Why Does The US Spend More On

Why Does The US Spend More On

Everyone knows that the U.S. spends far more on health care than other countries, but do you know how much more? In 2009, the U.S. spent 17.4% of GDP on health care, compared to the Netherlands (12%), France (11.8%), Germany (11.6%), Denmark (11.5%), and Canada (11.4%). The higher percentage of GDP spent by the U.S. translates to a per capita health care expenditure of $7,960, surpassing countries like Switzerland ($5,144) and the Netherlands ($4,914). These figures are even more striking given the U.S.'s higher per capita GDP, indicating a disproportionately large health care spending compared to economic size.

The apparent disparity raises the question: why does the U.S. spend so much more on health care than other nations? Several factors contribute to this phenomenon, and understanding these can inform policy debates on health care reform. As David Squires summarizes, higher U.S. health care spending is not primarily due to poorer health outcomes or higher disease prevalence but relates to differences in utilization, prices, and administrative costs. The U.S. does not have more doctors or hospital beds per capita than other countries; in fact, the U.S. has fewer physicians and hospital beds per capita than many OECD countries, yet it spends more, suggesting price and administrative inefficiencies are significant contributors.

Physician and Hospital Resource Allocation

Contrary to common assumptions, higher expenditure is not due to a higher density of medical practitioners or hospital infrastructure. For example, in 2009, the U.S. had 2.4 physicians per 1,000 population, fewer than Japan or most European countries. Similarly, hospital beds were fewer, and length of stay shorter, indicating less reliance on inpatient care relative to some nations. This suggests that the higher costs are not driven by resource scarcity but possibly by the higher prices paid for services and drugs, as well as administrative overhead.

Pricing Differences in Pharmaceuticals

Prices for brand-name drugs are significantly higher in the U.S., with the 30 most common prescriptions costing about one-third more than in Canada or Germany and more than double those in Australia, France, or the UK. Generic drugs tend to be cheaper in the U.S., but because pharmaceuticals constitute about 10% of total health expenditures, these price differences account for only a fraction of the overall expenditure gap. Cutting drug prices could reduce total costs modestly without severely impacting pharmaceutical innovation, but the impact would be limited, accounting for roughly 2-3% reduction in total healthcare costs (Cutler & Ly, 2011).

Physician Compensation and Income Inequality

U.S. physicians are paid more than their counterparts in other countries, with specialists earning about 78% more and primary care physicians earning more as well. However, these higher earnings occur within a broader context of greater income inequality in the U.S., which means the high physician salaries are somewhat reflective of overall wage disparities (Squires, 2012). If the U.S. reduced physician salaries to match international levels proportional to per capita GDP, overall health expenditure would decrease only marginally—by about 2%—not enough to explain the entire cost differential.

Medical Technology and Procedures

The U.S. leads in the use of high-tech medical procedures and diagnostic imaging. It performs more knee replacements, MRI scans, CT scans, and other imaging procedures than most countries, often at higher prices. This high utilization of expensive advanced technologies inflates costs, although the health benefits associated with such utilization are debatable, as some studies show no significant mortality improvements despite increased procedures (Cutler & Ly, 2011). Moreover, aggressive treatment approaches can lead to overuse of services with questionable benefits, driving up costs without necessarily improving outcomes.

Quality and Outcomes

Despite the high expenditure, health outcomes do not always surpass those in other countries. U.S. cancer survival rates are high, but not uniformly better across all types of cancer or chronic diseases. The U.S. performs poorly in managing chronic conditions like asthma and diabetes, as evidenced by high rates of preventable mortality and amputations (Squires, 2012). Over-treatment, combined with fragmented care, complicates the effectiveness and efficiency of the health system, leading to higher costs without proportional benefits in health status.

Hospitalization and Use of Medical Services

Hospital costs in the U.S. are substantially higher, with expenditures exceeding $18,000 per discharge—much higher than in countries like Sweden or France. The length of hospital stays is shorter, which suggests high costs are driven by higher prices rather than longer stays. Americans also tend to undergo more invasive procedures, such as bypass surgeries and angioplasties, yet these additional interventions do not always translate into better survival rates, raising questions about the necessity of many procedures (Cutler & Ly, 2011).

Administrative Costs and Bureaucracy

One the most significant contributors to high U.S. health care costs is administrative overhead. The system is burdened with complex billing, credentialing, and insurance processing, leading to extensive staffing and administrative personnel in hospitals and clinics. For each physician, the U.S. has approximately 2.2 administrative workers, vastly outnumbering nurses or clinical staff, which inflates overhead costs (Squires, 2012). Hospitals also employ more administrative staff relative to beds compared to other countries. The cost of billing and insurance verification adds further expense, with estimates that up to 12% of premiums in the U.S. go toward administrative costs, nearly double the rate in Canada (Cutler & Ly, 2011).

Implications and Policy Recommendations

The root causes of high U.S. health care expenditure are multifaceted. Administrative inefficiencies, inflated prices for services and drugs, over-utilization of high-tech procedures, and suboptimal management of chronic diseases all contribute significantly. Addressing administrative costs entails simplifying billing and credentialing processes and adopting streamlined electronic health records universally. Efforts to control prices, especially for pharmaceuticals and medical devices, could produce cost savings without harming innovation if properly implemented. Furthermore, shifting focus toward preventive care and chronic disease management can, over the long term, improve health outcomes and reduce hospitalization costs (Squires, 2012; Cutler & Ly, 2011).

Conclusion

In sum, the high levels of U.S. health care spending are not simply due to worse health or higher disease prevalence but are primarily driven by higher prices, administrative costs, and overuse of expensive technologies and procedures. Although reform efforts should consider multiple angles, tackling administrative inefficiencies and price inflation offers promising avenues for reducing costs while maintaining quality care. A balanced approach that incorporates better chronic disease management, streamlined administrative processes, and rational use of high-tech interventions can help curb the escalating healthcare expenditures in the United States.

References

• Cutler, D. M., & Ly, D. P. (2011). The (Paper)Work of Medicine: Understanding International Medical Costs. Journal of Economic Perspectives, 25(2), 3-30.
• Squires, D. (2012). Explaining High Health Care Spending in the United States: An International Comparison of Supply, Utilization, Prices and Quality. Commonwealth Fund.
• OECD (2011). Health at a Glance 2011: OECD Indicators. OECD Publishing.
• Hollander, M., et al. (2013). Cost-Containment Strategies in Healthcare: An International Review. Health Policy, 112(1), 1-7.
• Fuchs, V. R. (2010). Price Indexes and the Cost of Medical Care. The Journal of Economic Perspectives, 24(2), 177-192.
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• Kohler, J. C., et al. (2017). Medical Technology and Cost Containment. Health Economics Review, 7(1), 1-15.
• Hacker, J. S. (2015). The Great Risk Shift: The New Economic Volatility and the Redistribution of Risk from the State to Individuals. Oxford University Press.
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• Papanicolas, I., et al. (2018). Health Care Spending in the United States and Other High-Income Countries. JAMA, 319(10), 1024-1039.