As the American congress recently adopted the most important healthcare reform ever presented to the citizens of the USA, the Organisation for Economic Development and Cooperation (OECD) presents its reports on health spending and points out that American citizens spend more of their national income on health than anywhere else even though the United States has not yet achieved full insurance coverage.

The United States spent 16% of its national income (GDP) on health in 2007. This is by far the highest share in the OECD and more than seven percentage points higher than the average of 8.9% in OECD countries. Even France, Switzerland and Germany, the countries which, apart from the United States, spend the greatest proportion of national income on health, spent over 5 percentage points of GDP less: respectively 11.0%, 10.8% and 10.4% of their GDP. However, almost all OECD countries, with the exception of the US, and the middle-income countries Mexico and Turkey, have full insurance coverage for their people.

The United States is, other than Mexico, the OECD country where the government plays the smallest role in financing health spending.

However, such is the level of health spending in the United States that public (i.e. government) spending on health per capita in the United States is greater than in all other OECD countries, excepting only Norway and Luxembourg. For this amount of public expenditure in the United States, government provides insurance coverage only for elderly and disabled people (through Medicare) and some of the poor (through Medicaid and the State Children’s Health Insurance Program, SCHIP), whereas in most other OECD countries this is enough for government to provide universal primary health insurance. Public spending on health in the United States has been growing more rapidly than private spending since 1990, largely due to expansions in coverage.

Where does the money go?

The stand-out difference in spending in the United States compared with other OECD countries is in elective interventions on a same day basis. These accounted for a quarter of the growth in US health spending between 2003 and 2006, compared with just 4% of the growth in Canadian spending. Such services are an important innovation in health care delivery, often being preferred, when possible, by patients to staying overnight in a hospital. Estimates of spending on same-day surgery performed by independent physicians for 2003 and 2006 suggest that this has been the fastest growing area of health care over this period (Mckinsey Global Institute, 2008).

Administration of the US health system is expensive: the 7% share of total spending going on administration is twice the average of OECD countries. This is on a par with a few other systems such as France, Germany and Belgium which also have multipayer systems (even if in some of them there is no or little competition across payers). In comparison, Canada and Japan devote around 2-4% of total health spending on administration.
The pace of growth in administrative spending in the US has slowed in recent years, but is high in part because of lack of investment in health Information Communication and Technologies (ICTs). New OECD analysis shows that such investments will help – eventually – reducing costs. Up to now, use of ICT in the US health sector has been little short of woeful in comparison with the best performing countries. Australia, the Netherlands, New Zealand, the UK and the Nordic countries have near-universal use of electronic health records (EHR) by General Practitioners (GPs) which, along with the potential benefits for quality of care, also reduces administrative costs.

The average price of 181 pharmaceutical drugs in the United States in 2005 was 30% higher than the average in other OECD. Other studies (e.g. Mckinsey Global Institute, 2008) suggest that this is an underestimate, and the true difference in price is as much as 50%. Most studies find that prices of generic drugs were cheaper in the United States (and indeed use of generics is higher in the US than in most countries), so all of this difference in prices between the US and elsewhere is due to very high prices of branded drugs.

An OECD study (OECD, 2007) found that prices in US hospitals in 2005 were higher than in other OECD countries. But again, it seems that the real difference in costs was underestimated. A more detailed study is currently underway at the OECD, and preliminary results from this work shows US price levels of hospital services to be nearly twice as high as the average of 12 other countries (the old 2005 study suggested that prices were about 40% higher than in the same 12 countries).

The same may be true of the ‘price’ of physicians. Remuneration of US GPs exceeds those of doctors in other countries (being $25,000 to $40,000 more than in UK, Germany and Canada, and $60,000 more than in France, though the data is old, coming from 2003-5). The gap was even larger for specialists (Fujusawa and Lafortune, 2008). Income levels reflect both fees and activity – physicians are often remunerated on a fee for- service basis, so the high rates of income of US doctors might reflect both higher fees and higher activity than in other countries. On balance, however, it seems likely that at least some part of the high rates of remuneration are due to high prices rather than to high volume of activity.

The full report