U.S. Health Spending Is Not a Burden on the Economy

Special Publications | Health


Wednesday, April 20, 2016
by John R. Graham

Health spending consumes a higher share of output in the United States than in other countries. In 2013, its U.S. share was 17 percent. The next highest country was France, where health spending accounted for 12 percent of gross domestic product (GDP).

Executive Summary

Critics of U.S. health care claim this shows the system is too expensive and a burden on our economy, demanding even more government intervention. This conclusion is misleading and leads to poor policy recommendations. In fact:

  • Even after spending on health care, Americans have more income to spend on other goods and services than residents of almost any other developed country.
  • That is because spending on health care is a result — not a cause — of other economic activity.
  • Since 1960, the U.S. economy has outperformed all comparable developed countries except Norway and Switzerland with respect to economic growth, excluding the health care sector.
  • In most countries, individuals, rather than government, employers or insurers, pay for a significantly higher portion of health spending than patients in the United States.

From 1960 through 2013, the share of U.S. GDP allocated to health care more than tripled. However, this had no impact on the ability of the U.S. economy to deliver high GDP per capita, outside health care. Adjusted for purchasing power parity, in nominal dollars:

  • From 1960 through 2013, U.S. health spending increased $8,937, while GDP per capita increased $50,269.
  • Thus, GDP per capita available for other goods and services, after spending on health care, increased $41,332, or $780 per year.

Over these 53 years, only Norway and Switzerland increased their nonhealth spending GDP per capita more than the United States. Norway, which had become a petro-state due to revenue gushing from the North Sea oilfields, increased this amount by $57,981, which is $16,649 more than the United States, or $314 more in nonhealth care spending per year per person.

The Commonwealth Fund study also examined spending on social services as well as health services. This is reasonable, because social services can substitute for health services. When spending on social services is added to health spending as a share of GDP, the United States is no longer an outlier:

  • Spending 25 percent of GDP on social and health services, the United States ranks equally with Norway and below Switzerland, the Netherlands, Germany, Sweden and France.
  • Looking at income remaining after spending on social and health services, only the average
    Norwegian enjoys a higher GDP per capita 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 American and foreign health care differs. Whether the system is defined as “universal” or “single payer” may be less important than other characteristics in determining how the system performs.

With only 11.8 percent of health spending controlled by patients directly, the U.S. ranks ninth by this measure. 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.

Continue Reading