Let’s Compare US Health Care Costs With Other Countries

By Justin Gardner | Related entries in Health Care, Money, The World

The Wash Post’s Ezra Klein interviewed the CEO of Kaiser Permanente and found massive differences when looking at health care costs in the US and other countries.

Yes, it’s not even close.

cost of doctor's visits in the world

head scan and medical imaging fees across the world

drug prices compared across the world

Gee, I wonder why we’re going bankrupt…

And those are just 3 graphs! Want to see the other 19? Click here to download the whole report (.pdf).

I’ve already asked the question, but I’ll ask it again…why do we pay so much more for health care????


This entry was posted on Tuesday, November 3rd, 2009 and is filed under Health Care, Money, The World. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

21 Responses to “Let’s Compare US Health Care Costs With Other Countries”

  1. Gaucho Politico Says:

    free market as opposed to price setting.

  2. Aaron Says:

    I would be curious to see what happens when you factor in the cost of taxes in the listed countries (as well as any other benefits they have over the US) and see where it becomes ultimately cost effective.

    I suspect that even accounting for that, reform is still a good idea.

  3. Mike Says:

    “why do we pay so much more for health care????”

    This is a very important question that isn’t getting enough attention. It seems to me to be a combination of many factors, very few if any of which are addressed by the current health care proposals. Here are a few that come to mind:

    1) Unhealthy lifestyles (higher demand for health care)
    2) Shortage of high-skill workers (lower supply of health care). Medicine is an industry that relies on high-skill workers and because of the income gap potential doctor and nurses have many other attractive options.
    3) Higher income in the US, resulting in more disposable income, on average, to spend on health care (higher demand).
    4) High standards of medical licensing (lower supply)
    5) Doctors practicing defensive medicine to avoid law suits (higher demand)
    6) Risk of law suit and high malpractice insurance deters potential doctors from entering the medical profession, preferring other well-paying professions instead (see #2) (lower supply)
    7) High investment in specialty care which takes resources away from primary care (lower supply)
    8) Price controls in other countries drive up drug prices in the US as drug companies make up for the cost of research on the backs of US consumers.
    9) High cost of education compared to other countries which have more government subsidies (cost shifting that is not counted in the graphs, as Aaron noted)
    10) Regulation of health care organizations and insurance companies deter competition (it’s hard to get into a market when you are restricting from offering plans or products that vary from the accepted norm) (lower supply).
    11) Employer-based health care makes it difficult for consumers to switch insurance companies, drastically reducing the insurance companies’ motive to take care of their customers by improve quality and decreasing costs.
    12) Doctors are paid by what the do and not the results they achieve.

    I don’t know if any of the above are major contributors on their own, but taken together it is no wonder we have much higher health care costs. Many of them will take major efforts over the long term (#1 and many others). Some of them have nothing to health care but are the results of other economic forces (#2 and #3, for example). Almost none of these are being addresses, as far as I can see, in the current legislation (except maybe #12).

  4. gerryf Says:

    Mike,

    You make a lot of good points, but there are some basic problems with where I think you are ultimately going–note, I said I think.

    You cite regulations as a problem, and lack of competition, supply and demand, etc.

    Basically, it seems, you seem to be coming from the free market approach.

    A basic prerequisite for a free market, though, requires many players. In a mature industry, that is very difficult to achieve.

    Let’s talk about government restrictions for a moment. There is a presumption among some (not saying you) that restrictions are placed on business by the government, and while that is true, it is not always done just because government wants to control something–often, it is done at the behest of industry to prevent competition. Doctor licensing was originally pushed by medical associations to restrict the influx of more doctors into a state, reducing competition. Patent law is pushed by industry to prevent other companies from encroaching into a lucrative market like pharmaceuticals. Hospital beds are limited by states to ensure existing hospitals remain profitable. The list goes on and on. Medical malpractice lawsuits may lead to more testing for preventive medicine, but does it lead to more testing than doctor owned medical laboratories?

    We have a lot of free marketeers who run around saying, “We don’t have a free market, but if we did everything I say woudl work.” If we had a true free market, maybe some of this would matter, but we don’t and we are not going to get one.

    Now maybe, just maybe, if the conservatives would wake up to that fact and come to the table, we would actually get meaninful healthcare debate with ideas from both sides leading to a better solution. Instead, they are putting their foot down and saying only our ideas will work so we refuse to take part in the discussion.

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  6. Nick Benjamin Says:

    I would be curious to see what happens when you factor in the cost of taxes in the listed countries (as well as any other benefits they have over the US) and see where it becomes ultimately cost effective.

    I’m trying to understand this argument, but it’s not easy.

    In terms of taxes we actually devote more money to health care, per capita, than pretty much anybody. Canada spends less tax dollars per capita on health care, the UK spends less dollars on health care, Germany spends less, etc. Period.

    Please elaborate.

  7. Nick Benjamin Says:

    @Mike
    As for reasons health care costs more, there are many.

    Lawsuits and defensive medicine are not one of them. We know this because every state has tried reforming it’s tort system several times, and none have had any noticeable affect on costs. Nor have they affected claims from the medical community that torts cause high costs.

    As for other countries price controls driving up our costs that is simply ridiculous. Nobody says Walmart is subsidized by Sears. In this case low prices abroad should result in lower prices in the US, as technicians flee their skimpy salaries in Germany and move here. Higher supply = lower price, or markets don’t work and we should become socialist.

    Regulations on insurance companies aren’t the problem either. The reason they exist is simple: a free market only works when everybody understands what they’re buying. Since very few people understand insurance, or medical finance (quick what’s a fee schedule?), states regulate insurers. That way people have some idea what they’re buying, because if it says insurance it has to cover, say, pre-natal care. Dumping those regulation completely will only mean the snake-oil salesman move in, and that is never good.

    The actual problem, IMO, is that nobody is responsible for the cost of health care. You ask why it costs so much and the doctors point at insurers, who point at lawyers, who point at a combo of inept Doctors, etc. Combine this with the fact that health providers are frequently monopolies, that health insurance is most efficient when run by a big company (which frequently means a monopoly, or near-monopoly), that drugs are provided by monopolies (aka: patent-holders), that the average consumer has no idea whether Lipitor is better than a generic brand, etc. and you have a recipe for a totally dysfunctional market.

    In other countries the government makes sure things don’t get out of hand. In the best health systems in the US — the VA, Mayo, the Cleveland Clinic, etc. — prices are significantly lower than they are in the rest of the country.

    Health Reform won’t fix all of that. It will help with the insurance-monopoly thing by creating a national market. The more standardized benefit packages there will help people know what they’re buying. Since there will be fewer ways to weasel out of paying claims (no rescissions, preexisting conditions clauses, crappy plans that don’t cover anything, etc.) insurers will be more responsible for the total cost of care, hopefully this means they’ll be more willing to demand providers improve quality. The public option would really help here.

    It’s not gonna fix the problem completely. There’s pretty strong reason to believe Obama will screw the drug companies as soon as this passes,

  8. kranky kritter Says:

    It’s actually a pretty complicated thing to try to make an apples to apples comparison on price across vastly different systems, because the totality of the way(s) in which things get paid for is going to differ. For example, off the top of my head, I wouldn’t even know where to start in trying to figure out which “cost” these graphs are showing. We’re all familiar with the “list” price of various meds and procedures, which is the price that almost no one pays. The graph shows a range of prices for Lipitor from 125 to 334, but most folks pay a 20 to 35 co-pay and then your health plan kicks in some more. So what’s the “cost?”

    That’s all just to point out that the comparison is complicated. But nevertheless, I don’t really have much at my mental disposal that suggests all the complications can really explain away the notion that America pays more. I think we do. And if most other countries pay at a price-controlled rate for thing like drugs, then IMO its a bit daft for us to pay substantially more. I am not down with anyone suggesting that for the sake of free market principles, Americans should get poned for drugs.

    Isn’t a big part of the problem really that America pays a premium for early adoption and for being affluent enough to pay the early costs for a wide range of treatments that many other countries can’t begin to entertain? America is sort of like the medical equivalent of the movie fan who must go out and see that new movie the first weekend it’s out. So we pay 9 or 10 or 11 or 12 bucks. And other countries wait for the movie to go to a 2nd run theater or go see a matinee or wait for Netflix or buy a bootleg.

  9. Frank Hagan Says:

    Most of the “numbers” in these debates are soft, to say the least.

    I just checked the PAID amount of a doctor’s visit for me this past year. While the doctor does bill the insurance $75 for an office visit, the negotiated amount that Aetna pays him is $43. Add my $15 co-pay on, and the doctor’s visit is $58. That’s the rate paid to every doctor in the area who accepts Aetna’s PPO health insurance. I can make an appointment today for an opening in their schedule tomorrow, and I’ve never had a problem getting in on the same day if I’m in pain. I’ll pay a $20 premium for that kind of service. Where does the high end of that scale come from?

    I’ve noticed a huge disconnect between the actual amount paid by the insurers and the amounts quoted in articles. My wife’s MRI was billed to the insurance at $2,800, but paid at $520 (our share and the insurance payment), an amount comparable to Canada’s lousy wait-prone system. I simply don’t believe that the average of a CT scan of the head, a similar procedure to an MRI, is really PAID at $1800.

  10. Chris Says:

    That’s why the average is 950, not 1800. 1800 is just the high end of the range. You’re lucky you don’t have to wait ever, I can barely get in to see my doctor ever. It’ll be at least 3 weeks out, I just go to urgent care now any time I actually need something.

  11. superdestroyer Says:

    Nick,

    The U.S. spends much more on defense than other countries but has a lower overall tax rate. My guess is that most of the taxes in places like Canda go to subsidize people to make up for the high taxes in the first place. The same could be said about most of Europe. They have tax rates approaching 50% of GDP spend little on defense. Where does the money go in Europe if the U.S. is spending so much on healthcare?

  12. Mike Says:

    gerryf,

    I agree that government placing restrictions on private businesses is not the only way that the free market can be inhibited. You are right that it also happens because of lobbying from the industry itself. Both of these inhibit the free market (I’m not saying I’m against all government involvement, but I think it should be limited to cases when there is a true externality.)

    I also agree that mitigating many of the problems I mentioned above would be difficult. I’m not saying that we can sign some legislation that will magically solve all of those problems. But the question was asked: why does health care cost so much in the US? I attempted to answer that question, at least in part, but the question of how to actually solve those problems is much more difficult.

    Regarding whether free market solutions are unrealistic, I’m not sure. But here’s one thing I think a lot of people don’t understand about the market. Regardless of whether the market is “free” or not, market forces still apply. Lower supply and higher demand are always going to drive costs up, regardless of whether those costs are paid for directly by consumers or by the government. Some people, including at least one example in this thread, believe that if the government is in control then market forces no longer apply and you can just set a price and be done with it. As long as there are individual people making choices (“should I study law or medicine?”, “should I get that test done or not?”, “should I invest in this business making medical equipment or this one making TVs?”, etc.) then you can’t avoid market forces.

    So, while you’re right that I do favor free market solutions, at the core my points apply whether we pursue a free market solution or not. Regardless of the solution, we have to ask ourselves these questions: will more people be drawn to the medical profession and related services, or less? Will there be more demand or less? So far, it seems to me these questions have been largely ignored. We have focussed on how we can spread the costs around more fairly (and in general I support that), but not on how to actually lower the costs which is at least equally as important if not more so.

  13. Frank Hagan Says:

    The methodology is “interesting”, at least for the US numbers. I looked at the linked slideshow, and it appears the medical image price information is from “online price comparison sites”, a reference made without any links to the sites. The drug price information is taken from “several online US based retail internet sites”. The other countries have government reporting mechanisms, and are reporting the NET price they pay. In the case of the US numbers, they appear to be the list price, not what is actually paid.

    Very few pay list price in medicine. The negotiated or capitated rate actually paid is much less.

    The report shows a CT scan of the head ranging from $950 to $1,800 in the US, yet the first site I went to shows an average cost at $200 to $400, in line with all the other countries except Spain and the UK. The costs listed at http://www.scandirectory.com/content/body_scan.asp are an example of “free market” costs where consumers choose to have the scans as a preventative health measure. Why is the cost so much less than the “list prices” the study has? Because the provider is expecting people to pay the asking price, not a negotiated amount that is much less and hidden from the consumer.

    This, and many other studies, compare apples and oranges. The true medical costs are obscured in the US by our weird system where the customer is not the patient, but the insurance company and the employer. When you look at the free market alternatives that are available, like scandirectory.com linked above, you find favorable costs to the subsidized costs of nationalized health insurance systems, with better service levels.

  14. Jimmy the Dhimmi Says:

    First, this is a chart reporting prices not costs, to illustrate, just look at the difference between Medicare and Private fees in each graph (assuming the numbers aren’t bogus). These are the same procedures by the same physicians and hospitals in the same country, so we can assume the costs are the same, but they are priced differently. Everyone knows that the reason for this is because Medicare forces doctors to accept fixed prices, so the doctors have to charge more from the private insurers to make up the cost.

    Which brings me to my second point, which is: why is this an indictment on insurance companies? These statistics are fees and prices charged by doctors, hospitals and manufacturers. Perhaps the Obama administration needs to go after these greedy doctors and treatment facilities. And what does Ezra Klein mean by “unit of health care”? How does Ezra know that people in America are paying more for the exact same quality of care? How do you quantify the monitary value of your time on a waiting list?

  15. James Says:

    There are some great posts here. My only comment is if Medicare is the standard the Administration is pinning the reform on…then why is it going broke? In fact why are all the programs the government gets involved in having trouble financially? And why all the covert and partisan behavior on the part of the Democrats when it comes to letting everyone know and have input? I say Democrats because they have all the control. It was Republicans shutting out Democrats not that long ago. How constructive is that when what they are playing with is so important to all of us?

    It’s not so much an issue with health care reform for me as it is WHO is in charge of reforming. The track record here is lousy. And the trust factor is in the toilet. I don’t think there is as much passion involved in getting health care for people as there are good old politics, party before people power plays, and under the table buy outs involved. It’s sort of like asking convicted criminals to come up with a program..designed by them and supervised by them… to make sure the rest of us aren’t victimized by criminals any more.

  16. Mike Says:

    Nick,

    That’s odd. I didn’t see your reply to me before I posted my reply to gerryf. Sorry, I didn’t mean to ignore you.

    “Lawsuits and defensive medicine are not one of them.”

    Like I said, any one of the things I mentioned above (except maybe the first few) are small when looked at by themselves. I’m not surprised that a study looking only at tort reform didn’t find any statistically significant drop in costs. There could be several reasons for that:
    1) It isn’t a major driver, but a minor one that is easily lost in the many other factors that differ from state to state. It’s very difficult to isolate the effect of a single factor when there are many at work.
    2) Just because a state has implemented tort reform doesn’t mean that they have solved the problem. And also remember that I presented what I believe are cost drivers above, but that doesn’t mean that I view all of them as “problems”. I believe people should have the right to sue when they’ve been wronged. That will drive up the cost for everyone, but that’s the price we pay.

    “As for other countries price controls driving up our costs that is simply ridiculous.”

    The drug industry is somewhat unique in that there is a very high up-front cost to producing drugs, but a very low production cost. That means that drug companies can afford to sell to countries that have price controls, since they will still make a profit on those drugs one-for-one. But, somewhere they must make up the cost of the original research. I don’t believe they raise drug prices in the US to “make up for it” (they sell them at the price the market will allow, for the most part), but it is true that the price controls in other countries acts as a disincentive to drug research, thus lowering supply and increasing the price where there are no price controls. Here is an interesting article I read on the subject: http://www.slate.com/id/1005389/.

    “Regulations on insurance companies aren’t the problem either. The reason they exist is simple: a free market only works when everybody understands what they’re buying.”

    Agreed. I didn’t say regulations are always bad (again, see my point above about “cost drivers” vs. “problems”). I said that they contribute to high costs by inhibiting competition. So a balance needs to be struck. If there is too much regulation, to the point where plans can’t vary hardly at all because there are so many mandates, then it makes it difficult for a new company to break into the market since they can’t offer an alternative product that people might like better (ie. some people would rather have high deductibles and low premiums. Also, the current proposals prohibit cost variance except for a few factors, which seems to me to prohibit incentives for healthy behavior or other innovative cost-saving schemes that we might come up with). Again, I’m not saying that this is a silver bullet either, or that we should strip away all regulations, I’m just saying it contributes to the cost problem. In retrospect, however, I probably should not have included it in my list since although it might have some effect on the cost of health care, other countries have regulations too so that doesn’t explain the difference.

    “The public option would really help here.”

    I see your point about the public option. If it is run well, it will put pressure on private insurers to lower cost/improve quality. The insurers (and the government, since they’d be one of them) in turn will put pressure on the providers to lower cost/improve quality. So in theory I could see it working to reduce some of the waste and overhead in the system. But I think we need more than that long term. As the chart above makes clear, we aren’t just marginally more expensive, we’re several times more expensive. Ultimately, to make up for that kind of difference, you have to have a fundamental shift in market forces. I see very little in the current proposals that will boost supply of health care or decrease demand. In fact, I see some of the opposite (ie. limits on out-of-pocket expenses. Providers being pressured to work on lower profit margins, thus disincentivizing providing medical services) which could counteract whatever efficiencies are gained by the public option.

    Sorry for the long comment. There is a lot to respond to and this is a complicated topic for sure. If I were to summarize my main point, here it is: we can’t just slap on price controls, or just look to take away insurance company profits, and be done with it. It’s much more complicated than that. It’s also incorrect to believe that if we could just have a single-payer system like those other countries, our costs would be the same as theirs. As my list noted, there are several factors that are completely independent of the health care system (unhealthy choices, shortage of high-skill workers, higher average income) but which contribute to higher health care costs in the US.

  17. TerenceC Says:

    If we all agree that Health Insurance Companies only serve as an aggregator of money in providing health care – then the answer is easy, and since no health insurance company actually provides health care I believe “aggregator” is an accurate category. We pay so much because the aggregator of money between you and your doctor takes roughly 30% off the top before they even pay any bills. If you remove health insurance companies from the equation and provide another “aggregator” of the money who only take 3-4% off the top you have an instant savings – and you also have a comparable expense to care ratio with the rest of the world. Health Insurance companies have no business in the health care industry – they serve no higher purpose other than profiting off your illness, and that’s just plain wrong.

  18. Nick Benjamin Says:

    Mike, no worries.

    On tort reform I’ll say just one thing. We tried it. It didn’t work well enough. In the future we might find some way to make it work, but we don’t live in the future. I support it for reasons of political expediency, not because I think it’ll cut health costs a penny.

    As for drug costs, they actually aren’t that big a part of the price of healthcare. They are a rapidly increasing element in the cost of health care, and they’re extremely prominent in the public view because you have to pay for them every month, and it’s almost always you who has to pay because prescription drugs benefits are rare these days. But they are only like 10% of the pie. Nonetheless there an obvious place to cut: marketing. The drug companies spend more on marketing than they do on R & D. We go back to the bad old days of Ronald Reagan, when “marketing” meant convincing Doctors a drug worked rather than spending $millions on TV ads.

    As for regulations, keep in mind other countries have stricter regs and cheaper costs.

    I agree that this bill isn’t enough. Or even near enough to solve the health care cost crisis. Unfortunately you need 60 Senators to get anything done, and 39 have apparently concluded that it’s in their best interest to torpedo health reform no matter what. Lieberman is delusional (note to moron: when the accountants tell you the public option will save money, and you disagree “out of principle” nobody takes you seriously), and Snowe’s married to a trigger she is apparently unable to write. And to get this passed you need one of those *nice people* PLUS everyone else.

    So this bill won’t address the root causes of our health crisis. Most of the country will still get insurance through their employers. Drug prices won’t go down. There’s no direct action against the “McAllen Problem:” Doctors who open up their own labs specifically so they can get rich by ordering unnecessary tests.

    But a few things will happen. First administrative costs will go down in the pool. Second brutal rescissions will end. Third regulations will be more uniform nationwide as everyone has to have a federally-approved plan. Fourth drug companies have agreed to take a small hit. And there are more small cost-saving measures included And if the public option is present there will be major competitive pressure on insurers to save money.

  19. Mike Says:

    Nick,

    We can agree that this bill has some benefits (for example, I do think it is extremely unfair that someone who has a chronic unpreventable disease cannot be insured in our current system). But, as you said, doesn’t address the root causes and, I would add, is extremely expensive for a bill that doesn’t. What I worry about is that we are putting so much expectation into this bill that there won’t be any motivation (not to mention any money left) to do anything else for possibly decades until it becomes clear that the problem has not been solved.

  20. Nick Benjamin Says:

    @Mike

    Lets do a thought experiment comparing what happens if Obama wins on this to what happens if he loses.

    If he loses major reform efforts will immediately stop. As they did when Nixon, Clinton, and Truman failed to get universal health care. The political momentum will be gone and at least two or three Senators will refuse to stick their necks for a doomed cause. Which means no 60 votes, and probably no action for a decade or two. Unless the mess gets so bad even a Senator sees the need for immediate action. This would be bad.

    Let’s say Obama wins. Prescription costs start to level off. The insurance industry starts treating people a little better. Improved IT, and lower administrative costs start to add up. Then about July Obama proposes we totally shaft the drug companies. Medicare can now negotiate prices, and maybe most advertising is banned. The GOP is totally screwed because if they support him he’ll have a major accomplishment to take into the midterms, and if they oppose him the national issue during the midterms will be “Should we screw Pfizer?”

    They get back to DC. The Dems probably still control everything, but may (or may not) have 60 votes in the Senate. Blue dogs will have learned that health reform isn’t electoral poison, and most of this stuff will already exist. So if we, for example, want to implement Wydenn-Bennett by the back door we could allow every employer to buy into the Exchange, and encourage them with every conservatives favorite tool: tax credits.

  21. Mike Says:

    Nick,

    You make some good points. The question is: given that the health care bill does some good things, but also has some significant flaws, should I support it or not?

    It’s a difficult question. Your argument, it seems, is that this will be a first step and so we should do it to get the ball rolling. But, in the end, it comes down to this for me: if the bill doesn’t seriously address the fundamental problems of our health care system, and instead is just a first step, I see no reason why that first step has to cost a trillion dollars over the next decade.

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