The U.S. Is The Third Lowest Health Spender Of 13 Developed CountriesCommentary by John R. Graham
October 28, 2015
Scholars affiliated with the Commonwealth Fund recently published another report in the Fund’s series of international comparisons of U.S. health care. These reports are always well received by the media, which run articles lamenting how expensive U.S. health care is, and how great a burden on the country. Encouraged by the Commonwealth Fund to conclude that the major difference between health care in the U.S. and other developed countries is that they have “universal” health systems, many reasonable people understandably conclude that such a reform could reduce the cost of U.S. health care.
This conclusion is way off-base. According to the report, U.S. health spending accounted for 17.1 percent of Gross Domestic Product (GDP) in 2013. France comes next, at 11.6 percent. In dollar figures, the U.S. spent $9.086 per capita, versus only $6,325 in Switzerland, the runner-up. (These prices are reported at purchasing power parity, which adjusts the foreign currency exchange rates for differences in cost of living.)
These results certainly invite us to question whether we are getting our money’s worth. However, it is not clear that this spending is a burden on the U.S., given our very high incomes. Table I shows that when we subtract U.S. health spending from our Gross Domestic Product (GDP), we still had $44,049 per capita to spend on everything else we value. Only two countries, Norway and Switzerland, beat the U.S. on this measure. In the United Kingdom for example, GDP per capita after health spending was only $34,863 in 2013. So, even though American health care is significantly more expensive than British health care, the average American enjoyed $9,185 more GDP after health spending than his British peer, and just under $6,000 more than his Canadian neighbor.
Indeed, there is good evidence that high GDP per capita is a cause of high health spending. David Cutler and Dan Ly have explained that physicians’ incomes are a major factor driving up U.S. health spending. The average U.S. specialist earned an income of $230,000 (2010) versus $129,000 in twelve other developed countries.
That is a dramatic difference, but it has little to do with health care per se. Rather, it is a specific case of the general distribution of labor income within a country. Overall, high-income earners in other developed countries earn significantly less than high-income earners in the U.S. Cutler and Ly define “high earners” as those in the 95th to 99th percentile of the earnings distribution. He shows that U.S. specialists earn 37 percent more than the average of these U.S. high earners. However, their international peers earn 45 percent more than their high-earning, non-physician, peers.
When an American physician laments the state of medicine, and encourages her child to become a computer scientist or investment banker instead, this is what she is talking about. So, it is highly unlikely that we could reduce U.S. physicians’ incomes, and maintain an adequate supply of them, without destroying the opportunity for Americans (and immigrants) to earn high incomes in lots of different fields.
Further, the Commonwealth Fund scholars examine spending on social services as well as health services. This is reasonable, because social services can substitute for health services. However, when spending on social services is added to health spending as a share of GDP, the U.S. is no longer an outlier. Spending 25 percent of GDP on social and health services, the U.S. ranks equally with Norway and below Switzerland, the Netherlands, Germany, Sweden and France (Table II). When we look at income remaining after spending on social and health services, only the average Norwegian enjoys a higher GDP than the average American. The average Frenchman has almost $15,000 lower GDP, after social services and health spending, than the average American.
Finally, we need to understand all the ways in which U.S. and foreign health care differs. Whether the system is defined as “universal” may be less important than other characteristics in determining how the system performs. Table III ranks 13 developed countries by the share of health spending that is controlled directly by patients (out-of-pocket) versus the share controlled by third-party bureaucracies, either private or public. With only 11.8 percent of health spending controlled by patients directly, the U.S. ranks ninth in this measurement. Swiss patients directly control over one quarter of their health spending. Even Canadians, who live under a tightly closed, government monopoly, so-called “single-payer” system, control a somewhat higher share of their own health spending than Americans do.
Increasing the share of health spending controlled directly by patients is important to motivate prudent, cost-conscious choices and reduce the burden of bureaucratic interference in medical decisions. Yet, the Commonwealth Fund also asserts “underinsurance” is a growing problem in U.S. health care. Given these international data, that conclusion is unwarranted.
Improving U.S. health care by learning from other countries is important, but simply imposing a government-run “universal” health system here would ignore more valuable lessons from abroad.
John R. Graham is a Senior Fellow at the National Center for Policy Analysis and Co-Organizer of the Health Technology Forum: DC. His research is collected at JRG Health Sector Analysis.