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US Health Care Still Radically More Expensive Yet Not More Effective

Health care costs in the United States continue to radically exceed those in any other industrialized nation, yet we don’t get better health care outcomes as a result; this, a basic finding of a new report from the Commonwealth Fund. The report found that in 2009 the United States spent nearly $8,000 per capita. That is a third more than the second most expensive countries, Switzerland and Norway, and roughly twice the amount your average industrialized nation spends.

While some try to blame the incredibly high cost of American health care on having an unhealthy population or using too much health care, the fact is America is relatively young and has extremely low smoker rates. In addition, Americans don’t use much care relatively speaking. From the Report:

Another commonly assumed explanation for higher U.S. health care spending is that the utilization or supply of health care services in the U.S. must be greater than in other countries. OECD data suggest, however, that this  assumption is unfounded, at least when it comes to physician and hospital services. There were 2.4 physicians per 100,000 population in the U.S. in 2009, fewer than in all other study countries except Japan. Likewise, patients had fewer doctor consultations in the U.S. (3.9 per capita) than in any other country except Sweden (Exhibit 4).

Hospital supply and use showed similar trends, with the U.S. having fewer hospital beds (2.7 per 1,000 population), shorter lengths of stay for acute care (5.4 days), and fewer discharges (131 per 1,000 population) than the OECD median (Exhibit 4).

The other commonly cited false idea that the United States’ problem is that it uses a fee-for-service payment model simply doesn’t hold up to a basic international comparison.

As the lowest-spending nation in this study, Japan offers an interesting contrast to the U.S. In some ways, the two countries’ health systems share similar features. Japan operates a fee-for-service system, characterized by unrestricted access to specialists and hospitals.17 Advanced medical technology also appears to be widely available, with Japan having the most CT scanners and MRI machines among the countries in this study. Yet health spending in Japan as a share of GDP has increased by only 2 percentage points in the past three decades, compared with an increase of more than 8 percentage points in the U.S. over the same period.

Notably, the Japanese do not restrain spending by restricting access; rather, they do so by aggressively regulating health care prices. Every two years, a panel of experts uses volume projections to revise the national fee schedule, which determines the maximum prices for nearly all health services, to keep total health spending  growth within a target set by the central government.

Basically the primary reasons health care spending is radically higher in the United States is the that we are charged radically more for the same basic health care goods and services.

According to an analysis by Gerard Anderson of IMS Health data, U.S. prices for the 30 most-commonly prescribed drugs are one-third higher than in Canada and Germany, and more than double the prices in Australia, France, Netherlands, New Zealand, and the U.K. […]

In an analysis published in Health Affairs in 2011, Miriam Laugesen and Sherry Glied found U.S. primary care physicians generally receive higher fees for office visits and orthopedic physicians receive higher fees for hip replacements than in Australia, Canada, France, Germany, and the U.K.

The issue is not that Americans are dramatically unhealthier than the rest of the world, we actually have a relatively young population. The issue is not that we are using too much care, we use comparatively little. The problem is not that our payment model inherently makes spending higher. The simple problem is that our government, unlike almost all other first world governments, allows health care companies with incredible market power to rip off both public and private consumers. If we want to bring down costs the answer is simple, we need to adopt one of the standardized price control systems proven to be effective in the rest of the first world.

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Jon Walker

Jon Walker

Jonathan Walker grew up in New Jersey. He graduated from Wesleyan University in 2006. He is now living in the Washington DC area. He created a politics and policy blog, The Walker Report (