TEST YOUR KNOWLEDGE OF PUBLIC HEALTH

Answer:

One way to investigate this question is to look at how and where money is spent in different settings and to compare the health outcomes of those populations. For example, people living in northern and western Europe, Canada, and the United States have similar levels of basic structural health interventions—yet their spending on medical care and their health outcomes are different. Health data gathered by the Organisation for Economic Cooperation and Development (OECD) on its European member countries, Canada and the United States demonstrate this.

The United States spends more on health per capita than any of the 24 countries in this group. In 2006, health expenditures in the United States were US$6,931 per capita (adjusted for purchasing power parity).¹ The countries with the next highest expenditures were Norway (US$4,501), Switzerland (US$4,210), and Switzerland (US$4,150). The next country was Canada, at US$3,690. United Kingdom was 14th, at US$2,884.

Money spent on health in the United States also takes a greater share of its gross domestic product (GDP) than in any of the 24 OECD countries. In 2006, health expenditures' share of GDP was 15.5%. The country with the next highest proportion was France, at 11.1 of GDP%. (See also Table 1 and the table “OECD health stats for 2006” in the Google account associated with this website. To view this document, sign in to Google documents using the account name “nyumph” and the password “nyumph12.”).

Table 1: U.S health expenditures in 2006 compared to Canada and European OECD countries

	Health expenditures as share of GDP	Health expenditures per capita (PPP)	Public funds as share of health expenditure	Public funds spent on health, per capita	Individual out of pocket health expenditures, per capita	Money spent on pharma- ceuticals
United States	15.5%	$6931	45.3%	$3139	$853	$845
U.S. rank*	1 (24)	1 (24)	23 (23)	3  (23)	2 (23)	1  (22)
Highest rate	15.5%	$6931	90.9%	$3825	$1278	$845
Lowest rate	6.2%	$913	45.3%	$638	$172	$248

*The number in parentheses represents the number of countries in the sample.

How much health does all this money buy the people of the United States when compared to the similarly affluent countries of Europe and Canada? Not much. The United States has the highest infant mortality rate and ranks well behind most other countries in life expectancy and the number of years its people lose due to these premature deaths (See Table 2). The United States shares the bottom spot with Netherlands for improvement in infant mortality rates from 1970 to 2006 (OECD Infant Mortality 2006).

Table 2: U.S health indicators in 2006 compared to Canada and European OECD countries

	Infant mortality	Life expectancy at birth, female	Life expectancy at birth, male	Life expectancy at age 65, female	Life expectancy at age 65, male	Potential years of life lost** female	Potential years of life lost** male
United States	6.7	80.2	75.1	19.7	17.0	3633	6291
U.S. rank*	24 (24)	20 (24)	20 (24)	18 (24)	15 (24)	20 (21)	18 (21)
Highest	6.7	84.4	79.4	22.3	18.5	3946	9069
Lowest	1.4	77.4	69.0	17.1	13.3	1872	3091

*The number in parentheses represents the number of countries in the sample.
**To expand the sample size, these numbers incorporate data from both 2005 and 2006.

(A table with the consolidated OECD data used for Table 1 and 2 is available in a Google doc. To view this document, sign in to Google documents using the account name “nyumph” and the password “nyumph12.” The document name with this data is “OECD health stats for 2006.”)

Obviously, money spent on health in the United States does not achieve its goal at the same rate as money spent in the other countries of this sample. So, now the question becomes, where and how (in which sectors) does the United States spend its money on health. How does this compare to the others?

Where is U.S. money spent?
Unfortunately, there is no widely-accepted standard for allocating costs between the primary, secondary and tertiary health sectors, in part because it is difficult to isolate some costs as belonging to one particular function or service. Another reason is the vastly different ways of financing and providing healthcare, not only within the countries in our sample but around the world. The OECD System of Health Accounts offers data that would be useful to this evaluation, but their exercise does not include the United States. Therefore, we must use less comprehensive indicators as a point of comparison.

One frequently mentioned reason that U.S. healthcare costs are high is high administrative costs. Excessive expenses of this type do not contribute to improved health outcomes, and they are usually higher in secondary and tertiary care settings than in primary care. The McKinsey Global Institute (1996) released a three-country comparison (United States, United Kingdom and German) that evaluated healthcare productivity. Using 1990 data to evaluate administrative costs, they found that health insurers’ administrative costs in the United States and Germany represented a relatively similar percentage of total revenues but the actual dollars this represents differs considerably (Table 3). Hospital administrative costs were highest in the United States, and this too represented a far greater per capita expense (Table 4).

Table 3: Health insurer’s administrative costs 1990

	Percentage of revenue	Dollars per capita
U.S.	5.1	137
U.K.	2.0	19
Germany	4.6	70

Source: Exhibit 19, McKinzie Global Institute, Health care productivity,
Chapter 8: Relationship of disease case study to aggregate-level analyses,
October 1996.

Table 4: Hospital administrative costs 1990

	Percentage of hospital costs	Dollars per capita
U.S.	18.4	188
U.K.	14.3	70
Germany	8.3	41

Source: Exhibit 20, McKinzie Global Institute, Health care productivity,
Chapter 8: Relationship of disease case study to aggregate-level analyses,
October 1996.

Some are concerned that government administration raises administrative costs, but the Commonwealth Fund found that administrative expenses for private insurers are 2.5 times higher than the government-administered health payment systems in the United States (Baker & Cooper, page 2).

© 2009 Anil Gulati, Courtesy of Photoshare

More than administrative costs...
However, the Commonwealth Fund found more than administrative costs to blame the high cost of healthcare, saying “health care spending in the U.S. is higher because we pay higher prices for the same services, have higher administrative costs, and perform more complex specialized procedures” (Baker & Cooper, page 3). The “more complex specialized procedures” definitely falls into secondary and tertiary care. For example, in 2006 the United States averaged 89 MRI diagnostic procedures for 1000 people, one-third more than in another other OECD country that tracked this data (OECD Health Data 2010). (The U.S. rate is more than twice the average.) The Commonwealth Fund also found that the United States had the highest medical error rate of five countries investigated (Baker & Cooper, page 3, 15). Uwe Reinhardt et al. describe the high cost of healthcare in the United States as “pricing low-income Americans out of health care” (page 22).

What about the poor?
The type of resource supplied and where it is placed affects who makes use of and benefits from the resource. Frances Castrol-Leal et al. (2000) looked at whether the poor actually do benefit from public spending on healthcare in Africa, and the answer was, not nearly as much as the rich do. Public spending on tertiary care tends to benefit the rich far more than the poor, another factor to consider when looking at what kind of interventions bring greatest improvements to population health. (See also Question 15 on equity in health.) The differences in infant mortality rates among different ethnic groups in Hawaii and the District of Columbia in the United States offers evidence that even physical proximity to healthcare does not guarantee access (See Question 9).

© 2004 Tom Furtwangler, Courtesy of Photoshare

Cost effectiveness
Where best to place funds to achieve the greatest impact on population health includes looking at the cost-effectiveness of interventions. The Disease Control Priorities Project has begun trying to evaluate this on a global scale, and they offer their list of cost effective interventions.

 

SUMMARY
Our question asked whether the United States gets a better health system for its substantially higher health expenditures. The data indicators presented in Table 2 suggest that it does not. That said, this discussion is not intended to be the definitive answer to our question. We encourage you to continue to investigate the relationship between wealth and health and between health expenditures and health outcomes and offer the tools described in our “Gapminder” exercise and the following references as a place to begin.

 

SOURCES AND ADDITIONAL REFERENCES
HJ Aaron (2003). The Costs of Health Care Administration in the United States and Canada — Questionable Answers to a Questionable Question. New England Journal of Medicine 349.8 (August 21, 2003): 801-803.

GF Anderson, PS Hussey, BK Frogner & HR Waters (2005). Health spending in the United States and the rest of the industrialized world. Health Affairs 24.4 (July/August 2005): 903-914.

GF Anderson, UE Reinhardt, PS Hussey & V Petrosyan (2003). It’s The Prices, Stupid: Why The United States Is So Different From Other Countries. Health Affairs 22.389 (May/June 2003): 89-105.

K Baker and BS Cooper (Commonwealth Fund, 2003). American health care: Why so costly? Invited Testimony Senate Appropriations Committee, Subcommittee on Labor, Health and Human Services, Education and Related Agencies, Hearing on Health Care Access and Affordability: Cost Containment Strategies, June 11, 2003.

Commonwealth Fund (2010). Mirror, Mirror on the Wall: How the Performance of the U.S. Health Care System Compares Internationally, 2010 Update.

F Castro-Leal, J Dayton, L Demery & K Mehra (2000). Public spending on health care in Africa: Do the poor benefit? Bulletin of the World Health Organization 78.1 (2000): 66-74.

Toni Johnson (2010). Healthcare Costs and U.S. Competitiveness. Council of Foreign Relations Backgrounder, March 23, 2010.

Parija B. Kavilanz (2009). "Health care's big money wasters." CNNMoney.com. 10 August 2009, 12:13 PM ET.

R Laxminarayan et al. (2006). Advancement of global health: key messages from the Disease Control Priorities Project. The Lancet 367.9517 (8 April 2006): 1193-1208.

McKinsey Global Institute (1996). Health care productivity.

National Geographic Magazine (2010). Graph of funds spend on health care, average number of doctor visits, and life expectancy in selected countries, 2007.

OECD Infant Mortality 2006.

OECD Family database.

OECD Health Data 2010: Statistics and Indicators.

OECD StatExtracts – Health.

UE Reinhardt. Way too much for way too little. McKinsey & Co, 26 February 2009.

UE Reinhardt, PS Hussey, and GF Anderson (2004). U.S. health care spending in an international context. Health Affairs 23.3 (May/June 2004): 10-25.

Geoffrey Rose (1985). Sick individuals and sick populations. International Journal of Epidemiology 14.1 (1985): 32-38.

S Woolhandler, T Campbell & DU Himmelstein (2003). Costs of Health Care Administration in the United States and Canada. New England Journal of Medicine 349.8 (August 21, 2003): 768-775.

World Bank Disease Control Priorities Project. Cost Effective Interventions.

World Bank (2006). Disease Control Priorities in Developing Countries (2nd Edition).

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