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Where Do U.S. Health Dollars Go?

A reader recently asked What If:

How much do we spend on health care and where do those dollars go? Why is the total amount spent on health care continuing to rise?

We think that’s a great question, and we thank the reader for writing. As always, please feel free to email info@whatifpost.com with your thoughts.

How much do we pay for health care?

In 2008, we spent 16.6% of our national Gross Domestic Product (GDP) on health care.

  • This breaks down to $7,900 spent per person per year.
  • The total dollar amount reached 2.4 trillion.
  • Source: Centers for Medicare and Medicaid Services, Office of the Actuary.

And our health care bill is continuing to rise:

Total Spending: Between 1985 and 2006, total spending increased by an average of 7.7% per year, while GDP increased by 5.6% per year.

  • The Centers for Medicare and Medicaid Services (CMS) predict that spending will continue to increase at a rate around 7% for the next decade.
  • As a result, our health care bill is expected to be 20% of GDP by 2017, or $4.3 trillion.

Insurance Premiums: The premiums for employer-sponsored health plans grew by 114% between 1999 and 2007, while workers’ wages increased a mere 27%.

  • Workers who can still afford coverage are paying $1,600 more this year in annual premiums for family coverage than they did in 1999.

In comparison, the U.S. pays almost double what other developed countries pay as a percentage of their GDP.

  • According to 2006 data, OECD countries spent on average 8.9% of their GDP on health care, while the U.S. spent 15.3%.

This is true even though the U.S. had almost 47 million uninsured individuals in 2006, while folks abroad enjoy universal insurance coverage. And despite our exorbitant spending on care, we rank poorly in comparison when it comes to several quality indicators.

Why Do We Pay More Than Citizens in Other OECD Countries?

This October 2008 study by the Robert Wood Johnson Foundation (RWJF) identifies three reasons why our total spending on healthcare greatly exceeds that of other developed countries. They are:

Prices:

  • Drug prices are 70% higher in the United States compared with other OECD countries.
    • Are our high U.S. drug prices necessary to subsidize the research and development (R&D) of drugs that are then used by the rest of the world?
    • This study shows that if global pharma R&D spending were financed entirely by the sale of name-brand drugs in the U.S., our premium over other countries would be between 23 and 28%, not the 70% that it currently is.
  • Physician compensation is 6.6 times per capita GDP for specialists and 4.2 times for primary care physicians, compared with ratios of 4 and 3.2 times per capita GDP abroad.
  • Medical devices: The U.S. spends 54% more than the OECD countries for the top five inpatient medical devices.

Efficiency: We tend to over invest in outpatient clinics that are underutilized, but that are still able to turn a profit due to the high prices charged for services performed.

Insurance administration: The U.S. spends six times more on administration than comparable countries. Administrative costs pay for marketing and sales, underwriting, claims processing, utilization review and profits.

  • In other words, we pay for these services that have little or no relevance when it comes to actually providing medical care.
  • These costs are the byproduct of our multi-payer, fragmented health care system.

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