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

Explore why the U.S. spends more on health care but achieves less in measurable health outcomes compared to other countries. Discover the correlation between health spending and GDP, and the factors influencing high health care costs in the U.S. Uncover the impact of prices, salaries, administrative costs, and more on health care expenditure.

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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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