Part 5: Inequality is Fiscally Irresponsible

What if poverty is the root cause of our national debt crisis? As it turns out, governing a society is much more expensive when it is gripped by inequality.

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Takeaways:

• Health care spending remains the biggest drag on government budget deficits and the national debt.
• Poverty drives up health care costs by increasing our society’s susceptibility to preventable diseases like diabetes.
• Unequal societies are more expensive to govern.
• If you care about deficits and the debt, you might want to begin by declaring war on income inequality.

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America is diving deeper into the red. Congressional Democrats and Republicans just negotiated a bipartisan budget deal with the White House that would send our government $320 billion dollars further into debt over the next two years. This, at a time when we enjoy the wealthiest, most productive economy in the world. Why can’t Americans afford their government?

The most recent round of tax cuts that were signed into law by President Trump in 2017 don’t help matters. Yet the biggest reason why our government is going broke is health care. We spend more per person on health care than any other country in the world–by a long shot. This is true not only of our private health care spending, but our public spending as well. Health care is the single largest chunk of government spending, soaking up 24 cents out of every taxpayer dollar. If America wants to fix its soaring deficits, crumbling infrastructure, the student loan crisis or anything else, we have to start by fixing health care spending

One solution is to attack the problem at the system level by bringing down costs. In Part 4 of The Bargain we explored some of the unique features of America’s health care system that drive up prices and worsen outcomes compared to other wealthy countries. Reforming the system could take us a long way towards solving America’s fiscal crisis.

But what if instead of just blaming our health care system, we took a hard look at the society which that system is asked to serve? What we find is that the high level of poverty in the United States, and the underlying patterns of income inequality that drive those rates up, are a big part of the reason why the government is going broke trying to pay for health care.

Poverty is bad for our physical health.

Let’s start by going back to Part 3, and the top-5 list of killers in America. These are preventable or treatable health conditions that Americans die from at higher rates than people in other countries:

1. Kidney disease
2. Heart disease
3. Lower respiratory diseases like bronchitis, emphysema, and asthma
4. Diabetes
5. Neonatal disorders like premature birth 

What do these health conditions have in common?

If you’re a medical whiz (I’m not, I had to google it), you might have noticed that some of these health conditions are interrelated. The two leading causes of kidney disease are high blood pressure and type 2 diabetes.¹ And the damage that diabetes causes to the heart and blood vessels makes heart disease the leading cause of death among people with diabetes.

But the thing that really jumped out to me from this list… these all sound like the kinds of medical conditions that disproportionally impact poor Americans. Take diabetes.

In poorer countries, income, obesity, and adult-onset (type-2) diabetes work together the way we would expect. As incomes go up and people can afford more calories, incidence of obesity and diabetes go up as well.  

Yet within wealthy countries like ours, researchers have identified what is known as the poverty-obesity paradox: As household incomes increase, rates of obesity and diabetes actually decrease. And as incomes go down, obesity and diabetes rates go up.²

Within wealthy countries like ours, researchers have identified a poverty-obesity paradox: As household incomes go down, obesity and diabetes rates go up.

At first blush this appears counter-intuitive. Why would people with less money to buy food be more likely to be obese? But the research confirms what we can already see for ourselves in our communities. In America, poverty exposes individuals to cheap but empty calories, fewer opportunities to exercise, and a variety of social and environmental stressors that promote obesity and all of its negative health consequences.

Mapping this pattern globally using World Bank development indicators, we see that the United States is deep in the red when it comes to adult-onset diabetes. More than one in ten American adults (aged 20-79) suffer from the disease. This is the highest level of diabetes in the industrialized world–about double the incidence rate of other wealthy countries. 

And just as the poverty-obesity paradox would predict, among wealthy countries the one that suffers the highest incidence of diabetes also suffers the highest rate of poverty. Using one measure,³ approximately 18 percent of Americans (nearly 1 in 5) are poor.

America is in the red on diabetes in part because we are also in the red on poverty. The correlation appears strongest in the US. But other countries including Japan, Canada, and Portugal exhibit similar patterns as well. Conversely, those European countries with low rates of poverty enjoy diabetes rates under 5 percent.

This isn’t just a story about diabetes. Strong correlations also exist between poverty and the other illnesses mentioned above.

• Heart disease is often tied to poor diet and exercise, high stress levels, and substance abuse. These behaviors appear most frequently among low-income groups.⁴
• Respiratory diseases like bronchitis and asthma are often caused by poor indoor and outdoor air quality. Bad air quality, in turn, is highly concentrated in low-income neighborhoods. Think about poorly insulated houses that allow mold and mildew to spread–all concentrated in areas near industrial or other types of pollution. ⁵
• Infant mortality rates in the US–the highest among wealthy countries–are almost exclusively driven by deaths among low-income children.

It should come as no surprise that poverty drives up the rate of preventable or treatable diseases and other risk factors. Many of the choices individuals make about housing, diet, and lifestyle are shaped by their economic circumstances.

Many of the choices individuals make about housing, diet and lifestyle are shaped by their economic circumstances.

What if the sum of these unfortunate economic circumstances among impoverished Americans is the cause of our debt crisis?

Poverty is bad for our fiscal health too.

If poor people are more likely to contract preventable illnesses like diabetes, and if taxpayers often foot the bill for their treatment, just how expensive is diabetes?

The answer is very. Let’s take two individuals–the average American with diabetes, and the average American without. What is the annual cost of delivering health care to each of them?

WordPress Data Table

Source: American Diabetes Association statement, page 8.

America spends four times as much treating patients with diabetes as we do treating those without. With an average annual treatment cost of $16,574 per patient, as a country we spent $237 billion caring for people with diabetes in 2017. This was up dramatically from $176 billion in 2012. In total, 1-in-4 US health care dollars (24%) were spent treating diabetes in 2017 according to American Diabetes Association (ADA) figures.⁶

It turns out that delivering health care to a society gripped by poverty is much more expensive.

It turns out that delivering health care to a society gripped by poverty is much more expensive.

If the condition of poverty increases the prevalence of costly, preventable diseases like type-2 diabetes, it follows that societies with higher rates of poverty incur greater costs in terms of providing health care to their citizens. 

But don’t let the health care system off the hook.

The fiscal strains caused by high diabetes rates among poor people on public assistance are exacerbated by the high medical costs generated by the health care system.

The two biggest factors driving the rising costs of diabetes between 2012 and 2017, according to the ADA report, were an increase in the prevalence of the disease itself (responsible for 11% of the rise), and an increase in the cost of caring for people with diabetes (responsible for 13%). For the latter, the biggest driver was the cost of medical supplies—namely insulin. These supplies comprised 27% of the total cost of diabetes care back in 2012. In 2017 they grew to absorb 38% of spending. This, followed an already alarming tripling in the price of insulin over the preceding decade (2002-2013).

There is an especially perverse side to this story of rising insulin prices. It turns out the original patent rights for insulin were sold by its inventors in 1923 for $1 so as to ensure the availability of safe supplies.⁷ Yet today, pharmaceutical companies manipulate these patent rights by making small changes in the original formula in order to stave off generics and increase profits.

The original patent rights for insulin were sold by its inventors for $1 in 1923 so as to ensure the availability of safe supplies.

So which is it? A failing health care system generating unbearable health care costs? Or income inequality leading to poverty and the prevalence of costly, preventable illness?

On the one hand, more Americans live in poverty compared to citizens in other wealthy countries. Thus, we suffer higher rates of preventable disease. We spend a tremendous amount of money each year treating these diseases. 

On the other hand, Japan also has high rates of poverty and diabetes as revealed in the maps further above. So do several Mediterranean countries. Yet, as we saw in Part 3, these countries are also among the best-ranked in the world in terms of average life expectancy. And they achieve this at a much lower level of private and public spending per person. Somehow, countries like Japan, Spain, Portugal, Italy, and Greece achieve better overall health outcomes despite high rates of poverty and diabetes.

Put simply, in most wealthy countries, being poor isn’t the death sentence that it is in America. Why is that?

In most wealthy countries, being poor isn’t the death sentence that it is in America.

One inescapable conclusion is that these other public health systems just work better for poor people. In Japan, coverage is truly universal and costs are controlled, so sick people don’t skip medical appointments and medications because they can’t afford them.⁸ As a result, the high rates of poverty and diabetes that we observe there don’t translate into needless death the way they do here.⁹

If we want to fix America’s looming debt crisis before it goes into meltdown, we have to tackle the costs generated by the health care system. But we also have to arrest the rising rates of poverty and preventable diseases that inflict such great demands upon that system.

Takeaways

Poverty isn’t just morally wrong. It’s also fiscally irresponsible. The relationship between income inequality and preventable diseases like diabetes shows us why it is more costly to govern in societies where a lot of people are poor. This is especially true under our current health care system, where basic medical supplies like insulin cost thousands more than it does in other countries.

The fiscal consequences of poverty extend far beyond public health. So much taxpayer money gets tied up administering tests and treatments for conditions that could have been prevented that public health expenditures now dwarf all other government spending. This spells missed opportunities to invest in the kinds of public infrastructure like roads and schools that make for a more productive society. It also means that there are fewer resources left over at the end of the day to pay down the national debt.

Yet we also see that other wealthy countries, some of which also have above-average poverty rates, do a better job breaking the cycle of low incomes and bad public health outcomes. As we saw in Part 4, a few of these countries do so via single-payer national health systems. Others do it through a regulated market of private insurers. But all of them achieve universal coverage and better public health outcomes while spending a fraction of what America does.

Ultimately, the combination of poverty and expensive, for-profit medicine is deadly. Besides leaving millions of Americans exposed to fatal illnesses, it also ties up taxpayer money that could otherwise be used to address the myriad other challenges our country faces.

In the final installment of The Bargain we will find out how the wealthiest country in the industrialized world ended up with the highest rates of poverty.

1. National Kidney Foundation.
2. Bentley, Ormerod, and Ruck, 2018. “Recent origin and evolution of obesity-income correlation across the United States.” Page 2.
3. The proportion of society that earns less than half of median (50^th percentile) household income (OECD).
4. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4541436/
5. https://www.ncbi.nlm.nih.gov/pubmed/28440535
6. Riddle and Herman, 2018. “The Cost of Diabetes Care: An Elephant in the Room.” Page 929.
7. Ofri, 2019. “Opinion: The Insulin Wars,” New York Times.
8. Papanicolas et al. 2018.
9. 2016 Health Access and Quality Index Page 2243