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It’s The Prices Stupid: Why the U.S. is so Different in Health Care from other Countries

It’s The Prices Stupid: Why the U.S. is so Different in Health Care from other Countries. Econ. 201 – Econ. Data Analysis. Major Point. The US is an outlier on spending, spending more than almost any other rich industrialized country

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It’s The Prices Stupid: Why the U.S. is so Different in Health Care from other Countries

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  1. It’s The Prices Stupid: Why the U.S. is so Different in Health Care from other Countries Econ. 201 – Econ. Data Analysis

  2. Major Point • The US is an outlier on spending, spending more than almost any other rich industrialized country • Yet the US gets little in measurable average health benefit for this extra spending

  3. Overall Spending • Look at the U.S. compared to the O.E.C.D. median in exhibit 1 • We are in GDP per capita, yet we spent more on health spending by both total amount and % of GDP • To see this graphically, look at exhibit 2

  4. Correlation Coefficient • In probability theory and statistics, correlation, (often measured as a correlation coefficient) , indicates the strength and direction of a linear relationship between two random variables

  5. Correlation Coefficient • The correlation is 1 in the case of a perfect increasing linear relationship, −1 in the case of a perfect decreasing linear relationship, and some value in between in all other cases, indicating the degree of linear dependence between the variables. The closer the coefficient is to either −1 or 1, the stronger the correlation between the variables. • If the variables are independent then the correlation is 0

  6. Correlation: Health Spending and GDP • In all of the OECD data for 2000 the correlation is .27 • If Luxembourg is eliminated, it goes to .56 • Many countries vary considerably in health spending, between GDP per capitas of $25k and $30k • You will see this in many health spending relationships: why?

  7. Health Production Function: Complex and Multivariable • Draw on board and explain the health production function • Probably not a surprise that rich countries are on the “flat” of this curve • U.S. is still an outlier though

  8. Not a New Phenomenon • Look at average annual growth columns in exhibit 1

  9. One big difference is % of health spending that is private • Define this. What is the alternative? • Notice it is high in the US, and some of the poorer countries in the data, Korea • But the amount of public dollars in health spending in US is about the same as other rich OECD countries and the OECD median

  10. Why? • #1) Not because the US is getting older • So are other OECD countries some at a faster rate than US • #2) Not because we spend such a high percentage of health care $ on pharmaceuticals • Others spend even more as (see exhibit # 3)

  11. Why do we spend so much, contd • #3) Not because our Health Care workforce is especially high • For various types of labor inputs supplied look at exhibit #4 • Note though “nurses per acute care bed” • #4) Not because our health care capital is especially high • For various types of non-labor inputs supplied look at exhibit #5 • Compare with Canada

  12. Continued… • #5) May be partly because we have more units of expensive technological equipment per capita • See exhibit #6 • Again compare Canada • Less capital intensive

  13. What is left as an explanation? • The authors point to higher prices per unit of medical service in the US • Higher salaries • Higher administrative costs of insurance • Higher cost of capital inputs • Compared to Germany in 1990: 40% more spending per capita in US, for 15% less real health care

  14. Why? • Less monopsony by purchasers in US • Disaggregated buyers • Many insurers for instance • More monopoly by suppliers in US • Concentrated providers • Largely national competitors • Though watch for Indian surgery and radiology soon • AMA, Med Schools, Hospitals, big pharma

  15. Continued… • #5) May be partly because we have more units of expensive technological equipment per capita • See exhibit #6 • Again compare Canada • Less capital intensive

  16. What is left as an explanation? • The authors point to higher prices per unit of medical service in the US • Higher salaries • Higher administrative costs of insurance • Higher cost of capital inputs • Compared to Germany in 1990: 40% more spending per capita in US, for 15% less real health care

  17. Why? • Less monopsony by purchasers in US • Disaggregated buyers • Many insurers for instance • More monopoly by suppliers in US • Concentrated providers • Largely national competitors • Though watch for Indian surgery and radiology soon • AMA, Med Schools, Hospitals, big pharma

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