The United States spends more on health care than any other nation on earth. Yet, the U.S. has some of the worst health care outcomes of any nation in the developed world. Why is that? It’s due to the tortured way the nation runs its system.
But first a little background.
Spending a great deal on health care does not result in a healthier population. Of 34 Organization for Economic Cooperation and Development (OECD) member countries, only three that spent the most per person have citizens that live the longest. The OECD’s’ membership consists of the U.S., Western European nations, Japan, Australia, Canada, Chile and Mexico.
In many of these countries, the source of high costs is drug prices. In four of the countries with the most expensive health care, pharmaceutical expenses come to at least $600 per person per year. In the U.S., those costs are more than $950 per capita.
The U.S. has, by far, the highest total expenditure on health care per capita. America spends approximately $2,600 more per person annually than Norway, the second-highest spender. It also has the eighth-lowest life expectancy, a bit over 78 years.
So Americans pay more and get less. And the finding that Americans spend the most on health care is the underpinning for various reform measures. Many argue that one way to help curb this high medical spending is to make patients pay more for services. As some put it, patients need to have “skin in the game” – meaning that if patients paid more, they would reduce their purchasing of medical care. This is the justification for co-pays, deductibles and co-sharing. In short, if you use care, you should help pay for it. If the health care system shifts more costs to patients, the theory goes, patients will use less of it and the nation will spend less on care.
This theory always bothered me. For the vast majority of Americans going to the doctor is not like going to the mall. In the case of health care, people typically go because they are sick or need routine preventative care. Raising the price, to me, could only lead to one thing – sick people would not be getting the care they received.
Well, it turns out that the theory that insufficient cost sharing is the problem with American health care is flawed. Thanks to the work of health economists (such as Uwe Reinhardt at Princeton), it is clear that the problem of higher health spending is coupled with lower – not higher — use of health services.
That’s right; Americans pay higher prices, but use fewer health care services!
Aside from a few high-tech services, Americans actually use less health care and rely on fewer real health-care resources than do residents of other industrialized countries. Why?
In most other countries, prices for health care goods and services are not negotiated between individual health insurers and individual physicians, hospitals or drug companies, as they are in the private insurance sector in United States. Instead prices there either are set by government or negotiated between associations of insurers and providers of care, on a regional, state or national basis.
In the United States, the biggest purchaser of health care is the government. If it used its purchasing power – in the same manner as European nations – it could drive health care prices down. As it turns out here in the U.S., there is one state that already does something similar.
For decades Maryland has maintained a hospital payment system in which all payers – public and private – pay the same rates as a result of that state government’s regulatory oversight. Maryland’s rate-setting system is one of the most enduring and successful cost containment programs in the United States.
Years ago New York State had a similar system, but discarded it in the deregulation efforts of the Pataki Administration. Maybe it’s time for New York policymakers to review the evidence in Maryland and the developed world and take similar steps to curb the cost of health care.
Lower health care costs should help reduce the cost burden to patients, businesses and government itself. But those lower costs should come from negotiation and not from the wallets of already hard-hit consumers.
Blair Horner is the Vice President for Advocacy for the American Cancer Society, Eastern Division. His commentary does not necessarily reflect the views of the American Cancer Society.
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