08 October 2010

Why do we spend too much on Health Care?

Aaron Carroll over at The Incidental Economist has been running an excellent series on health care spending in the US, and how much more we spend than the rest of the world, on a per capita basis, as a percentage of GDP, and by category.  It's an excellent series and I wholly recommend it.

Summary graph:

Hint: the US is the lavender-ish line on top.  As he says, is there anything about this graph that isn't concerning?

Also, here's a fun interactive tool which shows the same basic thing.  Not that we didn't know that we spend tons more than everybody else on health care.  That fact has been beaten into our heads over and over recently. What we want to know is why do we spend so much more than everybody else, with an eye to what we can do to bring the escalation of costs under control.

So his conclusion?  As the kids say on The Facebook, "It's complicated."

It's not obesity.
It's not Pharma's fault.
It's not the trial lawyers.
It's not overpaid doctors.
It's not the insurance companies.

It's all of these and more.  It's that every element of our system costs more. All of these factors feed into the extra 7% of GDP that we spend on health care. Doctors do make more in the US -- but physician salaries are only a small slice of the excess spending:

The depressing conclusion I reach when I look at these numbers is that any sort of a fix for this in our professional lifetimes has become vanishingly small.  The Affordable Care Act may make some small inroads into cost containment. Emphasis on "may" and "small." It certainly does not do enough.  And after the rancid demagoguery from conservatives during the health care debate, and the price democrats are set to pay at the polls next month, what is the likelihood any politician will tackle this issue again during the next decade?  And this was a modest, moderate set of reforms patterned along the lines of those previously advocated by conservatives.  We need sweeping change, and we got baby steps and half-measures.  Worse, the republicans actually want to repeal the small improvements that PPACA makes. We need to fix, improve, and expand on the health care reforms, but the party (likely) in power wants to go in exactly the opposite direction.

Sigh.  We're so screwed.


  1. Well, there are facility wars: Hospital X just built a new tower, all single-patient rooms, faux wood floors, pianist in the lobby a la Nordstrom, an espresso bar, all the latest and greatest equipment (CT, MRI, PET scanners, surgical robots and lasers, proton beam therapy machines, etc.)

    So, every other hospital in the area has to meet or beat what Hospital X just put in. And everyone has to advertise they've got all this junk and "won" all of these "awards" to entice people to go to their place rather than to another facility. Same goes for large group multi-specialty practices.

    So, spending on sunk costs needs to be recouped - you have to figure somebody did payback period calculations for all that stuff, and determined how much to charge. Of course, with the zillion variations of negotiated rates, it's pretty difficult to get a true handle on it, so throw in a little fudge factor.

    As for pharma - DTC ads drive patients in to ask the doctor, and generic manufacturers are raising prices in anticipation of health care reform (this is what I was told by the pharmacist when I asked about $20-25 increases on a couple of generic scripts I recently had filled at Costco). These aren't big name drug companies, nor are the drugs exotic (90 day fills of Li extended release and Adderall).

    Then there are the newly uninsured, those whose physicians no longer accept Medicare and can't pay cash - is it likely these people end up at the ED, with the cost of their care subsidized by multiple parties, yourself included?

    There's more, but others can have a shot at it...

  2. The bible on the subject of health care cost is here: http://ww1.mckinsey.com/mgi/reports/pdfs/healthcare/US_healthcare_report.pdf

    It is across the board.

    Shadowfax, after a year of snarky articles on "look how much profit the insurance companies make" it's nice to see you at least try to get educated here.

    And yes, your swanky new facility that you are so proud of is a bigger driver than the insurance companies. The first anonymous nailed that.

    If you want to be equally shocked, look at how much the US spends on education versus other countries. We bury them in education spending. And yet our results are quite a bit worse.

    At least with health care, our results for bad illnesses are quite a bit better that the rest of world.

  3. 'At least with health care, our results for bad illnesses are quite a bit better that the rest of world.'

    I'm afraid they probably aren't - the cancer stats for example are biased owing to aggressive and unnecessary screening, unrepresentative and not universal registry data, and other factors.

    And in for chronic disease management such as diabetes we are way down the list.


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