The spending began soaring beyond that of other advanced nations, but without the same benefits in life expectancy.
The United States devotes a lot more of its economic resources to health care than any other nation, and yet its health care outcomes aren’t better for it.
That hasn’t always been the case. America was in the realm of other countries in per-capita health spending through about 1980. Then it diverged.
It’s the same story
with health spending as a fraction of gross domestic product. Likewise,
life expectancy. In 1980, the U.S. was right in the middle of the pack
of peer nations in life expectancy at birth. But by the mid-2000s, we
were at the bottom of the pack.
“Medical care is one of the less important determinants of life expectancy,” said Joseph
Newhouse, a health economist at Harvard. “Socioeconomic status and
other social factors exert larger influences on longevity.”
For spending, many experts point to differences in public policy
on health care financing. “Other countries have been able to put limits
on health care prices and spending” with government policies, said Paul
Starr, professor of sociology and public affairs at Princeton. The
United States has relied more on market forces, which have been less
effective.
“Confronted with fiscal
pressures, as the share of G.D.P. absorbed by health care spending began
to get serious, other nations had mechanisms to hold down spending,”
said Henry Aaron, a health economist with the Brookings Institution. “We
didn’t.”
One result: Prices for
health care goods and services are much higher in the United States.
Gerard Anderson, a professor at Johns Hopkins and a lead author of a
Health Affairs study
on the subject, emphasized this point. “The differential between what
the U.S. and other industrialized countries pay for prescriptions and
for hospital and physician services continues to widen over time,” he
said. Other studies also support this idea. However, by some measures, growth in the amount of health care consumed has also been a factor.
The degree of competition, or lack thereof, in the American health system plays a role. A recent study
by economists at the University of Miami found that periods of rapid
growth in U.S. health care spending coincide with rapid growth in
markups of health care prices. This is what one would expect in markets
with low levels of competition.
Although American health care markets
are highly consolidated, which contributes to higher prices, there are
also enough players to impose administrative drag. Rising administrative costs — like billing and price negotiations across many insurers — may also explain part of the problem.
The additional costs associated with many insurers, each requiring different billing documentation, adds inefficiency, according to the Harvard health economist David Cutler. According to a recent study, the United States has higher health care administrative costs than other wealthy countries.
“We
have big pharma vs. big insurance vs. big hospital networks, and the
patient and employers and also the government end up paying the bills,”
said Janet Currie, a Princeton health
economist.
Though we have some large public health care programs, they
are not able to keep a lid on prices. Medicare, for example, is
forbidden to negotiate as a whole for drug prices, as Ms. Currie pointed
out.
But none of this explains the timing of the spending divergence. Why did it start around 1980?
Mr. Starr suggests that the high
inflation of the late 1970s contributed to growth in health care
spending, which other countries had more systems in place to control.
Likewise, Mr. Cutler points to related economic events before 1980 as
contributing factors. The oil price shocks of the 1970s hurt economic
growth, straining countries’ ability to afford health care. “Thus, all
across the world, one sees constraints on payment, technology, etc., in
the 1970s and 1980s,” he said. The United States is not different in
kind, only degree; our constraints were weaker.
Later
on, once those spending constraints eased, “suppliers of medical inputs
marketed very costly technological innovations with gusto,” Mr.
Aaron said. They “found ready customers in hospitals, medical practices
and other entities eager to keep up with rivals in the medical arms
race.”
The last third of the 20th century or so was a fertile time for expensive health care innovation. Sherry Glied, an economist and a dean at New York University, offered a few examples: “Coronary artery bypass grafting took off in the mid-to late 1970s. Later, we saw innovations like drug treatments for H.I.V. and premature babies.”
These are all highly valuable, but they came at very high prices. This
willingness to pay more has in turn made the United States an attractive
market for innovation in health care.
Yet
being an engine for innovation doesn’t necessarily translate into better
outcomes. Almost no matter how it’s measured, longevity in the United
States has not kept pace with that of other nations. Again, the
inflection point is around 1980. Why?
A study examining the period 1975 to 2005 by Ms. Glied
and Peter Muennig, from Columbia, suggests that international
differences in rates of smoking, obesity, traffic accidents and
homicides cannot explain why Americans tend to die younger.
Some
have speculated that slower American life expectancy improvements are a
result of a more diverse population. But Ms. Glied and Mr. Muennig
found that life expectancy growth has been higher in minority groups in
the United States. Another study,
published in JAMA, found that even accounting for motor vehicle traffic
crashes, firearm-related injuries and drug poisonings, the United
States has higher mortality rates than comparably wealthy countries.
The
lack of universal health coverage and less safety net support for
low-income populations could have something to do with it, Ms. Glied
speculated. “The most efficient way to improve population health is to
focus on those at the bottom,” she said. “But we don’t do as much for
them as other countries.”
The
effectiveness of focusing on low-income populations is evident from
large expansions of public health insurance for pregnant women and
children in the 1980s. There were large reductions in child mortality
associated with these expansions. “Those reductions were much larger
for poor children than for richer children,” Ms. Currie said.
A report by RAND
shows that in 1980 the United States spent 11 percent of its G.D.P. on
social programs, excluding health care, while members of the European
Union spent an average of about 15 percent. In 2011 the gap had widened
to 16 percent versus 22 percent.
Although this is a modest divergence over time, Mr. Anderson says it could be significant nonetheless. “Social underfunding
probably has more long-term implications than underinvestment in
medical care,” he said. For example, “if the underspending is on early
childhood education — one of the key socioeconomic determinants of
health — then there are long-term implications.”
Slow
income growth could also play a role because poorer health is
associated with lower incomes. “It’s notable that, apart from the
richest of Americans, income growth stagnated starting in the late
1970s,” Mr. Cutler said.
Even if we
can’t fully explain why the United States diverged in terms of health
care spending and outcomes after 1980, one thing is clear: History
demonstrates that it is possible for the U.S. health system to perform
on par with other wealthy countries. That doesn’t mean it’s a simple
matter to return to international parity. A lot has changed in 40 years.
What began as small gaps in performance are now yawning chasms. And, to
the extent greater American health spending has spurred development of valuable health care technologies, we may not want to trade away all of our additional spending.
Nevertheless,
Ashish Jha, a physician with the Harvard T.H. Chan School of Public
Health and the director of the Harvard Global Health Institute, is
hopeful: “For starters, we could have a lot more competition in health
care. And government programs should often pay less than they do.” He
added that if savings could be reaped from these approaches, and others — and reinvested in improving the welfare of lower-income Americans — we might close both the spending and longevity gaps.
Austin
Frakt is director of the Partnered Evidence-Based Policy Resource
Center at the V.A. Boston Healthcare System; associate professor with
Boston University’s School of Public Health; and adjunct associate
professor with the Harvard T.H. Chan School of Public Health. He blogs
at The Incidental Economist, and you can follow him on Twitter.
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