Health Care Spending in the United States

BE 608

Per capita health care spending in the US and OECD countries in 2019 (source: OECD health Statistics)

Spending as % of GDP in the US and OECD countries (source: OECD health Statistics)

Total expenditures on health care are actually pretty simple:

how much does the care cost x how much do we use or:

TE = \sum_i P_i \times Q_i

Where Pi is the price of service i and Qi is the amount we consume.

Differences in expenditures over time or across countries must be driven by either Q, P, or a combination of both.

Why?

What is your explanation for why expenditures in the United States are so much higher than in other wealthy countries? (Drawing from your experiences or the reading by Aaron and Ginsberg)

Does this reflect higher "p" or high "q"?

Let's examine some specific hypotheses...

Americans are richer, so we'd expect to spend more on all things, not just on health care. This is why health care spending is higher in the US.
Americans are less healthy, and need more care/spending to achieve the same level of health as other countries.

Non healthcare reasons for higher spending:

Income and Spending

Source: OECD health statistics, 2016

Percent age 65 and Older (OECD Health Data, 2016)

Percent daily smokers (OECD Health Data)

Percent obese, OECD Health Stats 2016

So what do we spend money on? (From 2018 NHE Data, KFF)

NOTE: Other Personal Health Care includes, for example, dental and other professional health services, durable medical equipment, etc.

Other Health Spending includes administration and net cost of private insurance, public health activity, research, and structures and equipment, etc.

Who is doing that spending?

Source: KFF

Who is doing that spending?

Mix of private and public payers

Medicare: everyone age 65 and older plus the disabled
- Either directly by federal government or through privately contracted insurance companies
Medicaid: certain low income groups (low income pregnant women, children, disabled, low income adults in some states)
- Either through federal/state partnership directly or through privately contracted insurance companies
Employer sponsored health insurance
Individual plans
Self-pay

Spending on Insurance Administration per Capita

Pharmaceutical Spending per Capita

Number of prescriptions taken regularly

Humira

Enbrel

Silver lining: we take far more generic drugs in US than in Europe (85% volume in US, only 50-60% in most European countries)

Price of selected drugs (monthly)

Source: Health Care Cost Institute

Practicing Physicians per 1000 Population

Annual physician visits per capita

Sample: Chronically ill adults

% who could get a same-day appointment if needed

Source: 2008 Commonwealth Fund International

Health Policy Survey of Sicker Adults

6+ days wait or never able

to get appointment

Survey of adults, 2013:

Easy getting after-hours care without

going to the ER

Source: Commonwealth Fund International Health Policy Survey

Survey of primary care physicians, 2012:

Practice has arrangement for patients’ after-hours care to see doctor or nurse

Average Physician Income by Age (includes business earnings)

Source: Gottlieb et al. NBER (2020)

Average Physician Income by Specialty (includes business earnings)

Source: Gottlieb et al. NBER (2020)

Physician Earnings (excludes business earnings), Selected Countries 2010

Cutler and Ly, Journal of Economic Perspectives (2011)

Hospital Discharges per 1000 population

Average Length of Stay for Acute Care

Spending per hospital discharge

Source: HCCI data/IFHP Analysis

MRI Machines per million population

MRI exams per 1k population

CT Scans per 1000 population

Diagnostic Imaging Prices

MRI

CT Scan

	Prices	Quantities
Administrative Costs	Higher	Much higher
Prescription drugs	Brand prices are much higher, but greater generic use	Slightly higher than average
Physician services (GP)	Higher	Lower
Physician services (specialists)	Higher	Higher for some procedures
Inpatient care	Higher	Fewer admissions, shorter length of stay, more intensive treatment
Diagnostic imaging	Higher	Higher

Summary

How does the US compare to other countries in terms of...

Geographic Variation in Spending

McAllen TX: $13,648 per Medicare beneficiary

El Paso, TX: $8,714 per Medicare beneficiary

No clear difference in health outcomes.

Geographic Variation in Spending

What is correlated with this variation within the United States?

Historical factors: Hill Burton hospital construction, nature of tort system in state
Physician culture ("cowboys/cowgirls" vs "comforters"/"high follow up" vs "low follow up")
Patient preferences and characteristics are not highly correlated

Cutler, Skinner, Stern, and Wennberg AEJ: Policy 2019

Geographic Variation in Spending

Cutler, Skinner, Stern, and Wennberg AEJ: Policy 2019

Geographic Variation in Spending

Different regions have different cultures, fixed capital, and patient populations.
They also have different policy environments, and appetites for intervention.

What has your state done (if anything) to curb health care spending?

Spending Growth

Health Spending as a Percentage of GDP, 1970–2017

Source: KFF and Peterson/Kaiser Health System Tracker (based on NHE data)

Historical growth by decade

Post 2010 Cost Slow Down: spending for those age 65+

"Bending the cost curve"

Cutler et al. Health Affairs 2019

Post 2010 Cost Slow Down

Cutler et al. Health Affairs 2019

Change in Expenditures During COVID-19

Change in Expenditures Since COVID-19

Understanding Differences in Spending

•The US spends substantially more on health care than other high income countries.

•Although health care is a normal good, this higher spending cannot be explained by higher income in the US.

•Also, higher spending is not driven by greater health needs.

•Higher spending in the US is driven by higher prices and greater use of “high tech” interventions.

Challenges in the US

These Challenges are Tightly Connected

Rising costs have led to an erosion of insurance coverage

Over-utilization increases costs and harms patients

The uninsured often go without necessary care

So: Does the US Spend "Too Much"?

Upcoming Topics

•Is the level of health spending in the US inefficiently high?

•If technology drives the growth in health spending, how should we think about the efficient level of technology diffusion?

•How does insurance design influence the demand for and supply of health services? How can plan benefits and provider payments be designed to improve efficiency?

•How do payment/delivery reforms address inefficiencies in the US system?

For next class

Garber and Skinner, Gawande articles:

•How can we apply the concepts of productive and allocative efficiency to health care?

State question:

Is your state a high spending or low spending state? What factors do you think explain this level of spending?