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Monday, August 1, 2011

Where the US Overspends on Health Care

Dylan Matthews at Ezra Klein's blog put up a nice chart showing where the US spends its health care dollars compared to other rich countries that are members of the Organization for Economic Cooperation and Development (OECD). What we find is that the US spends more on hospitals and other providers, drugs, and administration than other rich countries, with the biggest dollar gap in spending on providers. This means that controlling health care costs in the future will have to focus on this category.

You can find the underlying data for this chart (except the OECD average, which in this case appears to have been computed by Matthews himself) at OECD Statistics. The category referred to by Matthews as “hospitals” is called “curative and rehabilitative care” by the OECD, which includes outpatient service by doctors and other providers such as occupational therapists and physical therapists. As Matthews says, “The U.S. spends nearly three times as much on hospital care and almost five times as much on administration.” As his chart shows, the US also spends about twice as much on drugs and other “medical goods dispensed to out-patients” the specific OECD term. One other important point for interpreting the OECD data is that the US does not break out “ancillary services” such as out-patient lab and diagnostic work from “curative and rehabilitative care,” whereas most of the other countries listed do, so we should add these two categories together when making comparisons.

We can make this more concrete by comparing the US and Canada. Overall, the US spent $7960 per capita on health care in 2009 versus Canada's $4362.6, or $3597.4 more.

Providers + Ancillary Services: US $5278.8, Canada $2199.2. US + $3079.6

Nursing Care: US $446.7, Canada $602.6. US - $155.9 (Denmark, the Netherlands, and Norway all spend over $1000 per capita on nursing home care.)

Drugs, etc.: US $1069.7, Canada $859.8. US + $209.9

Prevention and Public Health: US $271.6, Canada $303.2. US - $31.6 (Canada is the only country that spends more than the US in this category.)

Administration: US $531.5, Canada $153.3. US + $378.2 (due to fragmented, for-profit insurance)

Not specified by function: Canada $20.5

Capital formation by provider institutions: US $361.7, Canada $224.0. US + $137.7

As we can see, then, higher payments to providers equal 85% of the extra cost in the US. Preferably sooner rather than later, high costs here have to be the main focus of health care reform. That isn't to say that reforms to insurance and covering the uninsured aren't necessary; they are matters of basic justice. But the long-term solvency of Medicare depends on controlling spending on providers, and that's a political fight that goes well beyond the “doc fix.”

(By the way, the OECD Statistics website is a gigantic treasure trove of information that can be configured in a variety of ways. If you are interested in taxes, education, GDP, or just about any political economy topic, the OECD has the definitive data for the industrialized countries.)

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