Gluttony, Not Greed, Makes US Healthcare So Costly

Yesterday Johns Hopkins Bloomberg School of Public Health released a study in which it claims that "the United States, on a per capita basis, spends much more on health care than other developed countries; the chief reason is not greater health care utilization, but higher prices" Is American healthcare spending really irrationally high? And is it all because companies want to squeeze patients? Perhaps not.

The recurring drama about the healthcare spending in America warrants a deeper dive into the figures. And... turns out that US healthcare costs might just be, well, what they are supposed to be.

Now, some studies - including the one above - have shown that healthcare spending in the US is more than twice higher than in other developed countries, per capita. While Americans spend over $9000 per person, Western European countries spend around $4000-5000.

However, this comparison ignores an important difference - other developed countries are not really economically on par with the US. American GDP per capita is roughly $60,000 per person but only $45,000 in Canada. That's 25% less! Germany, the economic powerhouse of the EU, produces only $44,500. France sits at 38,500 - that's over $20,000 less. In other words US GDP per person is over 50% higher than the French. In essence, then, they're not even in the same league. You're not comparing apples to apples.

You will find similar differences between average salaries.

Higher GDP means higher prices and higher living costs. It also means American doctors are expecting to be paid better than their counterparts in countries 20-30-40-50% behind in terms of economic prosperity. Not to mention that they are likely the best educated in the world - but this education comes at a hefty price they have to pay for world class American colleges - further increasing expectations of a solid package from future employers, what pushes prices of medical procedures up.

A better measure is the overall healthcare spending as a proportion of GDP.

And here, indeed, America is leading the world as well with about 17% of its GDP going towards healthcare (OECD data for 2017). However, if we look at other countries the difference is no longer that stark. Switzerland spends about 12%, Sweden, Germany and France about 11-11.5%. Neighboring Canada 10.5%. UK, Norway, Finland, Japan - around 10%. Mediterranean countries of Italy or Spain sit around 9%.

Sure, the gap might still be quite high, but is not as high as it is suggested - especially if you take into account...

The American Lifestyle

This two part elephant in the room is rarely if ever addressed in studies exploring the costs of health services. And it should incentivize a closer look at: 1. How Americans live - and eat. 2. How developed high end private healthcare system is.

2/3s of Americans are overweight. More than half of them - or 40% of all adults - are obese with about 6% of the entire population being morbidly obese. This is not only a health problem in itself - it results in development of chronic diseases like hypertension, diabetes, mobility problems or even mental issues.

In the UK and Germany about 25% of adults are obese, in France, Spain, Greece, Portugal or Denmark it's only 15 to 18%. In Italy or Norway it's 10% and in Japan less than 4%! Diabetes prevalence sits at 11% in the US - but half of that in countries like France, Italy, UK, Sweden... (Source: OECD 2017 / World Bank)

In other words America has to grapple with anywhere from 1/3 to more than 3 times (or over 8 times if you compare Japan) more obese people than other developed countries.

It's quite understandable, then, that it has a lot more issues to deal with and, so, spend considerably more both per capita and in value, in relation to GDP.

Another interesting thing to examine are road accident statistics. It turns out US is faring rather badly here as well.

In 2016 37,500 people died on American roads, compared to around 25,000 in the EU - which has a population greater by nearly 200 million people.

Even worse - 3.1 million people got injured in these accidents.

Fatality statistics show that more than 110 people die in accidents in the US, for each 1 million of population. At the same time the figures for European countries are: Germany (39), France (54), UK (28), Sweden (27), Spain (39).

That's 2-3 times more fatalities in America and a similar factor for injuries (est. 1.3 million in the EU vs. 3.1 million in the US). Obviously, all of these contribute to much higher healthcare spending as well.

When you factor that in, a difference between 17% and 12 or 11% of each country's GDP doesn't make such a shocking impression after all. When you have 2-3 times more obese people to treat and 2-3 times more road casualties, it pushes the overall expenses into stratosphere.

Private Healthcare

The second factor skewing healthcare spending statistics against the US is developed private healthcare system. Many premium services come at an extra price that many patients are just willing to pay - because they have the choice - a choice most people don't have nor take in other developed countries, where vast majority of patients use publicly available services.

As you can see in the chart below, American public healthcare spending is already comparable to other countries but private expenses are more than 3 times the average.

"In 2016, the US spent about 8.5% of its GDP on health out of public funds –essentially equivalent to the average of the other comparable countries. However, private spending in the U.S. is much higher than any comparable country; 8.8% of GDP in the U.S., compared to 2.7% on average for other nations." / Health System Tracker

Of course much of the private spending covers expenses elsewhere financed via single payer systems - but you still have to remember how much worse American eating & fitness habits are, coupled with much greater traffic accident prevalence - all incurring long term costs to treat the resulting diseases.

Ultimately, yes, prices in America are considerably higher but it's mainly due to the fact that the economy in general is far more advanced, pushing all costs up.

Relative spending is also higher, but it's because of poor lifestyle habits - with additional, optional private spending on medical services pushing the averages for the entire nation even further.

It turns out, then, that American healthcare really appears to cost just as much as it should.