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World Health Org
U.S. Health Care is Exorbitant
Introduction
For the “not good” part, as a quick overview check the picture below (source: Peter G. Peterson Foundation, August 2024). The US ranks last in 4 out of 6 categories; and, it ranks poorly in the other 2.
For further documentation check “A Portrait of the Failing U.S. Health System. Comparing Performance in 10 Nations” published by the Common Wealth Fund.
https://www.commonwealthfund.org/publications/fund-reports/2024/sep/mirror-mirror-2024
Within my essay I will focus on the “Exorbitant” part.
The US exorbitant health care costs may not be due that much to insurance. Insurance administrative costs and profit requirements affect mainly the premium they charge. It has much less impact on the price that health care providers charge. For clarity, I will analyze health care insurance separately in my next upcoming article.
Within this essay, I will look at the following costs:
- Overall health care cost
- Drugs
- Hospitals
- Doctors’ visits
Health care cost as a % of GDP
US health care cost as a % of GDP is way higher than for other developed countries. As shown on the graph below, US health care cost has risen from 12.5% of GDP in 2000 to 17.4% in 2021. The average for 14 developed countries has risen from 8.0% in 2000 to 11.3% in 2021.
The US mentioned costs have remained steadily at around 1.6 times the average for the 14 developed countries. In other words, based on this metric, US health care is about 60% more expensive than the average for its counterparts.
The facet graph below discloses the data at the country level. The US is on the bottom row to the right.
The horizontal red dashed line is set at 11%. Over the 2000 to 2021 period, the majority of the countries’ health cost/GDP ratios remained below this level the majority of the time. Meanwhile, the US is already much above that level back in 2000.
Health care cost per capita
Health care cost per capita on a $purchasing power parity (PPP) basis is expectedly way higher in the US. It has risen from $4,534 in 2000 to $12,012 in 2021. Over the same period, the average for the 14 countries has risen from $2,322 to $6,641.
Over the reviewed period, the US mentioned costs run between 1.8 to 2 times higher than the average for the 14 countries. Thus, based on this metric, US health care is close to 100% more expensive or twice as expensive as the average for its counterparts.
Below you can see the $PPP data at the country level. The horizontal red dashed line is set at $7,500. The majority of the countries’ respective cost levels are much below that line. Meanwhile, the US crosses that line back in 2009.
Focusing on the most recent year for which the data is available (2021), health care cost per capita is $12,012 for the US. Switzerland comes in second at $8,998 (- 25% lower than the US). The average for the 14 countries outside the US is $6,649 (- 44.6% lower than the US).
The graph above disaggregates health care cost by funding sources:
- Government
- Private sector
- Out-of-pocket
Next, let’s compare the countries by funding sources.
Health care cost per capita: Government funded
It is most surprising that the US Government spends more on health care than the average for the 14 countries who typically have a Medicare-for-all type national policy; while, the US has Medicare for seniors only (it also has the Veteran Administration program for vets, and Medicaid for low-income). However, the majority of Americans are covered by the private sector.
From 2000 to 2021, such expenditures per capita rose from $2,012 to $6,655 for the US and from $1,665 to $5,011 for the average of the 14 countries.
The US Government spending represents between 1.2 to 1.4 of the average for the 14 countries.
Below see the $PPP data at the country level. The horizontal line is set at the $5,000 level. Most countries costs have remained below that level for the majority of the 2000–2021 period. Meanwhile, the US crossed that level in 2017.
On the left-hand graph below, focusing on the most recent data available (2021), it is shocking to observe that the US Government expenditure per capita is the 2nd highest among the 15 countries. And, at $6,655 it is 33% higher than the average for the other countries ($5,011).
On the right-hand graph below, it conveys that the Government covers only 55.4% of health care cost in the US vs an average of 76.5% for all the other countries.
Another way to observe how much of an outlier the US is, is to capture the above data on a scatter plot shown below. The X-axis displays Government spending per capita on a $PPP basis. The Y-axis displays Government spending as a % of total spending on health care.
For the amount that the US Government pays on health care, most other countries cover their entire population. And, their respective Government covers 70% to 85% of all health care costs. Meanwhile, the majority of Americans are still insured by the private sector.
Health care cost per capita: Private sector
When shifting to private expenditures of health care cost. There is no contest. The US private sector pays a heck of a lot more than any of the 14 other countries.
Within the facet graph below, the red horizontal dashed line is set at $1,000. Most countries remain below that level over the majority of the 2000–2021 period. As expected, the US is way above that line. And, in 2021 its private sector expenditure was above $4,000.
The graph below just focuses on the most recent data (2021).
Drugs
US drug prices are far higher than else where. Back in June of 2024, I wrote an article comparing the price of Ozempic with other countries.
"Obesity drugs coverage. It is a drug price issue:" This is a follow up to the NYT article “Obesity drugs expose gaps in access” by Oliver Whang, published on June 26… medium.com
See below the main data comparing Ozempic prices. The US price is about 10 x higher. And, Ozempic is produced by a Danish company (Nov Nordisk). US citizens and taxpayers are subsidizing Novo Nordisk danish shareholders.
The US pays a lot more than other countries for numerous other expensive drugs as shown below.
Price for Harvoni to treat Hepatitis…
Price for Herceptin to treat breast and stomach cancer…
Price for Enbrel Sureclick to treat autoimmune disease…
The table below displays drug prices in Switzerland vs the US. Switzerland is a representative benchmark because:
- It is the 2nd highest in health care cost as % of GPD (behind the US).
- It has a higher GDP per capita than the US. So, you can’t say that drug prices in the US are higher than in Switzerland because the US has a higher living standard.
- Switzerland has also a formidable Big Pharma sector that rivals the US.
In view of the above, you would expect that Switzerland and the US drug prices would be very similar. They are not. The US drug prices are way higher. In average they are close to 4 x more expensive in the US as shown on the table below.
Versus Switzerland, in average US prices are:
1/27.7% = 3.6 x more expensive
Hospital surgeries
Surgeries are also a lot more expensive in the US as shown on the tables below.
As shown above, in average surgeries in the selected developed countries cost only 42.3% of the US cost. Stated another way, US surgeries are in average about 2.4 times as expensive as for the selected countries.
Comparing the US to Switzerland is interesting since the latter has the 2nd most expensive health care system. Yet, as shown above Switzerland surgeries in average cost only 48% of the US amount. Thus, US surgeries are 2.1 times as expensive as in Switzerland. Keep in mind that the latter has a higher GPD per capita than the US. So, this disparity between the two countries is even relevant on a $PPP basis.
Doctors economics
Doctors are paid more in the US. And, believe it or not, they see fewer patients than in many other countries. As a result, the doctors’ cost per visit is a lot higher in the US.
Keep in mind that the above reflects the estimated doctors’ cost per visit. It does not estimate the actual price charged to insurers and patients. Nevertheless, the plain arithmetic of doctors salaries divided by number of visits per year suggests that the upward cost pressure on ultimate doctors’ visits’ prices is far higher in the US.
Why are US health care costs so much higher?
Overall
The US health care system supply chain is so fragmented. The health care databases are in silos. This leads to administrative costs being far higher. It is also associated with much duplication of medical records and tests.
The US is a much more litigious society. This leads to practicing defensive medicine associated with over-diagnosing, testing, and surgeries. It also results in very high malpractice insurance premium.
The US Government (Medicare) has far less price negotiating power. Thus, much of the US health care system functions within a for profit market.
But, “health care” is not an efficient market.
- It has no price transparency.
- The consumer/patient is ignorant of price considerations.
- There is never real competition as customers/patients do not have explicit choices.
Thus, opportunities for rent-seeking profits for health care services providers are greater in the US.
Hospital
Increased consolidation of hospitals have lead them to have increasing market-price power. And, they have commanded higher reimbursement rates from insurers. The share of community hospitals that are part of hospital systems increased from 10% in 1970 to 67% in 2019 (Source: “The Rise of Cross-Market Power in the US”, by Brent D. Fulton, Health Affairs, November 2022).
Also, hospital use opaque coding systems that they at times exploit by upcoding their surgeries to maximize their reimbursement rates. The same procedure conducted in a hospital is a high multiple more expensive than the same procedure conducted outside a hospital.
Hospitals pricing is rather opaque despite recent legislative efforts to improve price transparency.
Doctors visits
Med school is much more expensive in the US.
Doctors’ training (med school, internship, etc.) is much longer in the US.
There are many regulations that limit what physician assistants can do.
Doctors networks, just as hospitals, are getting more consolidated and are exerting more market-price power at the local level.
All of the above contributes to US doctors’ pay being higher and doctors visits being typically more expensive in the US.
Drugs
Contrary to all other countries, the Government (Medicare) has very limited power to negotiate drug prices (except for 10 in 2026, and another 50 by 2028 out of 1,000s).
The US market structure allows drug manufacturers to command higher prices, especially for brand-name medications.
The US allows for annual price increases, unlike many other countries where prices are often frozen or further discounted.
Conclusion
If hospital, doctors, and drug costs are all about twice as expensive (or more) than for the other countries, it is no surprise that overall US health care cost is close to 2 times as high as for the other developed countries.
Gaetan Lion is an independent researcher with expertise in economics, econometrics, investments, risk management, statistics, and quantitative analysis. His areas of interest include demographics, economics, investments, Climate Change, health care, sports, and politics.