Healthcare Economics – Are You Getting Your Dollars Worth? June 2013
Overview In the US, healthcare service providers (doctors, hospitals, healthcare facilities, etc.) have three broad ways of getting reimbursed for their services – Government (in the form of Medicaid, Medicare and CHIP, etc.), private insurer (in the form of health plans) and patient (out-of-pocket expenses). However, as seen in the adjacent illustration, financing of healthcare in the US, directly or indirectly, is borne by patients as they pay income taxes to the government (in addition to payroll taxes to finance Medicare) and healthcare premiums to private insurers. However, due to pooling of risk, the payment of premiums and taxes drastically reduces the expenditure that a patient would otherwise have incurred.1 Per capita total expenditure on health in 2011 (USD in thousands) The adjacent illustration represents top 10 countries based on average per capita expenditure on healthcare. As seen, the US has the highest per capita spend on healthcare, which is about 25% more than that of Luxembourg – the country with the second highest per capita expenditure on healthcare. Breakdown of per capita expenditure on healthcare in the US (average): Health Insurance – 55% Medical Services – 25% Drugs and Medical Supplies – 20%
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Germany
4.37
Austria
4.48
Canada
4.52
Denmark
4.56
Netherlands
5.12
Switzerland
5.56
Norway
5.67
Monaco Luxembourg
5.91 6.88
United States of America
8.61
Source: WHO, Sutherland Analysis
Kao-Ping Chua: Overview of the US Health Care System
Healthcare Economics – Are you getting your dollars worth
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U.S. healthcare insurance spend distribution2
The above illustration shows the breakdown of per dollar expenditure on healthcare insurance. Providers (physicians and hospitals) consume the largest portion (56%) of the total spend. United States is apparently the only industrialized country that does not regulate what fee-for-service providers and drug makers may charge. According to the International Federation of Health Plans, as compared to other countries, United States pays the most (often much more) in every category of treatment (physician, drug, diagnostics, etc.).
“An angiogram in this country averages $914, which is 26 times what Canadians pay (an average $35).”
“A colonoscopy in the U.S. costs an average $1,185, whereas the Swiss pay $655 for the same screening.”
Source: Real Clear Politics
Factors concerning the high spend on healthcare
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1. Per capita annual spending on physicians in the US is USD1,600, which is about five times the average per capita spending of USD310 by the peer countries. Specialist doctors are 3-6 times more expensive in the US versus peer countries 2. An analysis by professor Uwe Reinhardt (Princeton University) suggests that higher per capita income in the US is one of the major factors behind the country’s higher per capita healthcare spending 3. A Dartmouth University analysis found no better health outcome when it compared different regions of the US on the basis of the highest and lowest healthcare cost. The higher cost was largely due to higher patient referral rates for high-cost advanced care (specialists, hospitalization, CAT and MRI scans, etc.)
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AHIP Forbes: Why Are US Health Care Costs So High?
Healthcare Economics – Are you getting your dollars worth
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Efforts made to reduce healthcare spending4 Reducing cost of national healthcare spending will require a coordinated effort for reform from federal, state and private sector agents. Some examples of the steps taken to reduce costs are as follows:
Conclusion National health spending is projected to continue to grow faster than the economy, increasing to about 25% of the gross domestic product (GDP) by 2037 from current 18%. Although the Affordable Care Act (ACA) will significantly reduce Medicare spending over the next decade, health costs remain a major challenge. Certain ways of reducing healthcare costs may include.5
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AAOS: Whose Responsibility Is It to Reduce Healthcare Spending? NEJM Group: A Systemic Approach to Containing Health Care Spending
Healthcare Economics – Are you getting your dollars worth
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