A Quick Thought on Health Care

It is often said that one of the "problems" with American health care is that we spend far more on health care as a percent of GDP than other nations.  But why is this necessarily a problem?

The US is the wealthiest nation on Earth, top to bottom.  At every level of society, except perhaps for a few recent immigrants, people in this country are wealthier than their peers in a similar income quintile in another country, even Europe.  So it is not surprising that basic needs, like food and housing, might represent a smaller percentage of GDP here than in other nations.  Despite all the efforts of McDonalds and the Country Buffet to change things, there is only so much food we can consume, only so much living space we need, only so many cars we can drive at one time.

As these basics fall as a percentage of our income, something must gain.  It could be savings, but it could also be other spending where incremental outlays return percieved incremental benefits.  And so, why not health care?  What could possibly be more important than extension of our lives and/or the improvement of the quality of our living?  If we as a nation choose to spend our extra wealth on such things, is this really a bug, or a feature?

Update: Yes, I know, the problem is that we aren't really always able to make this decision as individuals optimizing our own tradeoffs.  We are too often forced to accept someone else's tradeoff.  Unfortunately, this problem is only going to get worse under any plan Congress is currently considering.  Someone else who is not you and doesn't even know you will decide how much a procedure is worth for you.

  • http://theunbrokenwindow.com wintercow20

    This is exactly how I explain what is going on in higher education (primarily at least, other factors are important, such as accreditation, non-profit status and the prevalence of 3rd party payers and interests ... sounds familiar).

    Enjoy London!

  • sethstorm


    This is exactly how I explain what is going on in higher education (primarily at least, other factors are important, such as accreditation, non-profit status and the prevalence of 3rd party payers and interests … sounds familiar).

    Hardly the case, you just want to make it more inaccessible to US citizens.

  • danny

    You forgot to mention that other countries spend less than ours as a percent of GDP, but they almost unanimously conclude that they don't spend enough.

    Why should we benchmark our expenditures against countries that feel that their healthcare is rationed too much?

  • Michael

    It would be interesting know what England's and Canada's health care costs would be without the rationing and do they include health care expenditures by their citizens that take place outside of their borders.

    Also, does Canada and the UK pay the full cost of drugs. I've read that they pay manufacturing costs plus profit but in the US, we pay theses costs plus R&D costs. Are Americans footing the R&D costs for the worlds drugs?

  • Allen

    That's the core problem of the whole debate. Hardly anyone seems to be doing anything other than assuming we're spending too much. If everyone else is buying a Yugo, it doesn't mean you're spending too much in getting a Camry, does it? Yet that seems to be the claim out there.

    What we need to look at is not how much we spend but what the outcomes of that spending are. And, IIRC, even the WHO ranks the US #1 in a bazillion different categories for outcomes. This is the place to be if you have heart trouble, cancer, a bad knee, et al.

  • hoads

    It should also be noted that our national health expenditures is the aggregate of all we spend on healthcare---not just medical care. So, for instance, there's a line item for Structures and equipment which includes capital buildings such as medical offices and other structures used to deliver health services. We also have the highest expenditure for Research, including NIH, CDC, healthcare research in other government programs and academic centers. The medical liabilities associated with home and car insurance is included in our national health expenditure as is, of course, the liability, malpractice premiums for healthcare providers. All of our over the counter drugs, vitamins and other drug store purchases are included. Dental care is included. And everything we spend on what I refer to as "discretionary medical spending" which includes items such as cosmetic dentistry, cosmetic surgery, cosmetic dermatology, LASIK surgery, optometrists & eyeglasses/contact lenses, childbirth classes, psychological consults for private school admissions, school sports physicals, vasectomies, professional, college, high school sports teams doctors and physical therapists, sports training by physical therapists, marriage counseling, psychotherapy, all kinds of "alternative health care providers" including naturopaths, acupuncturists, massage therapy among others.

    And, because we have the one of the highest disposable incomes per capita in the world, we have more money to spend on such healthcare.

  • NormD

    You are ignoring efficiency. If we spend more because we get more procedures then your argument makes some sense, but if we spend more for the same procedure then we are losing money. I have heard multiple times (ex: WSJ) that going overseas to have a operation by US-trained doctors in a world-class facility costs one tenth as much in the US.

    I have worked in high-tech for a long time. When overseas contractors could deliver products and/or services at substantially reduced costs and the same quality, etc. the jobs went overseas.

    This is very basic economics. As the world gets richer, people overseas will want the same lifestyle as Americans. That includes the same medical procedures. But people overseas cannot afford to pay what we pay. A native industry will develop to deliver these services to the locals at a cost they can afford and Americans will take advantage of these services, thus driving costs down everywhere.

  • Dr. T

    It hardly matters what percentage of GDP is due to health care spending. What's important is that health care spending be efficient. Unfortunately, it isn't. Much money is wasted due to a combination of marginally competent clinicians, easy access to many diagnostic techniques (including expensive ones that often add little new information), and over-prescribing of the newest, most expensive drugs that physicians and pharmacists have the least experience with. People pay almost nothing out-of-pocket for health care, so there is little pressure to reduce charges and avoid unneeded testing and procedures.

    That all sounds bad, but overall most of us get useful health care. Other countries have inefficiencies, too, and their overall outcomes are worse than ours. I'm just an idealist: I want to move towards more cost effective care by trading comprehensive health insurance for catastrophic coverage with out-of-pocket payments. When people are directly paying for office visits, lab tests, CAT scans, echocardiograms, etc., they will negotiate prices and avoid unneeded costs.

  • silvermine

    Yes, we pay more for drugs, because other countries set artificial limits on what they will pay. So yes, we subsidize the world and pay much higher.

  • Andre Kooy

    Please quote your sources that the US is still the wealthiest country on Earth in every quintile? Please compare Luxemburg and Norway with the US. GDP/capita in Luxemburg is almost double the US. What do they spend on healthcare?

  • frankania

    Here in Mexico (where many USA people come for dental and medical care) we have many medical doctors who have SECOND JOBS, in order to live well. In other words, being "doctor" doesn't mean "rich" as in USA.
    Mexico has too many doctors and not many lawyers (legal suits are rare here).
    What no politico has ever said, is that the USA should open its doors to ANY qualified doctors from abroad and let them compete mano a mano--and limit ligigation awards in lawsuits. Those 2 things plus fewer third-party payers,
    would lower costs immensely, AMA be damned.

  • The other coyote

    I've been to a hospital in India. The doctors may be talented, but the level of sanitation and comfort for the patients is not so good. Reminds me of the old "wards" you see in old war movies. If your family doesn't come take care of you (basically serve as your nurse and food supply), you're pretty well toast.

    We do live a lot better than the rest of the world. My mother could have limped along with her worn out knees until she died, but replacing them will give her a much better existence for the last 10-20 years she probably has on this earth. If she lived in most of the rest of the world, she probably would have had to suck it up.

  • Will H.

    Dr T. said
    "People pay almost nothing out-of-pocket for health care, so there is little pressure to reduce charges and avoid unneeded testing and procedures."

    Not true in many case. My health care plan at work cost me $907.60 as my cost for the plan and that's just me. We have a $2000 deductible per year, and a 20% copay for prescriptions with a $2600 max deductible per year. As a diabetic of 25 years my out of pocket prescriptions per month is $203. With two trips to the emergency room this year, a liver biopsy, and scoping a knee, plus office visits and blood testing I will reach the $2000 deductible. So my out-of-pocket cost for this year is for medical is projected to be at least $5437.60.

    Also dental work has cost me $1200 for my out-of-pocket expense this year so far. I had bridge work done.

    Now some of the money is before taxes, i.e. $907.60 my cost for plan enrollment and I put the max of $4000 in an health reimbursement account. But still $6637.60 is not almost nothing for me.

    Also I don't want to hear from people that diabetics is my fault because of my life style. My grandfather had it, my father had it and now me. I was up and on the road riding my bike at 5:30 AM this morning and have ridden 29,584 miles so far this century to combat my disease.

    The ones who don't pay are the poor (government pays) and the people who goes to the ER and then ignore the bills.

  • Mark

    One of the most positive impacts that government can have on health care is to create subsidies for people with diseases like diabetes and asthma. These people should have access to the same cost/quality of health care that other people have.

  • Will H.

    Mark

    I can't speak for other diabetics but as for me I don't need a subsidy from the government to get quality health care. Sure I was bellyaching about how much I was paying in my health care but that because I work for a cheap company, (don't tell me to look for another job, I am and I also don't want to move because of my grand kids, my house and my church).

    I get quality health care and live a normal life. Also my Dad and Grand father also didn't need a subsidy for quality health care. My grand father made it to 90 and my dad to only 82 but his problem was he fell, hit his head and that caused a stroke that made him bed fast.

  • me

    The typical criticism I read of US healthcare is that the cost per equivalent procedure is much higher than in comparable countries, and the objective results (infant mortality, stroke survival etc.) are much worse. http://staringatemptypages.blogspot.com/2009/06/health-care-us-vs-canada.html cites a few striking numbers (administrative overhead being the most interesting to me), but I am not sure how far to believe those.

    From personal experience with health care in Germany, France and China, I can say that the quality of care was better in each of those countries than what I get in the states, while prices were substantially lower. Then again, those are mostly simple consultations and broken bones.

    One note on "people are richer in this country...": again, from personal observation, people in comparable countries in Europe (and China!) experience a higher quality of live. The benchmarks I am looking at are free time, quality of housing (the US has some of the smallest, least well furnished homes I've seen in developed countries, except in the case of the extreme rich) and quality of leisure time. It is a comfortable belief to assume we have a comparably high standard of living here, but in my personal mirage we're good, not great.

  • Mark

    " can’t speak for other diabetics but as for me I don’t need a subsidy from the government to get quality health care"

    If you had to get an individual policy you might think differntly. Unlike expensive group policies an insurance company can apply underwriting standards and reject applicants or force them to pay higher costs because of their preexisting conditions.

    I really believe that the governments true role in health care should be as an insurer of last resort.

    "The benchmarks I am looking at are free time, quality of housing (the US has some of the smallest, least well furnished homes I’ve seen in developed countries, except in the case of the extreme rich) and quality of leisure time"

    I guess if you use such selective benchmarks. But then again, this shows the danger of using personal anectodal evidence to make your conclusions. For example, when considering size of housing, the poorest quintile of the US population has as much square footage of housing as the AVERAGE Western European. And, frankly, you cannot be arguing that the housing situation in Europe is better? That is ridicilous. If you look at the equivalent housing situation in the US and Europe you will find that that it is better here.

  • DKH

    "If you had to get an individual policy you might think differntly. Unlike expensive group policies an insurance company can apply underwriting standards and reject applicants or force them to pay higher costs because of their preexisting conditions."
    -Mark

    A group's conditions are most likely considered in underwriting the group's health insurance plan. At least, they were where I worked. It would be silly to disregard that information if it were legally available. So maybe the group is paying for your diabetes, but you're paying for someone else's high blood pressure or cholesterol, and so on.

    And that's really what insurance is: a method to voluntarily spread costs through the group. The government wants to make it not so voluntary.

  • Mark

    "A group’s conditions are most likely considered in underwriting the group’s health insurance plan. At least, they were where I worked. It would be silly to disregard that information if it were legally available. So maybe the group is paying for your diabetes, but you’re paying for someone else’s high blood pressure or cholesterol, and so on.
    And that’s really what insurance is: a method to voluntarily spread costs through the group. The government wants to make it not so voluntary."

    1. Exactly. THe risk of the group is spread across the entire group and all share equally. But if you have an individual plan the risk is only spread to you. In general, a group policy is more expensive for healthy people and less expensive for less heathy people. That is, for healthy people I can virtually guarantee that you can get an individual plan that is cheaper, at least on a pre-tax basis. And, likewise, I can virtually guarantee that if you are a person with a health problem like diabetes or asthma that you will find an individual plan almost impossible to get or to be quite expensive.
    .

    2. One of the main differences between a group policy, such as one you get from your employer, and an individual policy is that as an individual the insurance company can deny you coverage.

    3. One of the drawbacks of having a group policy for your insurance is that if you are no longer part of the "group" you will no longer have insurance (save the COBRA arguments because that is a technicality).

    Using this information above, one of the key claims you make is not true for a "group" policy: that is, it is not a voluntary sharing of risk and spreading the cost. It is a forced accomodation between your employer and you that only makes sense because you are getting a significant piece of your compensation tax free.

    To "solve" the health care "problems" in the United States is actually a very simple solution.

    1. Remove the tax free status for employer provided health insurance.
    2. Give a tax credit or deduction for all families for their health insurance that is tax neutral.
    3. Create a subsidy for people who have problems getting individual insurance because of chronic conditions.
    4. Create an insurance policy of last resort for those that cannot get individual plans on the market.
    5. Eliminate all regulations that prevent health insurance portability across state lines.
    6. Create wellness programs for people in poverty that gives a voucher for age specific health checkups, vaccinations, and maybe even dental care.

    By creating markets and creating choice we can get very cost effective types of insurance programs that people really need. THese markets will allow individuals to choose their own risk tolerances and needs. For example, if you are a retired person and live in MN and winter in Arizona or Florida you can pay extra, if you choose, for a policy that would allow you to visit in network doctors in both of those states. Or, if you are healthy you can choose a plan with a large deductible and save on your monthly expenses. THe market would create these products that people want. Right now, the "market" creates products that YOUR EMPLOYER or YOUR GOVERNMENT wants.

    By eliminating the link between a "group", i.e. generally your employer and by eliminating regulations we can also create true portability of your health insurance.

    Lastly, by creating smart government programs that help poor people and others considered high risk we can get them to play their true role in the health care industry.

  • DKH

    Mark:

    I don't see that you've shown group policies to be an involuntary spreading of risk. I have a choice of joining my group, or getting an individual policy, or not having insurance at all. None of those is a false choice; they are all viable choices for different people for valid reasons.

  • Mark

    " I have a choice of joining my group, or getting an individual policy, or not having insurance at all"

    But, 99% of the people who are members of a "group" are employees. Are you claiming that they have a "choice"? I guess they do if you include irrational choices.

    That is, it would be irrational for a person to refuse such a policy when they are getting health insurance subidized tax free from their employer. SInce in most cases this is the most economically rational choice to make then yes, I am claiming that they are involuntarily spreading their risk.

    If we removed the linkage of health "insurance" and employment then individuals would then be able to make true choices on risk, benefits, and costs. If we continue to link health insurance to employment, then the employees choices are constrained by what is offered by the employer.

  • DKH

    I'm still not seeing that group health insurance is involuntary. Certainly there exists an economic incentive to insure through an employer through the tax system. But what if one agrees to forego the health benefits of the company in exchange for a higher salary? Then the economic effects can be made more equal.

    But I don't think the economic incentive is so large that risk sharing through group health insurance is even de facto involuntary, much less technically involuntary.

    I'm not necessarily supportive of the tax deduction for employer-sponsored health insurance, but I don't think we're thinking about the same concept.