Wednesday, January 13, 2010

Do American's pay more for their healthcare?

A major rationale in the push for government involvement in the U.S. health care system is the claim that the U.S. pays significantly more per capita for medical services than countries with some form of nationalized (e.g. government controlled) health care.

Source: Organization for Economic Co-operation and Development. OECD Health Data 2006, from the OECD Internet subscription database updated October 10, 2006. Copyright OECD 2006,

Or that we spend a greater amount of our GDP on health care:

Source: Organisation for Economic Co-operation and Development. OECD Health Data 2006, from the OECD Internet subscription database updated October 10, 2006. Copyright OECD 2006,

But looking at dollars spent on the purchase of medical goods and services does not capture the full costs of healthcare decisions.

In all forms of nationalized health care, spending for medial care is capped, either as a budgetary total, or in the form of price controls on reimbursements. Limits on budgetary totals lead to obvious rationing, but a less obvious form of rationing also occurs with price controls. Whenever the price of something is held artificially below its true costs, demand rises and shortages occur. This is a basic, fundamental economic fact.

When demand exceeds supply, the normal economic response is for the price to rise. Higher prices signal greater scarcity and discourage overuse and waste.* People have the information they need to prioritize and to make better decisions about their purchases of these scarce resources.

When prices are not allowed to rise, means other than price discrimination emerge for allocating resources. Waiting times lengthen, and quality deteriorates. Office visits shorten. Some services--like phone consultations or home visits--disappear. Procedures that used to be accomplished in one visit, now require two or more. All of these are ways of shifting the "costs" of a good or service elsewhere.

Longer waiting times for medical treatment increases pain and suffering. Disability, and even mortality, increase due to delayed diagnosis and treatment. Significant economic consequences accrue through lost wages and productivity. Such changes in access and quality, and the increased economic costs not measured by the direct purchase of medical treatments, are not captured by the data on per capita spending.

If a person has to wait a year or longer for knee or hip surgery (as they do in Canada and Great Britain) how much economic productivity is lost as compared with receiving the surgery in less than 4 months (as occurs in the US)? What is the value of less pain and suffering? What is the dollar cost of disease progression due to prolonged wait times?

The answer to the question "Do American's pay more for their health care than people in other countries?" is not answerable by simple per capita or %GDP spending comparisons.

In fact, given our current mixed economy, and its destructive effects on price signals, it is not answerable at all.

Addendum: Also not included in official figures are any bribes, "gifts" or black market purchases--which in some countries can be quite significant. Check out this story about healthcare in Japan.

*The higher prices also allow for higher profits, which encourages others to enter the market, increase supply, and subsequently bring about lower prices.

1 comment:

Neoslinger said...
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