High US Healthcare Spending: Higher Prices Or Higher Quantities?

Image Source: Pixabay
 The US spends a much higher share of its GDP on healthcare than other advanced economies. But is that higher spending due to higher prices for delivery of healthcare services or to a greater quantity of healthcare being provided? This “prices or quantities” question has been around for a while, but the OECD takes a crack at providing some estimates in the most recent Health At a Glance 2023: OECD Indicators (November 2023).A primary challenge in comparing healthcare prices across countries is that the quality of certain kinds of care surely differs. For example, consider a comparison of “patient days in a hospital.” In the US healthcare system, a hospital stay is often a very intensive healthcare experience, where you then do much of the recovery at home; in other countries, a hospital stay might be longer, with expensive technology used only part of the time.?Thus, saying that a US hospital day costs more is really about differences in what a “hospital day” means across countries. To compare healthcare prices, you want to compare (at least roughly) the same services. Then, in addition, you need to compare between US dollars and other currencies.The OECD has tried to put together a fair price comparison for healthcare across countries. For the US hospital sector (about 30% of healthcare costs in most countries), it uses an “input” measure of costs based on the salaries of those working in hospitals. For other aspects of healthcare, and for hospital care in other countries, it uses “output” measures of price per service (or per drug) provided.Here’s the result of the OECD measure, which estimates that the price levels in the US are 43% higher than the OECD average.Working backward, if you know that total spending is prices multiplied by quantities, you know the overall spending gap between countries, and you know the differences in price levels, you can then infer the underlying differences in healthcare quantities. Using that method, here’s the OECD estimate of the quantities of healthcare consumed across countries:I should note that while the OECD has a well-deserved reputation for taking care in doing these kinds of computations as well as they can be done, the method here is necessarily imperfect. For example, differences in administrative costs across countries will not be well-captured here, nor will differences in what kinds of technologies are available across countries.With such concerns duly noted, it’s interesting that per capita quantities of healthcare consumed in the US are the highest of any country–and remember, this is after adjusting for the higher US price levels for healthcare. People in Germany and France consume about the same quantities of care as those in the US but at about one-half the price level.?Conversely, the other countries with high healthcare price levels similar to the US, like Switzerland and Norway, have per capita consumption of healthcare that is much lower.Thus, the US economy is the only one near the very top of both the prices and the quantity rankings for?healthcare, which then leads to a high share of the US economy going to healthcare, compared with other countries. Of course, every dollar the US spends on healthcare is a dollar of income received by someone in the healthcare industry, so changing this dynamic is quite difficult.More By This Author:Solow On Market Advantages And Market Failures
Charles Dickens On Seeing Poverty
Carbon Capture And Storage: Where It Stands