International Health Care Spending Comparisons

By Spencer

Michael Mandel at Businessweek had a post on the subject of where are health care costs rising the fastest.

http://www.businessweek.com/the_thread/economicsunbound/archives/2009/09/where_are_healt.htm

In the post he posted this table and used it as the basis for making comparisons of the growth of health care spending in various countries.

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But the analysis is flawed. Note it is in terms of Purchasing Power Parity (PPP).

If you calculate a country’s growth in medical spending from this the results are meaningless.

Take Korea for example. The table shows that health care spending rose 9.6%. But this rise could stems from several different causes. It might be because domestic spending on health care rose 9.6% and the exchange rate used to calculate the PPP terms was unchanged.

Alternatively, it could mean that spending in the domestic currency was unchanged and the exchange rate used to calculate it in PPP terms changed by 9.6%.

Because of this these growth rate comparisons are meaningless.

It may be a valid exercise to use PPP terms to compare the level of spending on health care between two countries. But you can not use it to calculate meaningful comparisons of the growth in health care spending in different countries.

This posting by Mandel is being cited by numerous blogs yesterday and today and they are all making this same fundamental error.

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