Part 4: Why National Wealth Doesn’t Buy National Health

Pitting America’s medical system against ten of the best can help us solve our spending puzzle. Here are 5 key pieces.

In Part 3 of The Bargain we saw that the United States spends twice as much per person on health care compared to most other wealthy countries. And it’s not all private money. Nearly 1-in-4 government dollars is spent trying to keep Americans alive and well. This makes our health care system the single largest contributor to the national debt.

Yet we also learned that our system performs terribly in global comparisons. We rank 36^th in life expectancy, and 29^th in access to quality medical services. Americans die at a much higher rate than citizens in other wealthy countries from illnesses that modern medicine knows how to fix. 

Why doesn’t all this money buy us better care?

A 2018 study in the Journal of the American Medical Association (JAMA) compared our system to that of ten other wealthy countries and came to some startling conclusions about what is (and isn’t) driving up costs.¹

Here’s what they found:

1. Expensive doctors.
2. Med school debt? Yes and no.
3. For-profit medicine? No and yes.
4. The admin costs generated by an 880-payer system.
5. Drug prices (of course).

Before we dive into the 5 big reasons why we end up pouring so much into our system, let’s take a closer look at how much we get out of it compared to other countries.

Health care is killing us.

No two countries do health care the same. Of the 11 countries in the JAMA report, only 3 (UK, Sweden, and Denmark) feature completely state-run systems where the government not only pays for the care but also delivers it. Closer to the US model, the Dutch and Swiss systems are a mixture of mostly private health providers reimbursed by mostly private insurance companies. The rest (Germany, France, Canada, Japan, and Australia) fall somewhere in between.²

It is not private insurance per se, or even for-profit medicine, that sets the US health care system apart from these others.³ What sets us apart is that, by almost any measure, these systems all deliver better public health outcomes than ours.

What sets us apart is that, by almost any measure, these systems all deliver better public health outcomes than ours.

Despite the fact that the US has some of the lowest rates of smoking among the eleven countries in the JAMA study, and only moderate levels of drinking, America comes in dead last in most rankings of public health. Of the determinants of health listed in the study, only obesity stands out as a major explanation for why we perform so poorly in rankings of public health outcomes. Many more Americans, 70 percent of US adults, are clinically overweight or obese.

We will explore the causes and consequences of obesity in Part 5. But for now lets turn to two proxies for public health: Life expectancy and maternal and infant mortality.

At 83.9 years, Japan boasts the longest life expectancy in the comparison. Several European countries are close behind, though. And all of them manage to achieve more than 80 years of life expectancy. In contrast, average life expectancy in the US is only 78.8 years.

The story gets even more distressing when you turn to maternal and infant health. Here the US ranks last (first) in terms of infant and neonatal mortality (that is, infant death within the first 4 weeks). We rank second-to-last in terms of low birth weights. But perhaps the most jarring figure of all is the rate of maternal mortality in America.

But perhaps the most jarring figure of all is the rate of maternal mortality in America.

For every 100,000 live births, an average of 26.4 American women die from complications related to their pregnancies. By comparison, maternal mortality across all 11 countries in the study averages only 8.4 women per 100,000. Expectant mothers in America are more than 3 times more likely to die from these complications.

Whether through government-run health care systems, models based primarily on private insurance, or some hybrid of the two, all of these countries deliver markedly better public health outcomes compared to the US.

To make matters worse, this broken health care system is plunging America into bankruptcy.

Health care costs are killing us, too.

According to a 2019 study in the American Journal of Public Health, more than half of all Americans who filed for bankruptcy between 2013 and 2016 listed medical expenses as a specific cause. When you combine that with those who missed work due to a health condition, the number climbs to two-thirds. Such studies may understate how other financial circumstances contribute to bankruptcy.⁴ But even in those cases, medical expenses are often the final straw.

The same is true at the national level. In Part 2 of The Bargain, we saw that America spends more on health care (24.4%) compared to any other public spending category. At $5,380 per person, this works out to be about 1.7 times more than what governments in Sweden or Japan spend on health care.

Another alarming fact from Part 2 was the rising cost of servicing our national debt. At the federal level, interest payments on the debt consumed 14 cents out of every taxpayer dollar in 2017. And in the wake of the Trump administration’s most recent tax cuts, it’s probably going to get worse.

If you worry about debt and deficits in America, you have to worry about why health care is so expensive.

If you worry about debt and deficits in America, you have to worry about why health care is so expensive.

Five Reasons Why

Here are five takeaways from the JAMA report–factors that explain why health care costs so much more in the US compared to everywhere else.

1. Expensive Doctors.

It comes as no surprise that American doctors make a lot more than the average American worker. Among them, specialists are paid 5.3 times the average national wage. General practitioners, in turn, make 3.6 times the national average.⁵

But this wage premium enjoyed by US physicians is much larger than that of their European and Japanese counterparts. The average wage difference for specialists across all 11 countries in the report is only 3.7 times the national average to our 5.3x. For generalists, 2.7 times the average to our 3.6x.

Just comparing physicians’ salaries across all 11 countries, at $218,173 per year generalists in the United States make twice as much as their average counterpart.

2. Med School Debt?

We often hear that US doctors have to make more money because, unlike doctors in other countries, most of ours go into massive debt in order to pay for their training. This begs a question:

How much do you have to borrow to go to medical school, and what does it take to pay off that debt?

According to the American Association of Medical Colleges, in 2018 the median debt burden for a graduating medical student broke $200,000. That’s a lot of money.

Yet even if you factor in an American doctor’s out-of-pocket costs for paying off med school, this only accounts for about 20 percent of the higher wages US doctors are paid as compared to their counterparts in other countries.

“Some of the differential observed in cost between physicians and nurses in the United States and in the other countries may reflect differences in productivity or the extent to which training costs are borne by the individual, although in either case it is unlikely to account for the magnitude of the difference. In 2011, Laugesen and Glied estimated that the investment repayment cost for private education in the United States would amount to about $21,300 per year for a primary care physician and about $24,400 for an orthopedic surgeon over a 35-year period. Taking this investment into account, however, does not explain the more than $200,000 difference in compensation observed for physicians between countries.”

Papanicolas et al. (2018), page 1035.

Despite all this lucrative pay, our country has fewer doctors (2.6 per 1,000 people) compared to the average in the study (3.3 per 1,000). We also have relatively fewer hospital beds and long-term beds for the elderly.⁶

3. For-Profit Medicine?

There is mixed evidence regarding the charge that capitalism is what’s driving up health care costs in America.

• Some think that America is lacking in preventative medicine because too many doctors want to specialize in more lucrative fields. But at least compared to other countries, there is no evidence in the JAMA study that American medical schools overproduce specialists at the expense of primary care physicians.
• There is also little evidence to support the claim that our fee-for-service model systematically promotes unnecessary procedures or the over-utilization of care.
• Where the study does find significant over-utilization is in costly imaging tests like MRIs and CT scans, as well as certain surgical procedures.
  

4. Too–Many-Payer Medicine

Like the three other countries in the comparison that rely most heavily on private insurance (Germany, Netherlands, and Switzerland), one of the biggest drivers of health care cost in the US is administrative costs. With an insurance market comprised of 880 private insurance companies, it is no wonder why a majority of American doctors say medical billing is a mess.

“Fifty-four percent of surveyed physicians in the United States identified time spent on administrative issues related to insurance or claims as a major problem, 33% reported that ‘time spent on administrative issues related to reporting clinical or quality data to government or other agencies is a major problem,’ and 16% reported having spent ‘a lot of time on paperwork or disputes related to medical bills.'”

Papanicolas et al. (2018), page 1030

As a result of these billing issues, America spends 8 percent of our entire GDP just on the administration of our health care system each year. This is the highest in the comparison by far.⁷ Germany, with its hybrid public/private system, comes in second place in terms of admin costs at 5 percent of GDP. The Netherlands and Switzerland, both private insurance systems, are tied for third place at 4 percent of GDP. By comparison, the average admin cost across all 11 countries is 3 percent.

5. Drug Prices

Another big driver of health care costs is pharmaceuticals, of course. Despite a high rate of generic usage (80%), the US still spends $1,443 per person on pharmaceuticals–almost double the $749 average across all 11 countries.

Taken together, these five factors add up to much higher input costs, and thus much higher prices for common medical procedures in the US.

“In 2013, the International Federation of Health Plans reported that the average cost in the United States was $75,345 for a coronary artery bypass graft surgery, whereas the costs in the Netherlands and Switzerland were $15,742 and $36,509, respectively. Computed tomography [CT scan] was also much higher in the United States, with an average payment of $896 per scan compared with $97 in Canada, $279 in the Netherlands, $432 in Switzerland, and $500 in Australia in 2013. Similarly, the mean payment for an MRI in the United States was $1,145 compared with $350 in Australia and $461 in the Netherlands.”

Papanicolas et al. (2018), page 1033.

And because some of these costs get passed along to consumers as out-of-pocket expenses, more than one in five Americans–22.3 percent of those surveyed–report skipping medical appointments because of cost. In comparison, the average size of the population that of across all eleven countries was only 9.4 percent.⁸

Takeaways

Comparing the US health care system with that of other wealthy countries, we see that ours is crippled by the most expensive doctors, the most expensive tests, and the most expensive drugs. Above all, our system incurs the most expensive administrative costs by a mile. Turns out it gets pricey really fast when a system has to navigate 880 different payers.

These soaring costs show why health care is the elephant in the room when it comes to addressing the national debt. Whether we’re talking dollars per person, or as a percentage of total government spending, we allocate more taxpayer money to health care than any other country.

Health care is the elephant in the room when it comes to addressing the national debt.

And that’s just public spending. Once you factor in private spending, the United States is practically off the graph. We are literally bankrupting our government and our fellow citizens paying for a system that performs far worse than what other wealthy countries achieve for much less.

Yet the story is still incomplete. These facts don’t fully explain why the United States ranks so badly in terms of obesity, diabetes, and so many other preventable illnesses. In Part 5 of The Bargain I unmask the silent killer driving this public health crisis and the fiscal crisis that follows.

1. Papanicolas et al. 2018. “Health Care Spending in the United States and Other High-Income Countries.” Journal of the American Medical Association (JAMA); 319(10):1024-1039
2. Papanicolas et al. (2018), page 1029.
3. While Swiss insurance companies are not allowed to make a profit on their basic insurance offerings, they are allowed to turn a profit on supplemental plans.
4. https://www.nejm.org/doi/full/10.1056/NEJMp1716604
5. Papanicolas et al. page 1028.
6. This may in part be a result of the fact that the US spends the most on outpatient care, and near the least amount on inpatient care. (page 1026)
7. Papanicolas et al. 2018, page 1026.
8. Papanicolas et al. (2018), page 1033.