The Health Care Outlier

Outlier\ noun – a statistical observation that is markedly different in value from the others of the sample.

Now that the National Health Care Bill has been signed, I think it is fair to conclude that few policy issues are more politically polarizing. One side argues that the federal government needs to have an increased role to ensure access to all Americans and help lower costs; while the other side suggests that allowing market forces to work more freely would have the effect of lowering costs and increasing access. And the recent news that several health insurers were proposing to increase insurance rates to individual policy holders by more than 30% seemed to simply have the effect of throwing gasoline on an already blazing fire. In fact, one of the most frequently heard questions in this debate is, “can we afford to turn over 16 percent of our economy to the federal government?”

Certainly, we all know that health care and health insurance is plenty expensive; but have you ever wondered why it has grown to be 16 percent of our gross domestic product (GDP)? Well a report that was released last year by the Organization for Economic Cooperation and Development (OECD) sheds some interesting comparative data on this (see http://www.oecd.org/dataoecd/46/2/38980580.pdf ).

As noted in the OECD report, total health care spending accounted for 16.0% of GDP in the United States in 2007; by far the highest share among the 30 OECD nations. The U.S. was followed by France, Switzerland and Germany, which allocated respectively 11.0%, 10.8% and 10.4% of their GDP to health care. Interestingly, the OECD average was almost half of the U.S. percentage at 8.9% of GDP.

Looking at per capita health care costs (expressed in U.S. dollars and adjusted for purchasing power parity) the report documents that the United States ranks far ahead of other OECD countries, spending $7,290 per person. This is more than twice the OECD average of $2,964. In second place was Norway, spending $4,763 per capita and in third place was Switzerland, spending $4,417 per capita.

For the overwhelming number of OECD nations, public health care expenditures far exceed private expenditures. Some would clearly call this a government takeover of the health care sector. For example in the United Kingdom where they have a National Health Service, more than 80 percent of all health care expenditures are public. This is true for most OECD nations; while the United States is the exception, with the majority of its health care expenditures in the private sector. But looking at the weight of this data on its surface seems to make you wonder, if freeing up market forces is the most effective way to decrease costs, then why is the U.S. with its focus on competitive, private sector health care so much more expensive than these other similarly industrialized counties?

One possibility maybe lies in the adage, “you get what you pay for?” After all, maybe the reality is that while our health care is much more expensive than in other countries, our superior health outcomes are worth the added costs? Unfortunately, here the report goes on to document that in fact compared to the OECD average, the U.S. actually has fewer physicians per capita, a lower life expectancy rate and a higher infant mortality rate. In other words, we’re paying a lot more but receiving a lot less. And if that doesn’t bother you, the non-partisan Congressional Budget Office estimates that if left on its current trajectory, health care costs will rise over the next 25 years to 31% of GDP. It’s not exactly the value proposition Americans deserve.

So while the politicians here in Washington continue to batter each other back and forth in an effort to turn this issue toward their political advantage in November, let’s at least agree on one thing; while being an outlier in some instances might be flattering, this isn’t one of them.