Health Care in The U.S. And The World, Part III: What do we get for our money?

In Part I of this series, I examined spending on healthcare across industrialized nations from 1970 to the present. Throughout the 1970s the U.S. spent a bit more about 2 percent of GDP more on healthcare than other industrialized nations. Then, around 1980, the share of GDP spent on healthcare surged dramatically in the U.S., while remaining fairly flat in other countries. As a result, we now spend a full five percent of GDP more on healthcare than the next highest industrialized nation in my sample. Moreover, the public component of total health spending in the U.S. is a bit under half that of other nations. Finally, out-of-pocket spending in the U.S. is between 50% higher (Norway, Australia) and 300% higher (UK, France) than in other countries.

Then, in Part II, I took a look at the inputs we purchase with that additional. As it turns out, we do not have more doctors per capita (though we likely do have more specialists per capita) — France actually has the most doctors. Nor do we have more hospital beds or hospital discharges. And we rank fairly low in terms of spending on pharmaceuticals as a percentage of total healthcare spending. Because healthcare spending is so much higher in the U.S., it turns out that we do spend a bit more on drugs, as a percent of GDP, than other industrialized countries. Taking both factors into account, pharmaceutical spending has increased by about 1% of GDP, to a current total of 2% of GDP, and therefore represents at most one fifth of the additional money spent on health in the U.S. (5% of GDP).

The conclusion is that while we definitely spend more, we do not buy a substantially greater volume of inputs than other nations. The obvious explanation is that the prices of health inputs (doctors, hospital care, drugs,…) are higher in the U.S., but that is not the only possible explanation. It may be the case that inputs in the U.S. are higher quality, able to produce more or better health than other nations’ inputs. Or the U.S. population may be older and less healthy. Or the U.S. system may have higher non-clinical costs such as overhead and administrative costs. Or some combination of all these factors may be at work.

As the next two graphs show, it’s pretty clear that we purchase neither more health nor better health with our extra spending (Kash showed this as well). While the general trends are in the right directions across all countries, the U.S. currently has a higher infant mortality rate and a lower life expectancy at birth than France, Germany, Japan, Canada, Sweden, and Australia. And so it has more or less been since at least 1970:

A final potential explanation for why we spend more on health yet have worse health outcomes is that Americans are intrinsically less healthy than citizens of other countries. For example, we may have more old people, smoke more, or have higher rates of obesity. An examination of these potentially confounding factors shows that we smoke the least and now have less people over 65 than any of the other nations I examined. Offsetting these factors, however, is the bad news that we are the most obese nation, with nearly 1/3 of the U.S. population having a BMI index over 30.

On balance, it’s probably close to a wash: we’re somewhat younger, and healthier in the very important smoking dimension, but less healthy in the also important obesity dimension. As a result, it is unlikely that the higher costs of healthcare in the U.S. are attributable to an intrinsically less healthy population.

Conclusion

We spend a lot more money on health care, both in absolute terms and as a percent of GDP. Where does the money go?

  • We don’t purchase noticeably more health inputs such as doctors and hospital stays.
  • We don’t have better health outcomes. In fact, we have the worst infant mortality and life expectancy numbers of all the industrial nations I examined.
  • And we’re neither more nor less intrinsically healthy than other countries.

While this is by no means a careful controlled study, nor even a regression analysis, application of Occam’s Razor and the process of elimination points to the two most likely explanations: high prices for healthcare inputs and significant inefficiencies in the transformation of those inputs into health outputs.

AB