Why does the U.S. spend more on health care than other countries?

A paper in JAMA by Papanicolas, Woskie and Jha (2018) try to answer the question.  One reason could be that Americans are less healthy than people in other countries.  On the one hand, Americans do have the highest rate of obesity in the world; on the other hand, smoking rates are among the lowest.

Another explanation could be that we use more medical goods and services.  This turns out not to be the case.

The US did not differ substantially from the other countries in physician workforce (2.6 physicians per 1000; 43% primary care physicians), or nursing workforce (11.1 nurses per 1000). The US had comparable numbers of hospital beds (2.8 per 1000) but higher utilization of magnetic resonance imaging (118 per 1000) and computed tomography (245 per 1000) vs other countries. The US had similar rates of utilization (US discharges per 100 000 were 192 for acute myocardial infarction, 365 for pneumonia, 230 for chronic obstructive pulmonary disease; procedures per 100 000 were 204 for hip replacement, 226 for knee replacement, and 79 for coronary artery bypass graft surgery).

A third option is for that the prices of the health care goods and services we use may be higher than those of other countries.  This does indeed turn out to be the case.  In particular, administrative costs in the U.S. are 8% of health care spending whereas most other countries have administrative costs of 1%-3%.  Administrative costs could represent waste, but they also could be a symptom of more competition across health plans and potentially more effective treatment targeting.  In addition, costs for providers and pharmaceuticals are higher in the U.S. than elsewhere.

For pharmaceutical costs, spending per capita was $1443 in the US vs a range of $466 to $939 in other countries. Salaries of physicians and nurses were higher in the US; for example, generalist physicians salaries were $218 173 in the US compared with a range of $86 607 to $154 126 in the other countries.

One solution to this ‘problem’ would be to cut prices of pharmaceuticals as well as physician salaries.  However, higher pharmaceutical prices have incentivized more innovation.  As the Council of Economic Advisors writes, in fact other countries may be free-riding on American generosity and the solution may be a mix of (i) faster approval of generics after patent expiration and (ii) making other developed countries pay their fair share of pharmaceutical prices.  Additionally, lowering physician wages would save cost, but physician quality would also fall as the most highly intelligent individuals may leave for careers in technology, finance, or other areas.  In addition to potentially lowering quality, reducing physician compensation could lead to a physician shortage if physicians exit the market.

While the results of this study ultimately depend on the reliability of the cross-country data used, it is interesting to decompose how health care spending differs across countries.

 

Source:

from Dental Tips http://healthcare-economist.com/2018/03/13/why-does-the-u-s-spend-more-on-health-care-than-other-countries/

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