Aug 07 2009

The health care debate-8: Where the money goes in the US system

(For previous posts on the issue of health care, see here.)

The indisputable fact is that per capita costs for health care in the US is almost twice that of other developed countries, while producing worse outcomes. So where does the money go?

This study in the journal Health Affairs compares the US with those of OECD countries to identify what other factors are leading to the inflated costs in the US, while at the same time providing lower quality care.

In 2000 the United States spent considerably more on health care than any other country, whether measured per capita or as a percentage of GDP. At the same time, most measures of aggregate utilization such as physician visits per capita and hospital days per capita were below the OECD median. Since spending is a product of both the goods and services used and their prices, this implies that much higher prices are paid in the United States than in other countries. But U.S. policymakers need to reflect on what Americans are getting for their greater health spending. They could conclude: It’s the prices, stupid.

U.S. per capita health spending was $4,631 in 2000, an increase of 6.3 percent over 1999… The U.S. level was 44 percent higher than Switzerland’s, the country with the next-highest expenditure per capita; 83 percent higher than neighboring Canada; and 134 percent higher than the OECD median of $1,983… Measured in terms of share of GDP, the United States spent 13.0 percent on health care in 2000, Switzerland 10.7 percent, and Canada 9.1 percent. The OECD median was 8.0 percent.

People in the OECD countries can also purchase private insurance if they wish to supplement the single payer systems that most of them have.

The median country finances 26 percent of its health care from private sources. The range is as high as 56 percent in the United States and Korea to as low as 7 percent in Luxembourg and 9 percent in the Czech Republic. As a percentage of GDP, the OECD countries spent 0.4–7.2 percent of GDP on privately financed health care in 2000, with an OECD median of 2.0 percent. The United States was the highest at 7.2 percent. U.S. private spending per capita on health care was $2,580, more than five times the OECD median of $451.

What about the fear that people die in those other countries because of waiting for care for acute treatment (leaving aside the fact that people here also die because they do not have access to health care at all)?

The German and Swiss health systems appear particularly well endowed with physicians and acute care hospital beds compared with the United States. The two countries rank much higher than the United States does on hospital admissions per capita, average length-of-stay, and acute care beds per capita. The average cost per hospital admission and per patient day in these countries must be considerably lower than the comparable U.S. number, however, because both countries spend considerably less per capita and as a percentage of GDP on hospital care than the United States does. The average U.S. expenditure per hospital day was $1,850 in 1999—three times the OECD median.

The fact is that because of the profit-making emphasis in the US, health care services simply cost a lot more here.

First, the inputs used for providing hospital care in the United States—health care workers’ salaries, medical equipment, and pharmaceutical and other supplies—are more expensive than in other countries. Available OECD data show that health care workers’ salaries are higher in the United States than in other countries. Second, the average U.S. hospital stay could be more service-intensive than it is elsewhere. While this may be true, it should be noted that the average length-of-stay and number of admissions per capita in the United States are only slightly below the OECD median. Third, the U.S. health system could be less efficient in some ways than are those of other countries. The highly fragmented and complex U.S. payment system, for example, requires more administrative personnel in hospitals than would be needed in countries with simpler payment systems. Several comparisons of hospital care in the United States with care in other countries, most commonly Canada, have shown that all of these possibilities may be true: U.S. hospital services are more expensive, patients are treated more intensively, and hospitals may be less efficient.

The final argument that apologists give for the US system is that the US is unique in its ability to provide easy access to high-tech treatments. This is also not true.

Quite remarkable, and inviting further research, is the extraordinarily high endowment of Japan’s health system with CT and MRI scanners and its relatively high use of dialysis. These numbers are all the more remarkable because Japan’s health system is among the least expensive in the OECD.

On his show, Bill Moyers spoke about some of the other wasteful costs that occur in the form of bloated health insurance CEOs salaries:

Now meet H. Edward Hanway, the Chairman and CEO of Cigna, the country’s fourth largest insurance company. At the beginning of the year, Cigna blamed hard economic times when it announced the layoff of 1,100 employees. But it reported first quarter profits of $208 million on revenues of $4 billion. Mr. Hanway has announced his retirement at the end of the year, and the living will be easy, financially at least. He made $11.4 million dollars in 2008, according to the Associated Press, and some years more than that.

That’s a lot of oysters, although he lags behind Ron Williams, the CEO of Aetna Insurance, who made more than $17 million dollars last year, or John Hammergren, the head of McKesson, the biggest health care company in the world. His compensation was nearly $30 million.

As a CNN report says:

So, if Americans are paying so much and they’re not getting as good or as much care, where is all the money going? “Overhead for most private health insurance plans range between 10 percent to 30 percent,” says Deloitte health-care analyst Paul Keckley. Overhead includes profit and administrative costs.

“Compare that to Medicare, which only has an overhead rate of 1 percent. Medicare is an extremely efficient health-care delivery system,” says Mark Meaney, a health-care ethicist for the National Institute for Patient Rights.

The entire health system in Canada has fewer workers to serve its population of 27 million than Blue Cross requires to service less than one-tenth that population in New England alone! This is the much-vaunted efficiency of the private sector.

Let’s face the facts. The US has the most expensive and yet the worst health care system in the developed world. And it is largely due to the presence of profit-making drug and insurance companies and extortionist pricing that is squeezing money out of the system at the cost of people’s health.

This is why we need to eliminate the profit-seeking private health insurance companies and institute a single-payer system.

POST SCRIPT: Bill Moyers, Sidney Wolfe, and David Himmelstein discuss single payer

In this must-see discussion, Wolfe and Himmelstein brutally expose the dirty truth about the current US health system and why the health industry here is violently opposed to the single payer system being even discussed, because they will come out far worse in comparison. They point out that we cannot create a health system that works if the private profit-seeking health insurance industry continues to play the main role.

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