Overall US Healthcare

Total USA healthcare spending in FY 2010 was $2.5T.  That was 17% of FY2010’s $14.7T GDP.  Almost half the total (48%) was by government programs.  Private insurance paid almost a third (32%).  Employer-paid heathcare benefits are now 8% of average total employee compensation.  The cost of those benefits grew at 6.9% CAGR from 1998 to 2008 while salaries grew 4.5%.

Our per capita spending is three times as high as the average for OECD countries.  Private spending is a much larger share of our total.

 Total USA healthcare spending is also a much higher percentage of GDP, twice the OECD average.

Our high spending does not result in better health, however.  Our life expectancy is lower than the majority of OECD countries.  Life expectancy for other OECD countries tends to increase with increased per capita spending. 

Our infant mortality is close to the worst among all OECD countries.  Number of hospital beds, physicians and doctor’s consultations per year per capita are all below the OECD average.  We have the highest ranking only in high end technology, e.g., MRI machines. 

USA healthcare spending is not only higher than our peers, it is rising faster.

A few additional facts about healthcare stand out.  One is our obesity rate, the highest of all OECD countries and more than twice as high as the 15% OECD average (see table above).  The percentage of our adult population considered obese rose from 13% in 1965 to 32% in 2005 and 34% in 2007.  Obesity-related medical spending in the USA doubled to $147B or 7% of total healthcare costs between 1998 and 2008.

A second factor is greatly increased use of highly expensive new treatments.  The USA Inc report views this as a “free good” hazard, meaning that because there is no cost for such procedures for Medicare patients they do not hesitate to demand them.   A more subtle analysis would assess what alters the dynamic in OECD countries where substantially all healthcare is a “free good”.   

The rate of use of procedures such as those above increases with age.  An aging population increases per capita heathcare spending.  Average spending per age group in 2004 in the USA was $2,650 for the 0-18 age group (25% of the population), $4,511 for the 19-64 group (63% of the population) and $14,794 for 65 and over (12% of the population).  Absent any other changes, increased availability of high-end technologies will accelerate the rise in spending by an aging population.

The  % of our population over 65 is growing fast, from 5% in 1930 to  10% in 1970 and 13% in 2010.  It will soon jump significantly as the “baby boomers” reach 65.  The only short-term way to reverse this trend is to increase immigration of younger workers. 

Lifetime healthcare costs for the average American are $631K.  That spending is disproportionately skewed to the end of lifetime.  28% of an average Medicare recipient’s spending occurs in the final year of life and 12% in the final two months.   An obvious question (to which I do not know the answer) is how that compares to other OECD countries.

My aim in this and other introductory posts is only to get the facts about our economy straight.  We spend twice as much on healthcare as our peers/competitors yet they get better results.  In future posts I will encourage debate so we can understand why that is so and some potential solutions.   The next post will focus on defense.  Then I will analyze revenue.

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6 Responses to Overall US Healthcare

  1. Facebook comments quickly disappear from view so I will copy some here. Eric Neikrug wrote:

    “Comparing cost of health care with mortality rates has inherent problems that cause unreliable results: The top causes of death, heart disease and diabetes, are related to diet and that varies greatly by country. We have one of the highest rates of obesity in the world and that skews the results when we compare cost of health care with mortality rates without adjusting for cause of death being more prevalent in the US. I think Martin is doing a great service by providing this blog. I only offer my opinion on mortality to help refine the data.

    Another issue to look at; a comparison of prescription drugs being consumed by country. I am guessing the US is significantly higher than any other country. The US treats with drugs and rarely deals with eliminating the cause of the problem instead: changing diet and exercise for example.”

    My comment: We have the highest rate of obesity of any OECD country. Does anyone have additional data quantifying why our healthcare costs are so high?

  2. EricN commented on facebook:

    “Changing the way medicine is practiced would greatly reduce the cost and probably provide better outcomes. The practice of medicine is designed by the providers to maximize their income, not provide the best treatment. Doctors prescribe much too much medicine and too many tests. They rarely use the likely outcome as the primary means to justify a treatment. People in their 80s, diagnosed with untreatable cancer are encouraged to take chemo with the promise of another month of life. The patients rarely get the month. What they do get is 6 months of hell at great expense. Anyone that protests this methodology is accused of advocating death panels.

  3. Tom Thornbury commented on Facebook:

    “Agree completely Eric. When my wife got breast cancer, she decided on the lumpectomy and the radiation. The chemo only gave her 2% more likelihood of being around 5 years later. She’s still doing great with clean films six years out.

    Without going into how it happened, the West created a world where people think they need X when they don’t. People go to the doctor and ask for antibiotics for a cold caused by a virus, and the doctors perpetuate the behavior by prescribing them knowing full well it won’t do anything, but at least they’ll come back to their practice.”

  4. Please somebody comment who knows how healthcare systems work in other countries, especially the incentive systems (we know they motivate behavior – that’s why comp systems for sales folks are such a big deal). In the UK, for example, doctors used to be (and I think still are) paid a fixed fee per patient, not fees per treatment. That incents doctors to retain patients. It does not incent them to provide unnecessary treatments. UK surgeons and other specialists are paid a salary by the hospital where they practice. It is set by supply and demand for their specialty. Unlike US practitioners, UK surgeons and other specialists are not business-operators.

  5. TonyP commented on Facebook:

    “Eric. We made medicine a “peer review” system. Hence, doctors need to follow best practices which do not change overnight. The higher costs are due to the overhead of administrating health care. How much money do you think it takes to give all of the eighty year olds in the country with a life expentcy of a month to give them a month of chemotherapy? How much do you think it costs to keep young people on “the plug” for years? As far as medication and tests are concerned, I agree with you. I have to ration my needed medication to put off the “donut hole,” which Obama promised to eliminate, as long as possible. Doctors order tests and medication as part of best practice. Most people do not understand how expensive it is to develop a new medication. Pharmaceutical companies need their seven year patent protection to recover the costs of their R and D. Every company recovers their costs of R and D.”

  6. Here’s a remarkable statistic from a 2007 study by the Harvard Medical School: 62 percent of US bankruptcies were a result of medical expenses and 75 percent of the people with a medically related bankruptcy had health insurance.

    Out-of-control healthcare costs that threaten our economy already bankrupt our citizens who are not in fact protected from disaster despite having health insurance.

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