Health Care in The U.S. And The World, Part I: How much do we spend?

POST-AUTHORING NOTE: I see that while I was drafting this Kash wrote a great follow-up post with substantively similar content to this one. But perhaps my take on the issue or, failing that, my graphs, will still be interesting.

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Given that about one in seven dollars in the U.S. are spent on healthcare (and the popularity of Kash’s recent 100 comment post on the topic), I decided to take a closer look at how the U.S. compares to other nations. Most of the data underlying the following charts are taken from the OECD (www.oecd.org/health/healthdata and, in particular, the tables at OECD Health Data 2004 – Frequently Requested Data.)

There are several ways to look at the problem of health care spending in the U.S. The most obvious is how much we spend. Clearly, we all know by now that we spend a lot more on healthcare than other nations, about 50% more than any other industrialized nation, as the following set of graphs demonstrate. Given the interest in comparing France and the U.S. (CalPundit, Yglesias, Plumer), I’ve emphasized the series for these two countries. The U.S. is in red and France is black with red diamonds.

As is plainly evident, during the 1960s and even the 1970s we were still spending more on health, but at 7-9% of GDP we were in the same neighborhood as the rest of the industrialized world. Beginning around 1980, the rate of health care spending in the US accelerated, both in absolute terms and relative to other nations. The subsequent flattening out of healthcare spending in the US that started around 1990 is mostly attributable to the growth of managed care. If you look closely, you can also see the effect of the balanced budget act of 1997, which lowered Medicare reimbursement rates.

What accounts for the dramatic upsurge that started in 2001? That, of course, is rapidly becoming the two trillion dollar question. But first, a bit more on the components of healthcare spending.

The gap between the U.S. and other industrialized nations in this figure is most likely due to two factors: (1) about 60% of Americans have health insurance through their employer, and (2) the 40 million uninsured in the U.S. who presumably go without some services that in other countries would be paid for by the government.

Of course, if our government spends less, yet overall we’re spending more, then someone has to be paying. Guess who that is. (Hint: grab a mirror):

Of course, there’s nothing wrong in principle with spending a lot on healthcare, if we’re getting more for our money. For example, perhaps we have more doctors and hospital beds per capita, supporting the commonly held view that waiting times are quite long in other countries. Or perhaps we have better health than Europeans. Ok, Kash showed the other day that the U.S. doesn’t fare all that well on two metrics, life expectancy at birth and the infant morality rate. But perhaps after adjusting for factors such as obesity, smoking rates, and differences in age distributions we’ll find that the U.S. does better. Stay tuned.

Coming soon:

• Health Care in the U.S. and The World, Part II: What do we spend it on?
• Health Care in the U.S. and The World, Part III: What do we get for our money?

AB