There is a simple reason health care in the United States costs more than it does anywhere else: The prices are higher.
That may sound obvious. But it is, in fact, key to understanding one of the most pressing problems facing our economy. In 2009, Americans spent $7,960 per person on health care. Our neighbors in Canada spent $4,808. The Germans spent $4,218. The French, $3,978. If we had the per-person costs of any of those countries, America’s deficits would vanish. Workers would have much more money in their pockets. Our economy would grow more quickly, as our exports would be more competitive.
There are many possible explanations for why Americans pay so much more. It could be that we’re sicker. Or that we go to the doctor more frequently. But health researchers have largely discarded these theories. As Gerard Anderson, Uwe Reinhardt, Peter Hussey and Varduhi Petrosyan put it in the title of their influential 2003 study on international health-care costs, “it’s the prices, stupid.”
As it’s difficult to get good data on prices, that paper blamed prices largely by eliminating the other possible culprits. They authors considered, for instance, the idea that Americans were simply using more health-care services, but on close inspection, found that Americans don’t see the doctor more often or stay longer in the hospital than residents of other countries. Quite the opposite, actually. We spend less time in the hospital than Germans and see the doctor less often than the Canadians.
“The United States spends more on health care than any of the other OECD countries spend, without providing more services than the other countries do,” they concluded. “This suggests that the difference in spending is mostly attributable to higher prices of goods and services.”
Ezra is a Village Idiot so he can’t tell you the truth. As Bob Somerby can tell you any informative discussion about health care costs is absolutely taboo among the professional media. That’s what makes this article so amazing.
But it isn’t nearly enough. There are major gaps in the information.
Here’s one example:
The result is that, unlike in other countries, sellers of health-care services in America have considerable power to set prices, and so they set them quite high. Two of the five most profitable industries in the United States — the pharmaceuticals industry and the medical device industry — sell health care. With margins of almost 20 percent, they beat out even the financial sector for sheer profitability.
The players sitting across the table from them — the health insurers — are not so profitable. In 2009, their profit margins were a mere 2.2 percent. That’s a signal that the sellers have the upper hand over the buyers.
According to at least one source with first-hand knowledge, Big Pharma is laying off everyone except the suits. But merely telling us what a company’s profit margin is doesn’t tell us why it’s that way or how much in actual dollars we’re talking about.
“There is so much inefficiency in our system, that there’s a lot of low-hanging fruit we can deal with before we get into regulating people’s prices.” says Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University. “Maybe, after we’ve cut waste for 10 years, we’ll be ready to have a discussion over prices.”
Why can’t we do both simultaneously?
Ezra gives us a glimpse behind the curtain, but what we need is comprehensive data we can trust. We know how much we spend, but exactly where does it go?
For every dollar we spend on health care insurance, how much goes to pay for health care? I’ve seen estimates that 30% of each dollar stays with the insurance companies. How much of the money they keep goes to administrative costs, executive salaries, commissions, bonuses, lawyers, etc?
For every dollar that goes to pay for health care, how much goes to pay doctors, nurses, administrative staff, office costs, equipment, tests, malpractice insurance, lawyers, etc?
How do we make informed choices if we don’t have all the information?
We can’t. Which is pretty much the point of keeping us in the dark.