP.

“If quality of life and well-being depend not just on income as generally measured but also on life expectancy and education,” says Professor Frank Lichtenberg, “what accounts for growth in life expectancy?”

To answer this question, Lichtenberg culled state and national data to look at a far-reaching set of factors, including mortality, income, education and health insurance status and behavioral risk factors including smoking and obesity rates. He also used Medicare and Medicaid data.

Lichtenberg paid particular attention to the introduction of new drugs and diagnostics. Many health economists believe that medical innovation has played a crucial role in improving health. “One hundred years ago, increases in longevity were probably due to things like improved public health and sanitation,” Lichtenberg says. “Now the main sources of longevity gains are new medical products and procedures. New drugs are an important part of that.”

Innovations are also regarded as drivers of economic growth. “The consensus is that science and technology and the new products that come from them are key. It’s well-established when you look at conventional growth measured in terms of GDP,” Lichtenberg says. “I see no reason why this wouldn’t apply to health care as well.”

Lichtenberg did find that a substantial proportion of recent increases in U.S. life expectancy can be attributed to the use of medical innovations. He also found convincing evidence that quality of care was responsible for the state-by-state differences, on three different counts. Life expectancy increased more rapidly in states where the fraction of advanced procedures increased more rapidly; where the vintage (or FDA approval year) of drugs increased more rapidly; and where the quality of medical schools attended by physicians increased more rapidly. (Looking at where physicians went to medical school as one measure of quality of care was a novel aspect of Lichtenberg ’s research. The better the school, Lichtenberg theorized, the greater the likelihood of better patient outcomes.)

One surprising outcome, says Lichtenberg, is that the data did not reveal any correlation between per capita income growth and growth in life expectancy. “It is certainly true that higher income people and more educated people have higher life expectancy than less educated people, so you might expect to observe at the state level over time that where average income is growing fastest, higher rates of longevity would also be observed.”

Yet that’s not the case. “It is at odds with the micro evidence at the individual level,” Lichtenberg says. However, micro evidence has its pitfalls. “If we observe a high positive correlation between wealth and health, that could mean that wealth is causing the health, but it could also mean that healthier people simply have a greater capacity to earn.”

Lichtenberg also surfaced some unexpected findings about health insurance. There does not appear to be a correlation between health insurance coverage and life expectancy. Even as the number of insured Americans has dropped in the last eight years, there is no correlation between that drop and a growth in mortality. However, Lichtenberg acknowledges that there is a somewhat tangled relationship between insurance and health. “It’s complicated because healthy people, especially younger people, may self-select out of health care when they have the choice.”

In states where health insurance coverage was expanding, health expenditures were not growing as fast as it was in states where coverage was contracting. “That may seem surprising, since the assumption is that those with insurance might go to the doctor more often and take better, more costly prescription drugs,” Lichtenberg acknowledges. “But there is a lot of evidence that people who lack insurance get care in a costly and inefficient manner.”

Significantly, states in which the quality of care was increasing the most did not experience larger increases in per capita medical spending. In other words, improving quality of care has increased longevity without costing more. Given this, Lichtenberg says, “improving the quality of medical care should be the primary objective of health care reform.”

Frank Lichtenberg is the Courtney C. Brown Professor of Business in the Finance and Economics Division at Columbia Business School.

Read the Research

Frank Lichtenberg

"The Quality of Medical Care, Behavioral Risk Factors, and Longevity Growth"

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