U.S. Health Care Spending In An International Context

1. U.S. Health Care Spending In An International Context Uwe E. Reinhardt, Peter S. Hussey and Gerard F. Anderson Journal of Health Affairs Volume 23 , Issue 3, 10-25 link to article Presented by George Manev September 22, 2005

4. The authors suggest several reasons as to why U.S. health spending continues to soar out of control: • GDP per capita (the ability to pay) – “About 90% of the observed cross national variation in health spending across OECD countries in 2001 can be explained by GDP per capita.” • Administrative costs – A study by Woolhandler, Campbell, and Himmelstein estimated that about 24% of total U.S. health spending ($294.3 billion) is attributed to administrative costs to insurers, employees, and the providers of healthcare. (vs. 17% in Canada) • Competition for limited talent - Health professionals’ salaries are increasing to allow the field to compete with other industries relying on the same talent pool, such as law and finance. • Market power - The supply side of the health system has greater market power than the demand side, allowing prices to soar above the levels of other countries with single-payer or multipayer systems. (i.e: The strong “single-buyer” market power of the Canadian provincial health plans or the multipayer system in Germany, which bargains collectively with the providers of healthcare sometimes within government-set overall health budgets)

5. Unwillingness to ration health care – “A country’s health care system – especially its research and development (R&D) infrastructure – continually gives society the option of purchasing, through healthcare, additional quality adjusted life years (QALYs) at increasingly higher prices. Question: What should be the cutoff price for QALY, if any?

6. Health Care in the Macro Level and Conclusions • Actuaries at the Centers for Medicare and Medicaid Services (CMS) report that the United States spent an estimated $1.5 trillion on health care in 2003 (or 14.9 percent of GDP). They project that by 2013 the U.S. will spent about 3.36 trillion on health care (or 18.4% of GDP) • The U.S. could easily allow spending to continue to grow more rapidly than GDP for a while. However, the authors are concerned that a trend such as this could price low-income Americans out of health care. If premiums grew at the rate of 10 percent per year for the next decade, as they have been for the past couple of years, Reinhardt and colleagues predict that typical family health coverage would absorb 42% of an annual wage of $50,000. • Two potential outcomes are given by the authors to this problem. One is to develop a new method of financing health care that would spread costs more evenly across society. A second is to adhere to the multi-tier system now in place, in which a person’s health care experience would vary based on their income level. Under such a system, the authors note that affluent families would have a much better health care experience than those with less income.