Where are Healthcare Costs Rising the Fastest?

Posted by: Michael Mandel on September 09

Hint: It’s not the U.S.

I was nosing around the OECD stats on health spending, which include the category “Total expenditure on health, Per capita US$ PPP” (PPP stands for “purchasing power parity”, which is the right way to adjust prices across countries). So just for fun, I decided to figure out how fast healthcare costs were rising in different countries.

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This chart shows the average annual change in per capita spending on health between 1990 and 2007 (the last available year for most countries). The U.S. shows up almost exactly in the middle of the pack. This is not an artifact of the years picked—it’s true for 1997-2007 and 2000-2007 as well.

It’s interesting to see that the UK, with its “socialized medicine,” actually had faster health spending growth than the U.S., at least according to these figures. On the other hand, other countries with single-payer systems, such as Canada, had slower growth.

Frankly, it’s not clear to me from these figures that the form of organization of a health care system has that much effect on the growth rate of health spending.

Some caveats here: Countries have different rates of aging and different rates of economic growth, which can affect these results. In addition, the U.S. has a much higher absolute level of health spending than anyone else ($7290 per capita in 2007—the next highest was Norway at $4763). The country with the fastest rate of growth, South Korea, still spends less than $1700 per person on health, way below the U.S.


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Reader Comments

Lord

September 9, 2009 08:11 PM

The first thing I think of when I see advertising is a high growth rate means a small market share and a large market share means a small growth rate. Advertisers like to choose their numbers selectively.

This is mostly what should be expected based on diminishing returns. Those that spend the least should show the highest growth rates while those that spend the most should show the lowest. The UK is high, but they spend far less than the US. The US is very high; we should be at the bottom.

PublicOptionNow

September 9, 2009 10:17 PM

Obfuscation by Mr. Mandel here. Why is healthcare 16% of US GDP and 10% in neighboring single-payer Canada? Private insurance companies' administrative costs and the costs they impose on medical service providers!

Bill

September 9, 2009 10:48 PM

You know, you should look at the percentage of GDP devoted to healthcare; then look at the rate of growth.

If you are obese at 300 lbs, it is unlikely that you will add 10%, whereas if you are skinny, a 15 pound increase may be a 20% increase. There are limits to obesity before you just fall over and die. Let's hope we're not there yet, but we seem to be getting closer.

Need to go on a diet.

SB

September 10, 2009 12:55 AM

Why isn't there a system where the government runs a few hospitals where only a nominal fee is charged for basic care. This way people will have the confidence to go for basic care without worrying about costs, before things escalate. This could be for people who do not have health insurance. The government has to make sure that the system is not abused. Employers should not take the system for a ride by refusing to give employees insurance, there should be a system to ensure that.

subhrendu kumar panda

September 10, 2009 10:28 AM

through awareness alongwith insurance companies,we may overcome from this.

Elvis Cordero

September 10, 2009 11:24 AM

All this is pure nonsense! If I am not mistaken I believe that the goverment of these countries are in control of making cash so why don't they continue making the cash to cover our health care fees and fix this economy. After all money is made out of trees. There are plenty of trees and recycle paper around the world. It is pure stupid. If it was upto God I am sure he would say hey you dumb people stop creating headache for your selves and just make the money and fix your economy. After he is the creator of it all. Sometimes I wonder what kind of mentally does the people in our government have. Some people might disagree with me but it is ok! The goverment have a way of keeping the people blind from the truth.

Squeezebox

September 10, 2009 03:26 PM

Forget country by country, I want to see state by state!

Amy

September 10, 2009 05:09 PM

Elvis - I just wanted to clarify that printing more money will not fix the economy. The value of money is not determined by just the number printed on it, but by government gold reserves. So printing more money without increasing the reserves will actually make the current flow of cash out there worth less. Otherwise, any time a country gets into a financial crisis, all it'd have to do is simply print more money to get out of it. If only it were so easy.

At least, that's my understanding of it. Feel free to respectfully correct me if I'm wrong.

Brandon W

September 11, 2009 11:37 AM

Amy,
What you refer to is the "gold standard". The U.S. went completely off the gold standard in 1971 by decree of the Nixon Administration and, before that, had manipulated and limited the currency's relation to gold first during the Civil War, then again through WWI, the Great Depression, and WWII. After WWII the world operated on a semi-gold standard called the Bretton Woods system. This was completely eliminated in 1971. Thus, the currency we operate on is a "fiat" currency which, in it's current state, represents a debt. $1 no longer represents one dollar of gold (or any other store of value), but represents $1 of debt held by someone. Interestingly, the former king of the fiat currency, Alan Greenspan, once wrote: "This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

Brandon W

September 11, 2009 11:37 AM

Amy,
What you refer to is the "gold standard". The U.S. went completely off the gold standard in 1971 by decree of the Nixon Administration and, before that, had manipulated and limited the currency's relation to gold first during the Civil War, then again through WWI, the Great Depression, and WWII. After WWII the world operated on a semi-gold standard called the Bretton Woods system. This was completely eliminated in 1971. Thus, the currency we operate on is a "fiat" currency which, in it's current state, represents a debt. $1 no longer represents one dollar of gold (or any other store of value), but represents $1 of debt held by someone. Interestingly, the former king of the fiat currency, Alan Greenspan, once wrote: "his is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

Brandon W

September 11, 2009 11:37 AM

Amy,
What you refer to is the "gold standard". The U.S. went completely off the gold standard in 1971 by decree of the Nixon Administration and, before that, had manipulated and limited the currency's relation to gold first during the Civil War, then again through WWI, the Great Depression, and WWII. After WWII the world operated on a semi-gold standard called the Bretton Woods system. This was completely eliminated in 1971. Thus, the currency we operate on is a "fiat" currency which, in it's current state, represents a debt. $1 no longer represents one dollar of gold (or any other store of value), but represents $1 of debt held by someone. Interestingly, the former king of the fiat currency, Alan Greenspan, once wrote: "This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

Health Nazi

September 11, 2009 02:57 PM

That chart really doesn't say much. One of my biggest rants about this whole "debate" is the lack of focus on imporving health. If Americans were healthier, through healthier lifestyles, health care spending and costs would go down.
Mangling the insurance industry, covering pre-existing conditions, forcing people to buy insurance will do absolutely nothing to reduce utilization of the system or imporve health. It may help those who are already sick but that means the rest of us pay for their care through increase premiums.

The political left is totally out to a 3 martini lunch on this one and the political right is offering rhetoric. Although allowing for insurance to be sold across state lines would at least infuse some competition--which is a Republican idea that the Dems don't even consider.

Portability is a real issue that should be dealt with that would help some people. Allowing young workers to have "bare bones" or catastrophic coverage plans would get them into the system as they represent a significant portion of the "uninsured".

Andrew Grimm

September 13, 2009 06:19 AM

Norway's fourth from the top, while the rest of the Scandinavian countries are mainly near the bottom. What's up with that?

George McCandless

September 14, 2009 02:40 PM

This is a wonderful case of using graphs to misrepresent reality. To compare health costs one would want to use countries with approximately the same income levels (given that health care is a luxury good) Limiting the sample to countries with more or less the same growth rates of per capita income as the US would remove Korea, Ireland, Spain, Greece, Poland, Chec Repuclic, and Mexico from the list. The US doesn't look so good when you compare apples to apples.

AC

September 14, 2009 02:43 PM

Before everyone here starts blaming health insurers, go try finding out exactly how profitable they are. Net profit margins in the range of 2-4% makes health insurance one of the least profitable industries.

Rich

September 14, 2009 05:02 PM

The comments here show just how dumb we are when it comes to the economy. Gold Standard????!?!??!?! Just Print Money???!?!??!?!

Take a class or at least look some things up on Wiki, this is crazy.

OF

September 14, 2009 07:56 PM

AC

Another mistake of understanding numbers:

The return on investment for insurance companies is comparable to the pharmaceutical companies. The insurance companies essentially administer the entire payments of 16% of our GDP less the GDP of Medicare. They can claim 2 to 4% profit and sound reasonable because their costs are so inflated by their own administrative costs and executive salaries as well as the administrative costs of those dealing with them.
Put another way the investment they make to garner 2 to 4 percent profit from the colossal sum of money flowing through our private healthcare system is relatively small. Their "sales " are inflated by more than their costs of doing business because they pay doctors and hospitals enough to cover the administrative costs of dealing with them (the insurance companies.) It's a case of upping overall numbers with all the expenses everyone incurs in dealing with you and then adding it to your sales thereby reducing you percentage of profit on total costs.

But Big Pharma could show less profit on it's Profit and Loss Statements if were able to add the extra expenses incurred , for example, when hospital and clinic personnel take time out to purchase drugs. The drug company could then increase its prices (and therefore sales) by that amount, then create a rebate-program, then put the rebate program into their profit and loss as an expense. The inflated sales and expenses would decrease their "percentage" of profit, but their return on investment would be the same.
As in any business the true return is measured by the investment made to the profit earned. The insurance companies are taking advantage of the nature of their business to appear less profitable to their owners than they really are.

Ned Baker

September 14, 2009 08:11 PM

As mentioned earlier, a graph of health care spending as a percent of GDP is sorely missing.

I'm not sure how to read the original post -- is it a veiled argument against health care reform? If so, it's dishonest.

mulp

September 14, 2009 08:27 PM

Mr Mandel has obviously spent no time looking at the data or the changes in the health care systems.

Taiwan's costs are rising rapidly as they implement a comprehensive single payer system and move from tradition medicine for nearly all the population to "modern" medicine available to all. This was done because they decided they had become wealthy enough to afford a developed nation's health care system, instead of a third world system.

The UK is changing its system based on advise from American hospital and care corporations who have claimed they can operate more efficiently than the old government run institutions, but end up with expensive facilities and staff that serve fewer patients at higher costs than the government run hospitals. In other words, UK costs are rising rapidly because of cost saving American innovations - what does that say about what Americans know about health care delivery.

The most amazing case to consider is Switzerland that began a health care reform at the same time the Clinton plan was being beaten down, implementing a change like "Romneycare" which is the template for "Obamacare". They did this as the number of uninsured was rising rapidly because health care costs were rising quickly. They are still working to control growth in costs, but by going to universal insurance they have "bent the curve" on health care cost growth - they were 2nd to the US in costs but are now 3rd or lower depending on the dataset.

jd

September 14, 2009 09:55 PM

Answer to the question about Norway vs. the rest of Scandinavia: they have had rapidly increasing cost of living across the board because of the huge oil reserves they own. It's a little like what happens in a mining town when gold is discovered. Everybody has more money, so the cost of everything goes up.

timnlisa1

September 15, 2009 12:27 AM

Health Nazi,

You need to read about the actual reform bill that is being offered. Offering health care across state lines is the GOP magic bullet, but that is exactly what the Health exchange that Democrats are offering already does. The Health exchange allows anyone to offer their plan anywhere in the US as long as they agree to play by the rules of no pre-existing conditions, no cutting off insurance when you get sick, no annual or lifetime max, and and no charging different amounts to different people based on age, gender, etc.

Sidney Hale

September 15, 2009 10:32 AM

This is not an interesting statistic. When you start in 1970 with the second most expensive healthcare system in the world and end 2003 with the most expensive health care system in the world it becomes trivial to talk about percentage growth of costs due to the fact that 5.9% of 5,711 is more money than 9% of 2455.(These where the actually expenditures in 2003 for the US and Ireland as shown in the following link.) http://www.kff.org/insurance/snapshot/chcm010307oth.cfm

TrueNorth

September 15, 2009 01:56 PM

It's fairly clear I think: the countries experiencing the most increase in health care costs are the countries that were growing the quickest over the period covered. It's proof that health care is a high-income-elasticity good.

spencer

September 15, 2009 02:02 PM

These growth rates are calculated from Purchasing Power Parity data.

So you can not tell if the growth is from changes in the domestic currency or changes in the exchange rate.

As far as I am concerned these comparisons are meaningless. They do not tell me if growth in one country is faster or slower than in another country.

If you want to use PPP data to compare the level of spending in one country to the level of spending in another country it may be a valid exercise. But do not use this data to calculate meaningful growth comparisons.

Jethro

September 16, 2009 04:27 AM

timnlisa1,
So they can be allowed to compete across State lines if they handicap themselves? That'll work about as well as California's power market.

Sonny

September 16, 2009 09:16 AM

The author didn't really give this much thought did he? Context free bit of fluff designed to make "socialized" systems look bad.

Amos

September 17, 2009 06:05 PM

Sounds like a lot of knee-jerk reactions in the comments. The author noted that this doesn't prove anything and noted some of the flaws.

What would be interesting is if you could factor out the cost or benefit of innovation. Canada's system, for example, is parasitic. It hardly invents anything. Invention has costs.

Pushing to the margins is much more costly and yields lower returns at the outset than using the tried and true. But if someone didn't push to the margins, the parasitic countries wouldn't benefit either.

Related to that, Americans pay the R+D bill for the world's drugs. Since Canada and a number of others "bargain" (as in, "we'll simply violate your patent if you don't play") for discounted prices on pharma, Americans are left footing the bill. But a system can only take so many parasites before it goes necrotic.

Remember the goose that laid the golden eggs? The story written for 4-year-olds? Yeah. Seems like half our country still hasn't learned it. And they count themselves the genius half.

Robert Lee

September 20, 2009 02:09 PM

Lots of good comments on the above, but likely because the data doesn't line up with anyone's stereotypical view of health care economic models. All data, not just the above, has to be cautiously applied to one's argument, assuming one views such data for arguing and not for problem solving, which is most often the case.

Mulp's commentary touched on the area of my critique. The years where a nation's health care coverage was altered significantly should not be included this data. And as the author did note, unique economic and demographic factors as well can skew or invalidate the use of a nation's rate for a particular period.

As we here in the U.S are viewing the data as a basis for arguing either to keep the status quo or moving to a socialized system, the data should be limited to nations with no measurable change in over all coverage for the period, and who have experienced similar demographic and economic patterns.

Amos' points on R&D are interesting. Arguably, there may very well be more medical research performed in the U.S. than any other country, but isn't most of that compensated for at the retail end of the market? Just as computer technology development is largely an American industry, advances in medical devices here are marketed and consumed all over the world; their 'costs' thus showing up in each nation's statistics. His characterization of Canada and others as parasites in relation to the development of medicinal drugs can easily be turned about as a label put upon the American drug companies and their stock holders. First of all, prescription drugs make up only 15% of our health care costs. In this area, there is more of a competitive market than in the rest of health care. Competition is good and needed, but also remember that a market's prices are affected by the amount of money pursuing its products; note JD's comment on Norway.

Rob

January 12, 2010 12:46 PM

I just came across this in a web search for why health care costs are rising. This is one of the dumber things I've read about health care and I seriously cannot believe that you published this. All this shows is a total lack of understanding of basic math.

"It's interesting to see that the UK, with its “socialized medicine,” actually had faster health spending growth than the U.S.?" Really? The UK spends $3000 per person while we spend over $7000. So let's say that prices rise $1000 per person in the each country- in the United States that's a 14% increase, in the UK that's a 33% increase. Maybe that's interesting if you're learning about percentages for the first time in a middle-school math class, but in terms of illustrating anything about the growth of health care spending it's useless.

One thing that the graph does show that you almost picked up on: If the United States, which spends more than twice what those other countries spend on health care is in the "middle of the pack" in terms of percentage increase, then the growth of our health care costs must be totally out of control.

Raj Jindal

February 18, 2010 12:16 PM

Shouldn't the bottom line we look at be that as wealthy as the U.S. is our life expectancy is ranked 34th or 38th (take you pick of UN of CIA studies)? Isn't that pathetic and sign that something is terribly wrong with our system?

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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