We spend 17.4% of GDP on healthcare. The OECD average is 9.5%, and we don't have better outcomes to show for it. That's ~$1.2-1.7 trillion of waste annually that could be used to improve our society instead of lining crony pockets. Employer-provided healthcare is one layer of the Kafka baklava that obscures the cost of healthcare and prevents better cost controls and price discovery in America. It also makes employees more reliant on their company, literally for their wellbeing. Our economy is less dynamic as a result, so my $1.2-1.7 trillon estimate might understate the problem.
The obesity explanation doesn't pass the sniff test. Canada is 12% less obese than the U.S., but it spends 6% less of its GDP on healthcare. Put differently, if obesity was the reason for excess spending, the U.S. would save $1.1 trillion for every 12% of its population that is cured of obesity. If true, that would peg the marginal cost of obesity at $27,777 per person per year (1.1 trillion/.12*330 million), or 9x the annual salary of a doctor in Cuba. That is beyond the realm of believability, even if I introduce the other population-induced causal factors which you implied but didn't specify.
Additionally, the government would be more invested in the population's health under a single-payer model. It would actively work to reduce the prevalence of obesity and lower its costs. That would include taxing consumable goods with a negative health externality, commensurate with the magnitude of that externality. That would also include incentivizing the consumption and production of goods with positive health externalities and investing in pro-health infrastructure.
Imagine if a city faced the following math: "A network of bike lanes would cost us $40 million and $10 million to maintain over the next 10 years. It would also save around $50 million in health expenditures every 10 years. After one decade, it will cost $10 million and continue to save us $50 million." All the bike lanes you could dream of would be built overnight, assuming there would be subsidies by a M4A healthcare program. I'm more excited at the prospect of converting roads into pedestrian walkways and scooter highways. That wouldn't seem like such an expensive proposition if the government would recoup the cost in healthcare savings.
> The obesity explanation doesn't pass the sniff test. Canada is 12% less obese than the U.S., but it spends 6% less of its GDP on healthcare.
It's my blog (RCA). My argument is that obesity substantially explains US health outcomes in relation to other countries. I never claimed obesity is the cause of high national health spending (as in, "inputs"). To the contrary, I have consistently argued US health spending is well explained by its wealth (technically income levels).
To a first approximation, national health spending is entirely explained by the average house income level in the long run. While time, healthcare technology, and other factors are assocatied with rising spending, these changes are ultimately very well explained by changing income levels.
Amongst high-income countries, a 1% increase in income is robustly associated with a long run increase of about 1.8% (it's highly elastic).
The US spends more than Canada because it's still a much richer country (which isn't to say Canada isn't a nice place!).
> That is beyond the realm of believability, even if I introduce the other population-induced causal factors which you implied but didn't specify.
Again, I never said this, but other population health risk factors such as age structure, disease rates, and the like are of negligible significance when it comes to long run aggregate spending. Such factors may be highly predictive within countries and may have some say in the short run (within budgetary constraints), but in the long run national picture the evidence suggests these factors amount to little more than noise. National household income levels trumps everything.
> Additionally, the government would be more invested in the population's health under a single-payer model.
US government programs, namely Medicare and Medicaid, spend more on healthcare than most other high-income countries do in total (even more so comparing public-to-public). Just how much more incentive do we need before these magical effects kick in? Higher health spending predicts higher obesity rates in time series and cross-sectionally (though this is likely ultimately mediated by long-run income levels and by time).
Where is the evidence that these programs have large, sustained effects and are cost effective? Most data indicate these programs have negligible effects in the long run and they almost always cost more than they save (which isn't to say we shouldn't necessarily do it, but the economic rationale is v. weak).
Obesity is not an independent variable - socialized healthcare does a better job of controlling obesity with preventative health measures. As it is now in the U.S., patients only go to medical professionals when there is a problem, making obesity epidemics one of the effects of how U.S. handles healthcare.
Nothing is perfect, but most experts believe this has little to do with healthcare today because healthcare interventions tend not to be effective causes of long-run weight loss and most countries aren't doing enough of the stuff likely to have large effects (e.g., surgical interventions) to explain much of the variance. Even if you could argue it might explain something, say 0.5 mean BMI points, other factors are clearly highly important. Cultural * and genetic factors are likely to play a significant role amongst high-income countries. Further, obesity rates rise with time and income levels despite higher health spending.
> socialized healthcare does a better job of controlling obesity with preventative health measures
evidence?
> As it is now in the U.S., patients only go to medical professionals when there is a problem
The US spends more on preventive medicine than almost any other country, though preventative medicine generally has very-small-to-modest effects on outcomes and rarely, if ever, saves money (usually quite the other way around)
~ RCA
note: * some of these "cultural" factors may be residual economic influences... the US escaped the malthusian trap long before almost all other high-income countries and this may have latent effects on attitudes towards food, diet, etc)
>"And we will have white/black lists for food. I don’t trust the same people who brought us the food pyramid and low fat as a reliable arbiter of what’s good and what’s bad."
It's telling that, whenever the government (rarely) enacts laws that tax or ban consumables with negative externalities, they actually target the right thing. After troves of empirical evidence, they heavily taxed smoking and banned trans fat (I'm aware of the government's misguided early endorsement of trans fat vs. saturated fat, but science has progressed a lot since then). Recently, local governments have tried to tax excess added sugar. That has been less successful, but it's guided by the right thinking. Excess sugar in our food supply is unequivocally, empirically bad. The government has less of a basis to tax it since it's not paying for all our healthcare, but that would change under M4A. Moreover, there would be more money behind nutritional/health research, because that research would have a more tangible payoff: an approximate dollar amount saved in public healthcare expenditures.
And we will have white/black lists for food. I don’t trust the same people who brought us the food pyramid and low fat as a reliable arbiter of what’s good and what’s bad.
The NHS/universal healthcare was introduced in Britain in 1948, after WWII. The NHS isn't perfect, but it's much better than the American system. If we want a more flexible healthcare model, we can have universal healthcare to cover necessary + preventative care, with the option to purchase supplemental insurance for expedited and/or non-medically necessary care. Several other countries have that model.
>"Do you think high-paying healthcare sector and patent R&D in the US creates more incentive for research and development of new medicine & healthcare technology?"
Yes, but there's a limit. Incentives have diminishing marginal returns. At the end of the day, a $2B pharma company is still going to doggedly pursue a 20 year monopoly on a potential $1B drug, even if it otherwise would have been a $1.5B drug if there was no Medicare for All. Moreover, the vast majority of waste in healthcare is with hospitals, administrators, surgeons, insurance companies, and doctors, not the pharmaceutical industry.
Pharma is closer to software in that one company can produce one product with zero marginal cost that can trivially serve everyone on Earth with a given condition. We can even leave Big Pharma as is and still realize hundreds of billions in savings, though I still believe that there should be some single-buyer negotiation for drugs. We can use empirical evidence to negotiate on drug prices without drastically changing the incentive scheme. Ultimately, I believe pharma companies would increase prices abroad if we implement price controls in the U.S. The U.S. is subsidizing the world's healthcare.
>"Every hospital I've been to seemed horribly understaffed.. and I'd be afraid of an underpaid surgeon. Not sure what waste you're referring to"
Doctor/surgeon labor scarcity exists for the following reasons:
- Medical associations lobbied the government to restrict residency positions a long time ago, and continually lobbied to keep them down until just recently when the shortages have become too obvious. They were even warning of an impending doctor surplus in the 90's. Ya, right.
- Medical associations and med schools have been smart about restricting the supply of doctors through our med school network and excessively tedious licensing system.
Additionally, the other OECD countries I've referred to have similar health outcomes for a much lower % of GDP. Clearly, universal healthcare did not worsen their population's health. If someone wants quicker healthcare, I'm almost certain the U.S. would allow supplemental insurance to get that hip transplant in 2 weeks instead of 6 months.
Thank you for all the replies, I have learned a lot. It seems like there are dozens of issues that need to be fixed in tandem. Meanwhile, I will stay as healthy as I can because that seems like the best plan for the moment
> At the end of the day, a $2B pharma company is still going to doggedly pursue a 20 year monopoly on a potential $1B drug, even if it otherwise would have been a $1.5B drug
The problem is they don't know it's a $1B drug instead of a dud until they've actually done the research, and most of the candidates fail. And since the successes have to cover the failures, if the successes make less money, they can't cover as many failures and you don't get as many attempts.
> Moreover, the vast majority of waste in healthcare is with hospitals, administrators, surgeons, insurance companies, and doctors, not the pharmaceutical industry.
It is certainly a multifaceted problem and there is plenty of inefficiency that could be improved. Not just healthcare, but also the plague of zoning rules that inflate real estate costs in cities. Which is where hospitals are for legitimate reasons, but hospitals not only need a lot of real estate, they also then have to pay salaries there that allow their (already expensive) staff to live within reasonable distances.
And the subsidy issue isn't just drugs, it's also technology. A lot of the "hospital" cost goes to equipment, which is the same subsidization of international R&D as drugs -- other countries with price controls not paying their share of the cost.
Which is why cost comparisons to socialized systems in other countries are so uninformative. Not only are they not paying their share of R&D, they typically have lower real estate costs, lower salaries across all industries, lower (and this one surprises a lot of people) taxes if you count "health insurance" as a tax, and it goes on.
There is a lot of pure inefficiency in the US healthcare system -- the level of bureaucracy is madness -- but a lot of its costs are also external to the system itself and symptomatic of healthcare being at the intersection of several independent sources of price inflation that each have to be addressed on their own terms.
Do you think high-paying healthcare sector and patent R&D in the US creates more incentive for research and development of new medicine & healthcare technology?
> We spend 17.4% of GDP on healthcare. The OECD average is 9.5%, and we don't have better outcomes to show for it.
The problem is we do have "allowing drug companies to keep researching new drugs" to show for it. We're subsidizing the rest of the world because they impose price controls on patented medications. We could do the same thing, but then where does the money to do the R&D come from?
People like to point out that they spend more on advertising than research, but the advertising generates more revenue than it costs or they wouldn't do it, which means without the advertising they would have less money for research.
It should come from other countries who have been free riding with price controls, but how do you get them to do that? The status quo is giving them a trillion dollar a year subsidy.
Pharma companies explain a relatively small amount of excess spending in the U.S. We can even change nothing about how we pay for drugs and still reduce a majority of the $1.2-1.7 trillion in healthcare waste (though we should still try, and let drug companies increase prices elsewhere). I discuss this a bit more below, ctrl+f monopoly
I saw your comment. Clearly, there is a lot of waste, and we both agree on that front. As for exogenous costs, the U.S. isn't the only country with expensive real estate. Almost all of the other OECD countries have a modest degree of real estate cost inflation. Similarly, most should exhibit a similar degree of adherence to the Baumol Cost Disease phenomenon. There is no reason that the U.S. healthcare industry should have a 50-70% higher magnitude of exogenous cost disease. Lastly, I already addressed direct R&D funding (my analogy was simplified, but it could be extended to a portfolio of drugs). However, you mentioned that U.S. purchasing of equipment and drugs disproportionately funds R&D activity. I'm sure that's true, but I see it as a problem to be solved rather than a fact of life. We should adopt universal healthcare just like almost every other developed nation, implement measures to mitigate incentive loss, wait for U.S. medical companies to renegotiate pricing with other countries, and, if incentives are still lacking, we can deal with that then. Surely there's enough money among all developed nations to more than pay for an adequate level of medical R&D.
Somewhat related, but Jennifer Doudna, a government employee, co-discovered CRISPR. CRISPR will prove to be one of the biggest step changes in health outcomes in the history of mankind, or, at some point, supermankind. Now hundreds of pharma companies will try to monetize on the government’s discovery: CRISPR for sickle-cell anemia, CRISPR for congenital retinal defects, CRISPR for lactose intolerance, etc... Should we have to reimburse drug companies for the value of the drug, or should we, recognizing the government’s contribution and the immense value of life, put a reasonable cap on reimbursement? I say the latter. A company developing CRISPR drugs is on record saying they plan to charge over $100,000 for their treatment. I’m not convinced that the drug would not have been developed if they stood to make much less than that per person. We trust the government to grant 20 year monopolies on drugs, and I believe we can also trust the government to reasonably modulate drug reimbursement without ruining incentives for development.
> We spend 17.4% of GDP on healthcare. The OECD average is 9.5%
Health spending is almost entirley explained by income levels, especially in the long-run. The US spends much more because the US is much richer than most and because health spending is highly elastic at a national level.
> and we don't have better outcomes to show for it
Norway and Luxembourg also spend 2x Spain and Italy and don't have more to show for it either despite the fact that they're also much richer, have larger welfare states, etc.
Countries increase health spending because they can, not necessarily because they need to. Evidence strongly suggests returns to health spending are falling everywhere and the US isn't particularly unique in this regard.
Your findings are not mutually exclusive with other theories about the underlying causes of high U.S. healthcare expenditure, such as a chronic lack of price transparency. The more money is in the pot, the greater the incentives to pilfer it, and, in lieu of adequate controls, the more it will be pilfered. The way I see it, your linear regression is between income and aggregate pilferage across all layers of the healthcare establishment (Kafka baklava :) ). I surmise that the accelerating nature of health expenditures (1.8% increase for every 1% increase in income) is due to the rapid inflation of disposable income relative to overall income at the higher levels. Disposable income and the saved wealth accrued from higher disposable income over time are more readily pilfered. I should say “otherwise disposable,” because the healthcare industry takes a progressively larger chunk of that and makes it de facto indisposable. I say this with no irony: a linear regression between income and amounts extorted during kidnapping, controlling for other variables, would show similar results.
> Your findings are not mutually exclusive with other theories about the underlying causes of high U.S. healthcare expenditure, such as a chronic lack of price transparency.
My findings strongly agitate against the notion that high US health spending is a product of idiosyncratic features of our system. Presumably most of these critics believe we'd spend much less if only our system looked more like other countries, but my evidence indicates we'd spend very similar amounts in the long run regardless. Further, we'd likely have similar outcomes and many other similar healthcare attributes (prices, intensity, health worker density, etc). Most of the things about US healthcare people believe to be important and unique (i.e., not explained by income) just aren't.
> The more money is in the pot, the greater the incentives to pilfer it, and, in lieu of adequate controls, the more it will be pilfered
I wouldn't argue there's no "pilfering" or that more money doesn't create more opportunity for this, but the high income elasticity likely has little to do with pilfering. Where are these ill-gotten gains going? I certainly don't think you'd have much success in showing this if you look at, say, the growth in physician incomes, pharma/biotech industry profits, and so on. The data are much more consistent with mundane explanations like rising technological sophistication, higher intensity, and so on (ultimately much of this being driven by some combination of patient/family demand and providers' "spare no expense" approach to caring). I mean, if you look at the economic data it's quite obvious most of the increase can be arithmetically attributed to a swelling of health workers (density or share of workforce) and that most of these workers have lower-to-middle income levels (especially on the margin).
> I surmise that the accelerating nature of health expenditures... is due to the rapid inflation of disposable income relative to overall income at the higher levels.
I'm not sure what you mean by this exactly, but a better, more parsimonous way to understand high income elasticity is that higher income countries are usually inherently more productive countries. We can spend substantially smaller shares of our income on food, clothing, shelter, and other "necessities" because we are able to produce these things so much more efficiently (or otherwise procure on the market) than we did decades earlier or than OECD countries of more significantly more modest income levels while still consuming more of these things in real terms. This frees up resources to be spent on higher order wants like health, education, recreation, culture, and so on. Many of these growth areas, meanwhile, are inherently subject to less productivity growth, meaning prices tend not to fall relative to incomes nearly as quickly as we observe in other sectors.
> I say this with no irony: a linear regression between income and amounts extorted during kidnapping, controlling for other variables, would show similar results.
I doubt that's true, though we're talking about the total spending (kidnapping ransom) per capita here. It's pretty clear the price per transaction (as in, health inflation) explains very little in US time series or cross-sectionally. Now maybe if kidnapping started to become a high amenity affair in developed countries (presuming this sort of thing happened with measurable frequency here) and 25% of the population worked delivering these services.....
I got the OECD data directly from the OECD's website: https://www.oecd.org/media/oecdorg/satellitesites/newsroom/4...