The Final Cost of Health Care and the Grocery Store

Economists often explain high health care costs by comparing the selection of food at the grocery store when someone else is paying. The analogy still works but with a twist. Reported in a recent medical journal, Harvard researchers looked at health care spending here in the U.S. compared to the 10 next highest income countries of the world. They found that, in 2016, we spent almost 18% of our gross domestic product (GDP) on health care. Spending was much less for other countries, ranging from about 9.5% in Switzerland to 12.5% in Australia. That’s a significant difference!

Most surprising was that the problem in the U.S. did NOT appear to be from overutilization (getting too much care) as many have previously thought. Overall, people in the U.S. saw the doctor and were sent to the hospital about as frequently as people from other nations. The quality of the care received was also comparable. The study group also noted that our ratio of primary care doctors to specialists was similar, as were the number of specialist referral rates. The study found that, in the U.S., there was an overuse of expensive image testing and many more specific surgical procedures (60% more CT scans performed than the average of the other countries; 45% more MRIs; 38% more total knee replacements; and 32% more C-sections). Still, these accounted for only a small part of the large difference in spending. This was partly because, in the U.S., we sent people home from the hospital a little sooner than in other countries.

The rate of poverty was found to be higher in the U.S. than in other wealthy nations, and only 90% of our people were insured compared to 99-100% in all the other 10 countries. Those are big problems and could partially explain the high cost of health care here. However, the research suggested that higher U.S. health care spending stems mostly from the complexity of our payment system. This has resulted in high U.S. administrative costs (8% GDP vs. 3%), the higher price of hospitalizations, procedures, doctor visits, as well as the price of drugs. For every U.S. dollar equivalent Europeans spent on drugs, we spent $2.50 for the same drugs. For every dollar equivalent Europeans spent on angiograms, we spent $5.25 for the same procedure. Going after overutilization will likely not help much. It’s the price of things that matters the most.

It would be like going to your grocery store and finding the cost of milk is more than twice as high as the store on the other side of town, because payment for milk here comes NOT from you, the consumer, but rather after bargaining between your employer, their chosen insurance company, the government, the dairy, and the grocery store. It’s time to simplify!