Map of life expectancy at birth from Global Education Project.

Thursday, February 03, 2005

Drumroll, please . . .

Sorry to have kept y'all in suspense, I feel like the TV weatherman: "But will the storm affect us? Tune in at 11:00."

The reasons why we pay so much more for health care than the other wealthy countries do were reviewed quite comprehensively by Uwe Reinhardt, Peter S. Hussey, and Gerard F. Anderson in Health Affairs last year. I'm afraid I can't give you a link because it's subscription only, but here's the short version.

First, the comparison. This is done using so-called Purchasing Power Parity (PPP) dollars, which is just a fancy way of comparing costs across countries which is thought to be more accurate than using the currency exchange rate. The U.S. , in 1992, spent $4,887 per person on health care. Sweden came in second, at $3,322, or 68% of U.S. spending. Canada was fifth, at 57%, and Japan, a wealthy country with excellent health care, spent just 44% as much as we do per person. New Zealand spent 35% as much. Not only that, but the rate of growth in health care spending in the U.S. exceeds the overall rate of economic growth by much more than it does in other countries, so these disparities are just getting larger over time.

How come?

1) We are the richest country, so we spend more on everything. But, our actual spending on health care is still 42% higher than would be predicted just by our overall profligacy, and we aren't getting more for it -- our health status and life expectancy are poor compared to these other rich countries.

2) The other countries have much more concentrated market power on the purchasing side, either single payer systems or multiple payers who work within budgets established by governments (e.g., Germany). By driving a bargain, they get lower prices for drugs, medical devices, etc. Also, there is less overall economic inequality in those countries, so physician's salaries, like the salaries of business executives and financiers, are not as far out of line with most people's pay as they are here. That's actually not such a bad bargain for doctors, though, because their medical education is free and they don't have to pay back a quarter million dollars in student loans.

3) Admnistrative complexity. Because of our very complex system with each provider needing systems for billing dozens of different payers, and the payers having their own overhead and marketing expenses, etc., 24% of total U.S. health care spending was on administrative costs. Note that this is not because of our public insurance programs (Medicare and Medicaid). Administrative expenses for private insurance are 2 1/2 times as high.

4) Finally, and this is a small part of the total and difficult to quantify, there probably is somewhat less use of extremely expensive interventions that have a small payoff in the other countries. Here, as Reinhardt et al write, "neither private health insurers nor . . . Medicare and Medicaid appear to have any explicit guidelines on the maximum pricer per [Quality Adjusted Life Year]* procured through health care. . . . For low-income Americans without health insurance, there may well be much lower, haphazardly imposed implicit upper limits on the price per QALY that society is willing to pay on their behalf."

Can we afford to keep paying this much? The basic conclusion of Reinhardt and friends is that we're a rich country, the country as a whole can pay it if we want to, but low income people will increasingly either be deprived of health care, or impoverished by paying for it. In the Ownership Society, however, that's just too damn bad for them. They should have gotten rich, like self-made man George W. Bush.

* I discussed QALY's earlier. Basically it's a unit meaning a year of life adjusted for sickness and disability. It gets weird to think about life in dollar terms but it's unavoidable because that's what spending on health care is supposed to be buying us.

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