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U.S. HEALTH SPENDING CONTINUES TO OUTPACE INTERNATIONAL HEALTH SPENDING DESPITE THE SPREAD OF MANAGED CARE


Study Examines Why Americans Pay More For Health Care
Than Their Foreign Counterparts


(Bethesda, MD) — The United States continues to spend much more on health care services than any other industrialized nation despite more than 10 years of managed care, according to an article in the May/June issue of the policy journal Health Affairs. With U.S. per capita health spending continuing to exceed per capita health spending in other industrialized nations by “huge margins” in 2001, the authors point out that “the United States can hardly claim to have found the panacea for cost control during the 1990s.” The report was funded by The Commonwealth Fund, a private foundation supporting independent research on health and social issues.It is one of eighteen articles on international health and health care policy in the current issue of Health Affairs, which was published with support from the Commonwealth Fund.

This article, based on data from the Organization for Economic Cooperation and Development (OECD), shows that at $4,887, U.S. per capita spending in 2001 was higher than comparable health spending in all other OECD countries. Switzerland, the second-highest-spending country, spent only 68 percent as much as the United States on health care per capita, and Canada, with similar health care delivery systems and medical practice styles, spent only 57 percent as much. The median percentage of gross domestic product (GDP) absorbed by health care in non-U.S. OECD countries in 2001 was only 8.3 percent, compared with nearly 14 percent in the United States. U.S. actuaries project that the annual growth in U.S. health spending will exceed the annual growth in GDP once again by about two percentage points and that total national health spending will absorb as much as 18.4 percent by 2013.

In addition to health spending, the authors, Uwe Reinhardt of Princeton University and Gerard Anderson and Peter Hussey of Johns Hopkins University, looked at the capacity of health systems and found that while many countries allocate a lower fraction of their overall spending to health care, they seem to be more endowed with hospital capacity and health professionals than the United States. Many industrialized countries have higher physician- and nurse-to-population ratios than the United States has, according to the article, which notes that the supply of U.S. physicians per capita grew only 1 percent per year between 1991 and 2001. Only six countries had slower growth rates. Growth in the supply of nurses also has been relatively modest, and the United States has a relatively small endowment of hospital beds per capita compared with most other OECD countries.

The authors note that as health care costs grow faster than the general economy, more of Americans’ money is going toward medical care than to any other personal consumption spending. Americans spent 18.2 percent of their income on medical care in 2001, more than they spent on food, tobacco, housing, and transportation. Since incomes are also rising, most people do not have to forgo other types of spending to afford health care, the authors say. The real burdens here are on people with low incomes and chronic health problems who cannot afford to spend a higher percentage of their income on health care.

The authors suggest several reasons why U.S. health spending continues to soar out of control.
· There is an exceedingly high cost of administrative overhead due to a system regarded as complex by international standards.
· Health professionals’ salaries are increasing to allow the field to compete with other industries relying on the same talent pool, such as law and finance.
· The supply side of the health system has greater market power than the demand side, allowing prices to soar above the levels of other countries with single-payer or multipayer systems.

Although the United States could afford to let health spending continue to grow more rapidly than GDP for several more decades, the authors warn that this trend is pricing low-income Americans out of health care. They note that in the past several years employer-based health insurance premiums have been rising at a rate of more than 10 percent. If premiums grew at this rate of 10 percent for the next decade, Reinhardt and colleagues predict that typical family coverage would absorb 42 percent of an annual wage of $50,000.

The authors offer two potential outcomes to this worsening problem. One is to develop a new method of financing health care that would spread costs more evenly across society. A second is to adhere to the multi-tier system now in place, in which a person’s health care experience would vary based on their income level. Under such a system, the authors note that affluent families would have a much better health care experience than those with less income.

Recently, the United States has tried to combat escalating pharmaceutical costs by attempting to force foreign health systems to raise the prices they pay for prescription drugs. Other industrialized nations have a much more effective way of keeping this spending in check, allowing pharmaceutical companies to charge roughly twice as much for the same drugs in the United States. Consequently, U.S. trade representatives are working to get other countries to dismantle the policies that keep prices low, thereby forcing the citizens of these countries to pay more, a policy that has been met with stiff resistance thus far.

Actuaries at the Centers for Medicare and Medicaid Services (CMS) report that the United States spent an estimated $1.5 trillion on health care in 2003, which is 14.9 percent of a GDP of $10.9 trillion. Projections indicate that the expenditures will rise to $3.36 trillion on health care, or 18.4 percent of a GDP of $18.24 trillion, by 2013. Although health spending in the amount of $3.36 trillion in 2013 may seem high, the authors say that the nonhealth GDP projected to be available to Americans that year would still be $5.6 trillion larger than in 2003.

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Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Additional peer-reviewed papers are published weekly online as Health Affairs Web Exclusives at www.healthaffairs.org. Health Affairs Web exclusives are supported in part by a grant from the Commonwealth Fund.

Copies of the May/June 2004 issue will be provided free to interested members of the press. Address inquiries to Jon Gardner at Health Affairs, at 301-347-3930 or via e-mail, press@healthaffairs.org. Selected articles from the May/June issue are available free on the journal’s Web site, www.healthaffairs.org.

 

 

©2003 Project HOPE–The People-to-People Health Foundation, Inc.