October 2006
The Business of Health: How Does the U.S. Health-Care System Compare to Systems in Other Countries?
Criticism of the U.S. health-care system for its high costs and uneven coverage is abundant, but is it warranted? Is the U.S. system inferior to those in other developed countries? Not according to economists Robert L. Ohsfeldt and John E. Schneider, who argue in their just-published book, The Business of Health: The Role of Competition, Markets and Regulation (AEI Press), that the U.S. system actually compares favorably to the health-care systems of other nations. At an October 17 AEI health policy forum, the authors discussed the main findings and implications of their book. They also presented international comparisons of health expenditures, health outcomes, and access to care, and addressed how the use of competition, freer markets, and regulatory reform could improve the current U.S. system. Two European experts on the British and German health-care systems and a U.S. specialist in international health systems responded.
Robert L. Ohsfeldt
Texas A&M Health Science Center
Several years ago the World Health Organization performed a comparative analysis of the world’s health-care systems and concluded that the United States ranked thirty-seventh among 191 member countries. Despite its methodology being subject to considerable limitations and criticisms, this ranking is frequently cited as an authoritative, self-evident truth. Such citations are commonly followed by three assertions: the United States spends an exorbitant amount on health care, produces mediocre health outcomes, and provides inadequate access to care.
Indeed, the United States spends substantially more per capita on health care than any other large high-income country with a diverse population. However, the United States also has a considerably larger per-capita gross domestic product (GDP) than countries of suitable comparison. When presented with predictions of the relationship between per-capita GDP and health-care spending, one must be wary of the specifications and assumptions used in regression analyses. Because the United States is such an outlier in terms of both per-capita GDP and health expenditures, it is difficult to formulate a regression model that appropriately extrapolates the norms for spending. In some respects, the United States is in a league of its own when it comes to size, income, and population diversity. Thus, the expected and appropriate level of expenditures is fairly hard to define.
While U.S. spending on health care is unusually high, the rate of growth over time is not dramatically higher than those in comparable countries. Further, the additional expenditures in the United States generally produce additional gains in health outcomes at costs that are below what is considered a reasonable expenditure of $100,000 per life-year gained. These excess expenditures stem primarily from higher prices in the United States than abroad and relate in part to disparate population characteristics. Given the large uninsured population, poorer average outcomes may relate more to variance in access to treatment than actual failures in the system. Such variance negatively impacts average performance measures of the U.S. health care system.
When comparing how health-care systems function, it is important to take into account the varying impact of treatments on dissimilar populations. For example, the infant mortality rate for African Americans is remarkably higher than that for Caucasians. Much of that differential has been ascribed to socioeconomic factors. However, even when controlling for this and other potential contributing factors, there is still a marked difference in likelihood of premature birth, low birth rate, and infant mortality.
There are a number of studies that support the existence of cultural and individual factors that affect treatment adherence and that are not easily mutable by the health-care system. Regardless of the resources poured into the health-care system, these factors will always prevent it from being fully effective. Overall, given the lack of precision and availability of outcome measurements, it is unwarranted to claim that the U.S. system is worse off than those of other large, high-income nations.
John E. Schneider
University of Iowa
Many developed countries are facing fiscal pressures associated with an aging population, ongoing technological innovation, and information asymmetry. However, no health-care system has managed to find solutions to these problems.
Universal care does not necessarily have to be achieved with a single-payer approach. While single-payer systems have many potential benefits, they also have several flaws. Some potential benefits include improved access for the disadvantaged, reduced administrative costs and redundancy, and larger risk pools. However, they also carry many disadvantages: waiting lists and other barriers to care; lower incentives for adaptation, innovation, and change; upward pressure on health-care costs due to tax-based financing; and inequitable resource dispersion due to centralized funding and politicized spending.
California’s recent attempt at a Canadian-style single-payer system would have eliminated the state’s $65 billion private health insurance industry. More importantly, it would have resulted in reduced benefits and access for a large proportion of the insured. If the public system chooses to cover benefits normally found at the high end of private insurance plans, exorbitant costs would fall onto the taxpayers. Thus, single-payer systems typically cover benefits found at the median level of private insurance plans. This leaves half of the public’s beneficiaries with a lower level of coverage and access than they would have had with private coverage. As it was widely known that California’s governor would not sign the legislation due to the above reasons, the proposal ended up distracting from more feasible solutions to problems within the state’s health care system.
A reasonable reform agenda has several components. First of all, reforms should allow markets to work in the cases where they work well; identifying these cases is a difficult, but crucial, task. A second goal should be to develop a more coherent strategy to evaluate the costs and benefits of new medical technologies and services. The reform agenda should also promote transparency in health plan contracts and a greater degree of price sensitivity in health services transactions. Although the costs and benefits of many medical services cannot be easily assessed by patients, those services that can be evaluated should be. A final goal of reform should be to improve marketing coordination and integration among existing public insurance programs. Expanding the public’s knowledge of these programs’ existence and eligibility criteria would heighten their current low uptake rates.
Gerard F. Anderson
Johns Hopkins University
The United States spends twice as much as most other countries on health care. It is argued that America’s relatively large GDP allows for more spending on health care, but it is doubtful that this would create budgets that double those of other countries. The difference is a consequence of higher prices for hospital services and drugs in this country. For example, we spend a lower percentage of our health-care dollars on hospital stays compared to other Organisation for Economic Co-operation and Development (OECD) countries, but the stays cost 30 percent more.
We might permit high levels of spending if it led to better outcomes and a substantial increase in life expectancy. However, the increase in life expectancy has been relatively small: 3.8 years from 1980-2004, compared to 5.3 in the United Kingdom and 6 in Japan. Data for indicators such as life expectancy can be parsed out in terms of ethnic groups, but this can also be done in other countries, which still achieve better outcomes.
American patients rank their health-care system as poor. With the exception of effectiveness, they are not all that pleased with the system. Unnecessary care is a big issue for this country, but it is difficult to tell if Americans are receiving more care than patients in other countries. However, we know that Americans are not receiving more necessary care on a per-capita basis in the form of hospital days, doctor visits, and CT scans.
Private payers are consistently paying more than the actual cost of health care, while the Medicare and Medicaid programs pay less. Why does this continue to be so?
Stephen Pollard
Centre for the New Europe
There are two ways of looking at the Labour government’s reforms of the National Health Service (NHS): the glass is either half-full or half-empty. The glass-half-full approach has rendered bold reforms that have been far in excess of anything imagined even under the Conservatives. In his 1997 campaign, Tony Blair criticized Conservative attempts to involve the private sector in reform of the NHS. Nonetheless, Health Secretary Alan Miliburn’s July 2000 NHS Plan established targets for access to cancer treatment and underlined the need to utilize the private sector’s spare capacity to deliver this access.
Using the private sector’s spare capacity is one thing, but building new private sector units for the NHS’s use is quite another. In 2002, a capacity planning exercise conducted by the NHS showed that faster treatment was needed for cataracts and hip replacements; the decision was made to open up bidding for diagnostic and treatment centers to the private sector. The first independent treatment center opened in 2003. Even though only 16,000 patients have been treated since then in private sector treatment centers (out of 5.5 million non-emergency operations), the government has already contracted with the independent sector to do a further 460,000 operations in the future.
There is, however, a glass half-empty view which argues for an exclusively tax-funded health-care system. Although the reform program involves contracting out to make the NHS more efficient, Tony Blair and the Labour Party are still wedded to this stance. Indeed, in a 2003 speech to the Cass Business School, Blair’s likely successor, Gordon Brown, argued that both funding and provision should be provided by the state.
Labour began its spending “spree” to catch up with its European Union (EU) neighbors; total health-care spending was 1.3 percent less than the EU GDP average in 2000. Private spending makes up this difference in other countries, but Labour has committed itself to spending vast sums of public money to bridge this shortfall. The reform program has been testing the ideological viewpoint that tax funding is the critical element in an efficient health care system. As the think tank Reform argues: “Spending on the NHS has increased at an unprecedented level--doubling since 1997 (in cash terms) and due to increase a further third by 2008--but on all appropriate measures productivity has declined.”
The United States must not move towards a single-payer system. It would be the ultimate irony if, at the very time when a Labour government is doing its best to deal with the deleterious consequences of such a system, the United States were to embrace such a fundamentally flawed model.
Wilfried Prewo
Hannover Chamber of Commerce
The United Kingdom, Germany, and Switzerland represent three different systems of delivering health care. Britain is representative of socialized medicine, with its fully government-run health-care system. It delivers the lowest-quality, but also the least costly, health care in Europe.
In Germany, 90 percent of the population is insured publicly, but a 10 percent privately insured “fringe” does exist. The public system is not, as in Britain, financed through general tax revenues, but by a payroll tax. However, those who make more than the contribution limit for the payroll tax can opt out of the public system and contract with a private company. German government workers can opt out of the public system without reaching the contribution limit; they make up approximately half of the 10 percent “fringe.” This privately insured proportion is highly competitive; private insurance finances the introduction of new technology and after a few years the publicly insured demand similar benefits. As a result of this pressure, the German system is more expensive than the British system, but it is also highly regarded.
The most market-oriented country is Switzerland; it offers a wide array of choices for public insurance, including the option to collect a premium rebate at the end of the year if services have not been used. The Swiss also offer rebates to those who choose managed care plans or sign up for certain provider networks. The Swiss system is only slightly more expensive than German system and it spends less than Germany and Britain on pharmaceuticals. Switzerland does not tightly regulate pharmaceutical prices, but there is a considerable amount of direct and indirect regulation in Germany.
Local politics and financing policies can impact the use of health care services. For example, until two years ago, hospitals in Germany received fixed per-diem remuneration dependent on patients’ length of stay, regardless of the complexity or expense of treatment. As a consequence of this policy, German hospitals kept their patients three weeks for procedures that would only have required a stay of three days in the United States. This has now changed, and lengths of hospital stays in Germany are being reduced.
A case study of eleven major health-care reforms to reduce pharmaceutical expenditure in Germany in 1982-2004 reveals that no reform has produced a lasting cost decrease, and only four reforms achieved a cost decrease in year one. Countries considering moving towards heavily government-regulated systems will not get the promised results and are moving toward socialized medicine.
AEI research assistant Elizabeth DuPre and intern Emily Beuhler prepared this summary.
