Farm vs Pet Medicine

We now spend a huge fraction of income on medicine. Today the US spends ~18% of GDP on medicine, while in 1940 we spent ~4%. Why the huge increase?

A supply explanation is that doctors have invented lots of new useful treatments. A demand explanation, in contrast, is that we want more medicine as we get richer, either because we care more about health, or about showing that we care.

One way to distinguish supply vs. demand explanations is to look at farm vs. pet animal medicine. Both kinds of animal medicine are treated similarly by most supply changes – new medical treatments help both kinds of animals. But most demand changes treat them differently – farm animals today aren’t that much more valuable than they were long ago, but we treat our pets as if they were far more valuable.

While I can’t find good historical data, what I do find suggests we’ve seen a huge switch in animal medicine, from a focus on food animals to a focus on pets. On recent pet med spending increases:

The average household in the U.S. spent $655 on routine doctor and surgical visits for dogs last year, up 47% from a decade ago, according to the American Pet Products Association. Expenditures for cats soared 73% over the same time frame—on pace with human health-care cost increases. Expenditures for people in the U.S. were up 76.7% between 1999 and 2009, according to the U. S. Centers for Medicare and Medicaid Services. (more)

On vets long ago:

Very early veterinarians were mainly concerned with the care of livestock and horses and mules. … Prior to World War II, very few people would consider paying more than a token amount for the medical care of their pets any more than the average person today would consider taking an injured chipmunk to the vet. (more)

On the focus of US vets in 2011:

Food animal exclusive 1.8%; Food animal predominant 6.0%; Mixed animal 6.8%; Companion animal predominant 9.7%; Companion animal exclusive 67.2%; Equine 6.0%. (more)

Thus much, perhaps most, of the rise in animal med spending is a demand effect. More careful data analysis might give a more precise estimate.

Now pets probably live to be older than farm animals, so a supply shock mainly relevant for older animals might explain an increase of pet med relative to farm animal med. But that seems pretty unlikely to be the main thing going on here.

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  • Yvain

    Sorry, I’m not sure I follow.

    A farmer considering spending money on medical care for (let’s say) a cow will only spend up to the market value of that cow on care (less, in fact, since he’s not 100% sure the treatment will work and he wants to make a profit). So if the market value of the cow stays constant (and you’re saying it does), there’s not too much room for supply changes to affect cows: even if doctors invent fancy but expensive new therapies, farmers won’t want them. If a scientist develops a $200,000 treatment that cures a rare cancer in cows, farmers won’t want to spend it on a cow that, if cured, would sell for $500.

    Pet ownership is different; as you say, we treat our pets as being very valuable. If doctors invent a $200,000 treatment for a rare cancer in the beloved family dog, I know at least a couple of people who would try to come up with the money.

    In a world where the only difference between 1900 and today was that doctors had invented new $200,000 cancer treatments for both cows and dogs, we would observe health spending on dogs rising relative to health spending on cows.

    That suggests that your observed trends are predicted by the supply-driven model as well, right?

    • Vaniver

      Demand is how you differentiate between farm animals and pet animals. Supply is how you differentiate between 1900 and 2000.

      If the primary motivator for cost growth were supply, we wouldn’t see a significant difference between pet and farm animals; people would spend lots on both because they have the option of spending lots on both. If the primary motivator for cost growth were demand, we would see such a difference, because people choose from their options based on the context.

      The two aren’t strictly competing- the magnitude of the difference demand can reveal depends on supply. If there’s only a $200k treatment available, we wouldn’t be able to tell how large the demand difference is (only that it’s bigger than $200k for X individuals, and smaller for Y individuals). But the difference between pet animals and farm animals is suggestive.

      • Stephen R Diamond

        If the primary motivator for cost growth were supply, we wouldn’t see a significant difference between pet and farm animals; people would spend lots on both because they have the option of spending lots on both.

        Didn’t you understand Yvain’s comment? The point isn’t deep: farm animals are raised for profit, which strictly limits spending on their medical care. My guess is that already in 1900, farmers had reached the limit of the amount it was profitable to spend this way.

        Hanson has done the unthinkable: he’s constructed a confounded thought experiment.

    • nelsonal

      I saw the interesting point as being why did pets shift from being treated less well than farm animals to being treated with far more costly measures than farm animals over the last century. To give a very poignant example, Old Yeller was still the beloved family pet when he got shot, today’s pet has a pretty decent shot at getting the full Milwakee protocoll. Why are we so willing to expend vast resources on fairly unlikely cures just to express how much we love people/pets?

      Also, can this shift help to explain why we spend so much on human medicine today as well.

  • Mark M

    I wonder if it would be useful to measure average amount spent on medicine per year per age group. I think it’s reasonable to believe that we live longer due to new and improved treatments, and it’s reasonable to believe that older age groups spend more per year on treatments. This could easily have a big impact on % of GDP.

    A similar argument could be made for pets. Pets may live longer and require more, and more expensive, treatment over time. Livestock are raised for profit, and farmers won’t spend money on expensive cures.

  • Salem

    Yvain makes excellent points.

    I’d suggest a different demand-side argument, caused by the changes in animal use over the past 100+ years. Horses were a major part of transportation then, and horse racing/breeding was a much bigger deal. Given the shift in technology, you’d expect to see more spending on pets relative to spending on non-pet animals.

    Also, Baumol.

  • Sister Y

    This suggests that we’d learn something useful from comparing employer spending on employee medicine to workers’ spending on their own medicine.

    • Sister Y

      (Slaves v. family members is a better analogy)

  • Bill Harshaw

    I’d suggest the vet bill for farm animals might well be decreased because of the growing size, specialization and standardization of the livestock/poultry industry. Back in the days of smallish dairies and flocks of hens conditions varied a lot between farms. These days when you have 1000 cow dairies and multiple poultry house of 100,000 hens conditions are much more standardized, meaning more healthy.

    It’s like the airline industry: pre-WWII airlines were unsafe. They’ve gotten much safer as the size and scope of the industry has increased, and the number of airlines has decreased.

  • Sister Y

    Great topic. So overall spending on veterinary services went up from 1980-2005, as did the number of people with pets (buying pet food, etc.). But even though there’s more money being spent on veterinary medicine AND more pets, FEWER pet owners spent any money on veterinary care!

    From the abstract: “Households that spent money on veterinary services increased their spending sufficiently to exceed the loss of income for veterinarians associated with the increasing proportion of pet-owning households that did not spend anything on veterinary services.”

    Those ever-rarer households spending more and more money on vet medicine were more likely to be white, married, rural, and homeowners. “Status” seems like too broad and unsatisfying an explanation of this picture, but it’s a stab.

    • daedalus2u

      Interesting. Comparing medical costs spent on pets to medical costs spent on the uninsured might be a close analogy to your “slaves vs family members”.

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