U.S. Health Spending Not An Economic Burden
(A version of this Health Alert was published by Forbes.)
Health spending consumes a higher share of output in the United States than in other countries. In 2013, it accounted for 17 percent of Gross Domestic Product. The next highest country was France, where health spending accounted for 12 percent of GDP. Critics of U.S. health care claim this shows the system is too expensive and a burden on our economy, demanding even more government intervention. This conclusion is misleading and leads to poor policy recommendations, according to new research published by the National Center for Policy Analysis (U.S. Health Spending is Not A Burden on the Economy, NCPA Policy Report No. 383, April 2016).
Discussing health spending in dollars, rather than proportion of GDP, the report notes Americans spent $9,086 per capita on health care in 2013, versus only $6,325 in Switzerland, the runner-up. (These dollar figures are adjusted for purchasing power parity, which adjusts the exchange rates of currencies for differences in cost of living). This big difference certainly invites us to question whether we are getting our money’s worth. However, it is not clear that this spending is a burden on Americans, given our very high national income.
After subtracting health spending from U.S. GDP, we still had $44,049 per capita to spend on all other goods and services we value. Only two countries, Norway and Switzerland, beat the United States on this measure. But compared to larger developed countries, Americans have higher income per capita after subtracting health care spending. For example, in the United Kingdom, GDP per capita after health spending was only $34,863 in 2013. So, even though Americans spent significantly more on health care than the British, the average American enjoyed $9,185 more GDP after health spending than his British peer; and just under $6,000 more than his Canadian neighbor.
Britain socialized its health system shortly after World War II, completing the work by 1948. Canada’s health care was more gradually socialized by provincial and federal governments during the period 1947 through 1966. Many assert these so-called single-payer systems relieved the burden of private payment from citizens and made the economy more productive.
On the contrary: Since 1960, the U.S. economy has outperformed all comparable developed countries except Norway and Switzerland with respect to economic growth, after subtracting health spending. From 1960 through 2013, the share of U.S. GDP allocated to health care more than tripled. However, this had no impact on the ability of the U.S. economy to deliver high GDP per capita, outside health care. Adjusted for purchasing power parity, U.S. health spending increased $8,937, while GDP per capita increased $50,269, from 1950 through 2013. Thus, GDP per capita available for other goods and services, after spending on health care, increased $41,332, or $780 per year.
Over these 53 years, only Norway and Switzerland increased their non-health GDP per capita more than the United States. Norway, which had become a petro-state due to revenue gushing from the North Sea oilfields, increased this amount by $57,981, which is $16,649 more than the United States, or $314 more in non-health spending per year per person.
The report concludes the theory that health spending influences economic growth for better or worse is too simple. In fact, wages, prices and resources allocated to health care are a consequence of economic activity in other parts of the economy, as well as health policy.
Further, whether the system is defined as “universal” or “single payer” may be less important than other characteristics in determining how the system performs. The report ranks 13 developed countries by the share of health spending that is controlled directly by patients out-of-pocket versus the share controlled by third-party bureaucracies, either private or public. With only 12 percent of health spending controlled by patients directly, the U.S. ranks ninth by this measure. Swiss patients directly control over one-quarter of their health spending. Even Canadians, who live under a tightly closed, government monopoly, so-called “single-payer” system, control a somewhat higher share of their own health spending than Americans do.
Because most other countries allow patients to control a higher share of health spending than the United States does, the report concludes this is likely another factor keeping health spending lower than in the United States.
John, who are you jivin’ with this cosmik debri?. The Federal Government spends $1,3000 Billion per year on Medicare and Medicaid and the States spend Billions more and you can’t find any economic burden, get real.
Lee Iaccoca didn’t say that the cost of health care was a “burden” – he called it an albatross – the exact quote is, “No company can have a $1,500 [per vehicle] health-care albatross around its neck.”
The NCPA must be on a fund raising campaign with the American Medical Association, the American Hospital Association and the American Health Insurance Plans.
ABRACADABRA: The corrupt medical system in the USA is doing just fine and has no economic impact!! (NCPA WISDOM)
It was an albatross for Chrysler but not Microsoft, Google, etc. How do you explain massive inflows of capital investment into the U.S. by foreign companies if our health system is an “albatross.”
You know perfectly well we at NCPA do not think everything is fine in U.S. health care. We just don’t think foreign comparisons are well understood.
John, I will go slow. The largest expense for the Federal Government is health care. The Feds spend $1 million a minute that must be borrowed from the future. We are $19 Trillion in debt and have over $100 Trillion in unfunded liabilities in just Medicare and Social Security. Sorry John, Socialism doesn’t work and it never has in the history of this planet.
Socialized Medicine is a HUGE economic burden on all Americans, even those who are yet to be born.
In a TIME for Choosing (1964) Ronald Reagan said: “We are faced with the most evil enemy mankind has known in his long climb from the swamp to the stars. There can be no security anywhere in the free world if there is no fiscal and economic stability within the United States. Those who ask us to trade our freedom for the soup kitchen of the welfare state are architects of a policy of accommodation.”
Reagan did further assert: “You and I have a rendezvous with destiny. We will preserve for our children this, the last best hope of man on earth, or we will sentence them to take the first step into a thousand years of darkness. If we fail, at least let our children and our children’s children say of us we justified our brief moment here. We did all that could be done.”
John Graham offers a simple proposition, he says that “even though Americans spent significantly more on health care than the British, the average American enjoyed $9,185 more GDP after health spending than his British peer; and just under $6,000 more than his Canadian neighbor”
So if you prefer, dont say we “aren’t burdened” by health care spending. And yet, the data do show Americans have more left over after paying for health care, than the British or Canadians.
You can say Instead that the overall burden of health care costs does not have as heavy an impact on the US as it does on UK or Canada. In fact, only two countries – two small and much more heterogenenic countries – have a lighter burden than US on this measure. How can that be? Our economy is more robust, that’s how.
As with the favorable distribution of freedom and the favorable distribution of capitalism, America benefits greatly from a favorable distribution of GDP among world nations. At least, for the time being.
That is because of the way we finance it. We need to change its financing. Others at NCPA have addressed that. Other countries have these looming problems and worse.
Note my paper does not project the future. It stops in 2013!
Foreign comparisons? The U.S. Health care system can not be compared to any other country. The U.S. Is the only country that burdens its business with the costs of health care. The Gov. Burdens business with the cost of health care, Social security, FICA, federal unemployment, state unemployment, workers compensation. Now go out and compete in a global market! Any economist worth his degree should never compare manufacturing with technology . Come on John we all know you’re better than that.
Sadly I feel the battle to save the U.S. Economy has already Been lost. Regardless of who wins the next election the debt will continue to rise by trillions. If Republicans win we will have 22 trillion in debt by the end of the first term and if the Democrats win we will have 24 trillion. Might as well let Hillary get us to Bankruptcy quicker and reset the world economy ..
John’s post implies that Socialized Medicine in the USA is no burden because Socialized Medicine in England is more of a burden. Which means absolutely NOTHING.
The mission of the NCPA: Our goal is to develop and promote private, free-market alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector.
John you should get back to the NCPA’s mission.
It cannot burden business because businesses must pass all their costs on to individuals.
Anyway, if ti was such a burden, why have new businesses succeeded in the U.S. more than other countries?
YOU are confused if you think that health care costs don’t burden business AND taxpayers.
The PHD Government guy tells business about their mandate to purchase insurance, “Don’t worry about it because it won’t burden you because you just pass on the cost, comprendo?”
John, with your twisted logic I’ll ask – If health care wasn’t a burden why have so many businesses closed up shop?
Also, plenty of people come to the USA for medical care. If you’re rich you would want your liver transplant in America where we have done some in the past instead of being the 1st transplant in Canada.
Just because these Socialists here at the NCPA blog agree with you John it doesn’t mean that you are right. Socialists are everywhere today including running for President. They have taken over this blog lately.
FORWARD SOVIET!
Exactly, it burdens business because they are forced to compete globally on an unfair playing field. you cant say business is not burdened because they pass on the cost when they have to compete with companies from other countries.
with logic like that no wonder china is kicking our ass.
We are not fans of employer-based health benefits at NCPA. Nevertheless, there is no evidence these benefits are bankrupting companies. If they were, the employers would be lobbying for single-payer health care. On the contrary, they defend the status quo to the end.
CEO’s usual don’t come from HR departments. They rely on the so called expertise of the HR department to shop benifits. In my 25 years in the business I have yet to talk with an HR person who had a clue. However CEO’s do understand bottom lines so they build fords and air conditioners in Mexico. Yes the NCPA is against employer based insurance as it should be. However they are doing a horrible job explaining why it’s such a bad deal and they are not setting a very good example when they purchase employer based benefits.
One good way to determine if USSA healthcare is too expensive would be to allow healthcare dollars, whether private insurance, Obamacare, Medicare or Medicaid, to be spent on drugs and services outside our borders.
Median household income of $52,000
Average group premium $17,500
Draw your own conclusions
My conclusion- you are missing median and average.
Or – – maybe you are mixing median and average.
Draw your own conclusion. 😎
Maybe we should consider the mode, too.
I agree with John that health care spending is not an overall economic burden to the USA — but for a different reason than he raises.
My argument is that nearly 100% of health care spending goes to US doctors, hospitals, nurses, drug companies, insurance companies, et al.
So for these rather lucky persons, health care spending is their income.
As jobs decline in heavy industry — due in part to high health care costs — jobs grow in the health care sector.
Read economists like Michael Mandel, Michael Spence, and Arnold Kling, on the growth of jobs in health care while other jobs decline. (Megan McCardle also, another conservative by the way like Kling.)
America is winding up with fewer well-paid factory jobs and more well-paid nursing jobs.
This is not a painless process! I do know one family where the husband lost a factory job, the wife became a nurse, and they stayed in the middle class. But that is not everyone.
Bob, in broader terms, aren’t you describing economic development? I hope you agree that economic development is a benefit, not a bug.
Yes, it does require workers retrain. In an earlier, simpler time, the pace of change was slower and smoother, and easier for workers to accommodate. Now it’s much faster, and often discontinuous – giving rise to the term “creative destruction”. It’s much more difficult for workers especially those who do not adapt readily. But consider the alternative.
Economies that do not adapt become uncompetitive on world markets. This limits GDP and limits the jobs that the economy can generate. Workers who do not adapt become less competitive for jobs, which limits their wages and even their employability.
Not many people are employed today making slide rules or horse-drawn carriages or selling whale oil. History contains thousands of such examples.
That is a very legitimate point. However, if the job creation was all in health jobs that add no value (which would not trade internationally) they would be a burden and U.S. real incomes would fall. It would be reflected in a depreciated dollar versus other currencies.
In John’s last paragraph. he asserts that Canadians personally control more of their health spending than Americans do.
I have read this before and it puzzles me.
I lived in Canada for a short time. I never saw a doctor bill or a hospital bill (I had no serious illnesses and needed no drugs to speak of.)
I controlled NONE of my health care spending.
Back in America I had at one point a $5,000 deductible. I controlled almost 100 per cent of my health care spending (not that I was made better off by this ‘control.’)
Anyways, there is a statistical anomaly hidden somewhere in John’s assertion. The answer might be in the stupendous hospital bills that are sometimes paid by American insurers.
This is not a huge item for me, but I have been puzzled by this for some time.
“I have read this before and it puzzles me.”
Then Bob, I suggest you take the time to read John Grhams paper. It’s found at the link given above, and for your convenience, here: http://healthblog.ncpathinktank.org/u-s-health-spending-is-not-an-economic-burden/#comments
You really should read the whole thing. But if you want a short-cut, skip to Table VII, which compares 2013 health care spending per capita among countries by source of financing. Note the column “Out of Pocket”. You will see the proportion reported for Canada is 13.6% while the proportion reported for US is 11.8%.
This explains John Graham’s comment that on average Canadians control more of their health care spending than Anericans. I would add that Americans are so focused on their out of pocket costs they do not consider – don’t even know – what the total costs are. That’s why it is so often a surprise to learn the facts . . .eh?
Drugs, physiotherapy, many procedures not covered by the single-payer system, all are paid privately by many people in Canada.
Thanks John. Without more study, I just cannot figure out how a Canadian pays 13% of costs out of pocket, when doctors and hospitals are free at the point of service…. Maybe drugs and dental work make the difference.
Anyways, let me go back to your earlier post about economic development.
The phrase “economic development” creates an image in my mind of the Japanese auto industry after 1950 — hard work, innovation, attention to detail, courage, all to make a quality product at a modest price for a world wide market.
(see David Halberstam’s The Reckoning.)
By contrast, the wealth of the American health care system comes in no small part from monopolies and price gouging.
Whenever I paid a large insurance premiun, I felt like I was paying one section of the Mafia (Blue Cross) to protect me from chargemaster bills and drug costs from another section of the Mafia (big hospitals and big Pharma.)
The health care execs have better manners than the Mafia, but again our health care costs seem more like tribute than a fair exchange of money.
I suppose that tribute also leads to economic development (cf Saudi Arabia), but an economy built on rents may not be sustainable.
The greatest sources of new high wage jobs in the US for the last 20 years have been health care, government, and education (see Michael Mandel.) All are based on rents.
Yes, I forgot to mention dental in my previous reply. Anyway, we definitely need a study that breaks down the out-of-pocket spending in other countries. For example, in France there is balance billing. In Canada, no. So, the composition of out-of-pocket spending will differ across countries, which my paper does not address.
I agree with the thrust of this post.
While I don’t have precise data at hand, my understanding is that the larger Western European countries spend a materially higher percentage of GDP than the U.S. does on the combination of unemployment benefits and pensions – their equivalent of social security. If you look at those two categories plus health spending altogether as a percentage of GDP, they are likely at or close to the U.S. level and we still have the significantly higher per capita GDP left over to spend on other things.
Norway, for its part, saves much of its oil surplus in a sovereign wealth fund. Both salaries and prices are very high in Norway and I don’t think most middle class people in the U.S. would trade our standard of living for theirs with the possible exception of folks with significant health issues who don’t have decent insurance and can’t access adequate care.
Switzerland also has very high living costs. Home ownership rates are south of 40% vs. the mid-60’s in the U.S. While Swiss people may not be driven into bankruptcy as a result of high healthcare costs as often as Americans, there are a lot of other advantages to living in America, at least for the middle class and above. Many chronically poor people may have a different perspective.
That all said, I’m sure that there sre numerous approaches that could mitigate healthcare cost growth over time in the U.S. freeing up even more of our GDP for other important and worthwhile priorities, both private and public. To the extent that we can figure out how to do that without sacrificing healthcare quality or resorting to rationing, we should do it.
Thank you. Yes, I wrote a previous article which added other social benefits to health care, and came to the conclusions you described. Unfortunately, I was not able to assemble that data going all the way back to 1960.
A nations wealth is analogous to its boaters. In the US on any given Saturday you have the janitor out on his 16′ boat fishing along side the CEO in his 60′ boat. Go to Italy or France and you pretty much only have the CEOs with the economic opportunity to own a luxury item like a boat.
The point is that in the US, the working poor and middle class aren’t taxed into a life of indentured servitude like in Europe with all there “wonderful” cradle to grave benefits and never having an opportunity to enjoy life and sending any spare money to the tax man -YET.
Plus if you’re looking for real steals on low per capita healthcare spending, pick any central African country. Uganda’s a bargain. Except for the rampant AIDS thingy.