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Sunday, January 15, 2012

U.S. Health Not #1: Deconstructing Legatum Part 2 of 2

As I reported on December 9, London's Legatum Institute issued the 2011 edition of its Prosperity Index, in which the United States scored #1 in health in the world. As Aaron Carroll said, "color me dubious." Yet despite the seeming incongruity of this result, the Legatum Institute is a well-funded think tank that will not be going away any time in the near future. Moreover, one of the key ideas behind the Index is a good one, that we shouldn't measure countries purely on economic outcomes alone -- and it executes this concept with a strong set of outside advisers including the guy who literally "wrote the book" on social capital, Robert Putnam.

The reason that the health sub-index gas the U.S. #1 is, as Carroll pointed out, due to the fact that health care spending per capita is part of the calculation, and the U.S. outspends the next highest spender, Norway, by 66%. In fact, not only is the U.S. #1, it has an index score that is 16% higher than #2 ranked Switzerland. As I discussed December 23, this is backward, because we should be looking at actual health outcomes, not inputs. In that post, I showed how France exceeded the U.S. on almost all objective outcome measures, was about equal on subjective measures like having natural beauty to appreciate, but of course was far behind on health spending per capita. But the Legatum methodology is backward in another critical way.

The variables that are included in calculating the health care sub-index, and the weights given to them, are chosen by how well they perform in regressions for 1) income per capita (natural log) and 2) answers to a Gallup Poll survey on life satisfaction. (See Methodology here.) This is completely backward on the income side: certainly if a population is healthy, it will earn more per capita, but income is a much more important driver of differences in health outcomes by far. For example, if you look at the CIA World Factbook's table of life expectancy at birth, rich countries are at the top and poor countries  are at the bottom. Income aids health both directly and indirectly (through a country's ability to afford clean water and sanitation, for example). In terms of several of the variables in the health index for the income regression, income in fact reduces malnourishment and enables countries to spend more on health and for components such as inoculations.

Because of the use of a methodology that chooses health variables to consider based on whether they are correlated with income or subjective well-being, Legatum included health care spending, on which the U.S. is a gigantic outlier, and followed the results to their extreme conclusion that the U.S. ranks #1 in health despite lagging behind numerous countries in terms of health status outcomes like life expectancy. This undermines our confidence in their other results despite the laudable goal to get beyond a purely economic metric.

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