Insuring a family at work costs about $27,000 a year, on average. Twenty-seven thousand could buy a lot of medical care, especially if allowed to grow and earn interest until families’ medical needs rise. However, most of that is spent on other people, not those paying for medical coverage. About half of medical spending is on the sickest 5% of patients, while about 80% is spent on the sickest 20% of the population.
The United States spends more on health care as a percentage of gross domestic product (GDP) than other countries. Nearly one dollar in five (18%) of national income goes to fund health care. That is about double (9%) spent in many OECD countries. Why does the U.S. spend more on health care than other developed countries? Critics claim it is largely due to higher prices paid for medical care in the U.S. The following examples are from the Wall Street Journal:
- Hip replacements that cost an average of $29,000 in the U.S. cost $10,000 in peer countries. Knee replacements are similar ($26,000 compared to $11,000). Childbirth C-sections and appendectomies that cost $14,000 in the U.S. cost $4,000 elsewhere in peer countries.
- Another example is prescription drugs. A 450mg of cancer drug Herceptin costs $6,819 in the U.S. but is only $2,599 in Germany and even lower ($1,338) in Spain. Arthritis drug, Enbrel, is $6,238 in the U.S. but only $1,043 in Germany and $802 in Spain. Blood clot drug, Eliquis (60 pills), is $513 in the U.S. but $90 in Germany and $96 in Spain.
Nearly 35% of health expenditure is for hospital care. Hospitals are costly places to receive care. In recent years hospitals have been allowed to consolidate into large hospital systems in most major cities.
- Hospital market consolidation is high, higher or near monopoly in 94% of the areas in the U.S.
- It is near monopoly in one-in-five regions, and monopoly or very high in about half.
- Hospital consolidation is moderate or low in only 6%. Thus, the market lacks any sort of competition.
WSJ also reports administration for billing, collecting, and managing hospitals is more costly in the United States. McKinsey & Company estimate only about 75% of every dollar of health expenditure goes for medical care. About one-quarter goes for administration.
Labor costs are also higher in the U.S. because doctors and nurses are paid better than in many other countries. U.S. generalist physicians (primary care doctors) are earning about $245,000 a year, on average. That is about $88,000 more than their counterparts in the Netherlands earn ($157,000). It is nearly double what similar doctors in Sweden earn ($128,000) or about 2.5 times what GPs earn in the UK ($99,000). American hospital nurses also outearn their counterparts in developed countries. Hospital nurses can early $97,000 in the U.S., much more than hospital nurses in the Netherlands ($82,000), Sweden ($56,000), or UK ($53,000).
The Wall Street Journal also reports that health care utilization is growing faster than prices in the U.S. That could be the result of Baby Boomers aging, or recent technology or merely the availability of care that is rationed in other countries. Another reason not mentioned is the U.S. is richer than most other countries, and the public health system rations less than, say, the National Health Service in Britain.