NCPA - National Center for Policy Analysis


January 12, 2009

What really drives health care spending in the United States?  According to the McKinsey Global Institute, the reason is that Americans receive more costly medical services than do other peoples, and they pay more for them.

For example:

  • On a population-adjusted basis, the number of CT scans in 2005 was 72 percent higher in the United States than in Germany; U.S. reimbursement rates were four times higher.
  • Knee replacements were 90 percent more frequent than the average in other wealthy countries.
  • In 2005, there were 750,000 knee and hip replacements, up 70 percent in five years, reports the journal Health Affairs.

We have a health care system that reflects our national values, says columnist Robert J. Samuelson.  It's highly individualistic, entrepreneurial and suspicious of centralized supervision.  In practice, Medicare and private insurers impose few effective controls on doctors' and patients' choices.  That's the way most Americans want it.  Patients understandably desire the most advanced surgeries, diagnostic tests and drugs.  Doctors want the freedom to prescribe. 

Open-ended insurance reimbursement encourages expensive medicine by making it easier to recover the costs of clinical advances, says Samuelson: 

  • Economist Amy Finkelstein of the Massachusetts Institute of Technology has estimated that roughly half the real increase in per capita health spending from 1950 to 1990 reflected the spread of comprehensive health insurance.
  • In 2006, consumers' out-of-pocket spending represented 13 percent of total health spending, down from about half in 1960.

Unfortunately, says Samuelson, this semi-automatic system may now frustrate other national goals by displacing other spending and spawning ineffective or unneeded care.

On paper, explains Samuelson, there are various ways to control health spending: stricter regulation of prices and the availability of care; "market mechanisms" to push consumers toward more efficient or skimpier care.  All have foundered, because they cannot be used aggressively.  The reason is politics.  There is no major constituency for controlling spending.  Because most patients don't pay medical bills directly, they have little interest in using less care or shopping for lower-priced services.  Providers (doctors, hospitals, drug companies) have no interest in limiting care. What others call "health costs" are their incomes -- wages, salaries, profits.

Source: Robert J. Samuelson, "Obama's Health Care Headache," Washington Post, January 12, 2009.

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