American Exceptionalism Part 7: Health Care

It is difficult to overstate how poorly the United States performs in terms of health outcomes which are well below what would be expected of them given America’s income level. Life expectancy in the U.S. is the lowest among all advanced countries (78.5 compared to the average life expectancy of other advanced countries of 82.5). There is another point which we will discuss in more detail in a later article: life expectancy differs substantially by race: Asian Americans have the highest (86.3), while blacks (75.0) have the lowest.  

Bloomberg’s Global Health Index, sometimes also referred to as Bloomberg’s Healthiest Country Index, measures the health of a country. They look at life expectancy, primary mortality risks, high blood pressure, the number of smokers, physical movement, but also child malnutrition, mental health and vaccinations. In other words, the Index measures something we could call the “health climate,” which is measured by health behaviors, access to food, and childhood vaccinations.

The United States scores 36^th among all countries, well below all Western European countries, Japan, Canada and Australia.  In fact, given its per capita income the U.S. should score an 13^th, which would put it just after France and before Austria. Thus some part of the country’s bad health outcomes cannot be placed at the feet of the health system but are due to bad health behaviors (see chart below which compares the US to the average of nine other advanced countries).

The blue bars represent the average values for nine advanced countries (Australia, Canada, France, Germany, Italy, Japan, Spain, Sweden and the UK), while the orange bars represent the behaviors of Americans. For obesity, the US value is 63% higher than its peers, for homicides it is five times the value of its peers, in alcoholism it is 56% higher, while for suicides, it is 29% higher. Only with respect to smoking does the US do better than its peers, and that by a mere 6%.

These bad behaviors undoubtedly contribute to our low life expectancy, but it is also true that a major contributor to America’s poor health outcomes is our health system. That system has two major flaws that cause it to under-perform –cost and access.

Let us look at costs first (much of this data comes from the web-site Investopedia)

Overall.  The United States spends 17% of GDP on health; Switzerland is the second in spending, with 12.3% almost 30% less; for 24 of the wealthiest countries in the world, the average expenditure on health is 9.4%, 55% of what the U.S. spends. It is clear that America is exceptional in terms of what it spends on health. Let’s look at these costs in more detail.

• Drug costs:  On average, Americans shell out almost four times as much for pharmaceutical drugs as citizens of other industrialized countries. High drug prices are the single biggest area of overspending in the U.S. compared to Europe, where drug prices are government regulated, often based on the clinical benefit of the medication.
• Doctors (and Nurses) Are Paid More. The average U.S. family doctor earns $218,000 a year, and specialists make $316,000, way above the average in other industrialized countries. The average physician salary is, $163,000 in Germany, $108,000 in France, and $63,000 in Spain.  American nurses make considerably more than elsewhere, too. The average salary for a U.S. nurse is about $74,250, compared to $58,041 in Switzerland and $60,253 in the Netherlands. American doctors are paid 3.5 times U.S. per capita incomes while German doctors earn 2.96 times German per capita income, French doctors earn 2.32 times French per capita income and Spanish doctors earn 1.56 times Spanish per capita incomes.
• Hospitals.  Hospital care accounts for 33% of the nation’s healthcare costs. Between 2007 and 2014, prices for inpatient and outpatient hospital care rose much faster than physician prices, according to a 2019 study in Health Affairs. U.S. prices for surgical procedures in hospitals greatly exceed those of other countries. A typical angioplasty to open a blocked blood vessel, for example, costs $6,390 in the Netherlands, $7,370 in Switzerland, and $32,230 in the United States. Similarly, a heart bypass operation in the U.S. costs $78,100 compared to $32,010 in Switzerland.

US Health care practices defensive medicine. Both physicians and hospitals have an interest in preventing lawsuits, so “just in case” tests and scans may be ordered. And these tests can be costly! While a CT scan costs just $97 in Canada and $500 in Australia, the average cost is $896 in the U.S. A typical MRI scan costs $1,420 in the United States, but around $450 in Britain. Researchers have concluded that it’s not the sheer number of tests and procedures but their high price that explains why it’s so expensive to be sick in the U.S.

U.S. Prices Vary Wildly.  Because of the complexity of the system and the lack of any set prices for medical services, providers are free to charge what the market will bear. The amount paid for the same healthcare service can vary significantly depending on the payer (i.e. private insurance or government programs, such as Medicare or Medicaid) and geographical area. For COVID-19, for example, the cost of an urgent care visit and lab tests averages $1,696, but can range from a low of $241 to a high of $4,510 depending on the provider.

Administrative Costs and Waste. According to Joshua D. Gottlieb and Mark Shepard, Estimates suggest that between 15-30 percent of overall health care spending, and one-quarter of the medical labor force, are involved in costs of billing, insurance management, hospital administration, and the like. “Administrative costs” refer to the “back-end” functions of the health care system, aside from direct patient care – including medical billing, scheduling patient appointments, hiring and managing staff, and investing in quality improvement efforts. There are no official data on their total size, but estimates extrapolated from micro-costing studies suggest that billing and insurance-related services alone comprise about 15 percent of health care spending, and total administrative costs may comprise about 30 percent.

Billing and insurance-related costs make up the largest share of administrative costs. Health care requires 770 full-time workers per $1 billion of revenue collected, compared with 100 workers in other industries. This fact is linked to the complexity of the payment process, which is far more intricate and less standardized than other industries. Hospitals, for instance, tend to have more billing specialists than beds.

International comparisons suggest that administrative spending levels are uniquely high in the United States. For example, the United States spends nearly twice as much per capita on health care as Canada, and administrative costs account for 39 percent of this difference, with the rest driven by higher intensity of care — patients in the U.S. tend to have a higher number of interventions and more complicated procedures — and by the fact that health providers in the U.S. have higher incomes than Canadian providers. Measures of administrative staff are also much higher in the U.S. than other high-income countries.

How Much do Americans Spend on Health Care?

The chart below shows that American public spending on health (largely Medicare, Medicaid, and the VA system) is not that different from what other countries’ public health system spends. But for a country like Norway public expenditures cover 85% of overall health expenditures while for the United States they only cover 47%.  This is an important point.  The United States has a robust public health system, but it only covers half of health costs unlike most European countries which cover around 80% of total health costs.

Access.  Finally, the United States has built an amazingly complex health system in which private insurance plays a large part. That system, part public and part private, makes access to good medical care largely a matter of income and employment.  The Kaiser Family Foundation has studied health insurance in America and reached the following conclusions. It divides the population among elderly people (eligible for Medicare), children under 18 (eligible for the Children’s Health Insurance Program), and the rest, who can get insurance from their employers, the Affordable Care Act and Medicaid depending on income. The chart below shows the number of uninsured among non-elderly population.

As the figure shows, the number of uninsured peaked in 2010 at 46.5 million people. When the major ACA coverage provisions went into effect in 2014, the number of uninsured and the uninsured rate dropped dramatically and continued to fall through 2016 when just under 27 million people (10.0% of the non-elderly population) lacked coverage. However, beginning in 2017, this decline was halted, and in 2018 and 2019, both the number of uninsured and the percentage of uninsured began edging up.

As the KFF said, “Administrative data show recent coverage declines in both Medicaid and the Marketplaces. Medicaid enrollment declined by over 2 million people, or 3.1%, from December 2016 to December 2018. Enrollment in the Marketplaces also dropped over 900,000 from 12.7 million during the 2016 open enrollment period to 11.8 million during the 2018 open enrollment period.” 

The following chart shows the reasons 28 million non-elderly Americans had no health insurance in 2018.

According to the KFF, “In 2018, over seven in ten of the uninsured (72%) had at least one full-time worker in their family and an additional 11% had a part-time worker in their family. Individuals with income below 200% of the Federal Poverty Level (FPL) are at the highest risk of being uninsured. In total, more than eight in ten of the uninsured were in families with incomes below 400% of poverty in 2018 (see chart below).

Other data from the KFF:

• Most (86%) of the uninsured are nonelderly adults. The uninsured rate among children was just 5% in 2018, less than half the rate among nonelderly adults (13%), largely due to broader availability of Medicaid/CHIP for children than for adults.
• While a plurality (41%) of the uninsured are non-Hispanic Whites, in general, people of color are at higher risk of being uninsured than Whites. People of color make up 43% of the nonelderly U.S. population but account for over half of the total nonelderly uninsured population. Hispanics and Blacks have significantly higher uninsured rates (19% and 11%, respectively) than Whites (8%). However, Asians have the lowest uninsured rate at 7%.
• Access to health coverage changes as a person’s situation changes. In 2018, 21% of uninsured nonelderly adults said they were uninsured because the person who carried the health coverage in their family lost their job or changed employers. More than one in ten were uninsured because they lost Medicaid due to a new job/increase in income or the plan stopping after pregnancy (13%) and one in ten were uninsured because of a marital status change, the death of a spouse or parent, or loss of eligibility due to age or leaving school.

Conclusions.

• The health care system in the United States is unique among advanced countries. As can be seen from the map below Canada. Australia, New Zealand, Japan and all Western European countries offer universal health care.

Countries in Green offer Universal Health Care

• Americans have the lowest life expectancy among all advanced countries.
• With the exception of smoking, Americans also have worse health behaviors than other advanced countries. We are more obese, and have higher rates of alcoholism, homicide and suicide.
• American health costs are much higher than costs in other countries.
• Access to health care is severely limited for those who are poor or black or Hispanic.
• In 2018, 28 million Americans or 10.4% of the non-elderly population of the United States had no health insurance.
• Uninsured rates were highest among the poor and racial minorities (except Asians).
• Only 5% of children are uninsured, the rest getting insurance either through their parents’ policies or through CHIP (Children’s Health Insurance Program).
• Most Americans over 65 received health insurance through government programs such as Medicare and Medicaid.
• In all, public expenditures on health care in the United States represented a similar proportion of GDP as other countries (7.5%), but Americans paid many times that amount for private medical care (8.5% of GDP) for the United States compared to around 2.5% of GDP for other advanced countries.
• Lack of insurance means limited health care. For example, again according to the Kaiser Family Foundation:
  • Many uninsured people do not obtain the treatments their health care providers recommend for them because of the cost of care. In 2018, uninsured non-elderly adults were more than three times as likely as adults with private coverage to say that they postponed or did not get a needed prescription drug due to cost (19% vs. 6%).
  • Because people without health coverage are less likely than those with insurance to have regular outpatient care, they are more likely to be hospitalized for avoidable health problems and to experience declines in their overall health. When they are hospitalized, uninsured people receive fewer diagnostic and therapeutic services and also have higher mortality rates than those with insurance.