It's the Prices, Stupid: Why The United States Is So Different From Other Countries

Gerard F. Anderson, Uwe E. Reinhardt, Peter S. Hussey, Varduhi Petrosyan

Health Affairs. 2003;22(3) 

In This Article

The Overall Spending Picture

Table 1 presents selected data on total national health spending per capita in 2000, its average annual growth rate during 1990-2000, private health spending as a percentage of total health spending in 2000, and the change in the percentage of private health spending during 1990-2000. It also includes data on gross domestic product (GDP) per capita, a rough indicator of a country's ability to pay for health care, and on the fraction of the population over age sixty-five, an important factor influencing the demand for health care services. All of the data on per capita spending and GDP have been translated into U.S. dollar equivalents, with exchange rates based on purchasing power parities (PPPs) of the national currencies. The annual growth rates, on the other hand, are calculated from data expressed in the 1995 constant-value units of each country's own currency, adjusted for general inflation using each nation's GDP price deflators.

U.S. per capita health spending was $4,631 in 2000, an increase of 6.3 percent over 1999 ( Table 1 ).[4] The U.S. level was 44 percent higher than Switzerland's, the country with the next-highest expenditure per capita; 83 percent higher than neighboring Canada; and 134 percent higher than the OECD median of $1,983.[5] Although the United States can claim some success during the mid-1990s in its attempt to control health spending with managed care, over the entire 1990-2000 period the spending gap between the United States and the OECD median actually widened slightly.

Analysis suggests some convergence of health spending levels among the thirty OECD countries during the 1990s. Countries with higher spending levels in 1990 tended to have lower growth rates of real health spending per capita between 1990 and 2000 than did countries with lower initial levels of health spending.[6] The United States was an exception to this pattern. It reported the highest health spending level in 1990, but its growth rate in per capita health spending was slightly above the OECD median.

Measured in terms of share of GDP, the United States spent 13.0 percent on health care in 2000, Switzerland 10.7 percent, and Canada 9.1 percent. The OECD median was 8.0 percent. Ability to pay measured here by per capita GDP has repeatedly been shown to be a powerful predictor of the percentage of GDP allocated to health care.[7] This is evident in Figure 1. In 2000 about 27 percent of the observed cross-national variation in the percentage can be explained by GDP per capita with a simple bivariate regression of the former on the latter variable. If Luxembourg is eliminated from the regression equation as an outlier, the explained variation increases to 56 percent.[8] In spite of this high level of association, Figure 1 shows considerable cross-national variation in the health sector's share on GDP at given levels of per capita GDP, especially in the range between $25,000 and $30,000.

Percentage of Gross Domestic Product (GDP) Spent on Health Care, in Relation to GDP Per Capita, in Thirty OECD Countries, 2000

Private spending in the OECD data falls into the broad categories of (1) out-of-pocket spending for deductibles, coinsurance, and services not covered by health insurance; and (2) premiums paid by families and individuals for private health insurance. As shown in Table 1 , the share of total health spending that is privately financed varies considerably across the OECD countries. The median country finances 26 percent of its health care from private sources. The range is as high as 56 percent in the United States and Korea to as low as 7 percent in Luxembourg and 9 percent in the Czech Republic. As a percentage of GDP, the OECD countries spent 0.4-7.2 percent of GDP on privately financed health care in 2000, with an OECD median of 2.0 percent. The United States was the highest at 7.2 percent. U.S. private spending per capita on health care was $2,580, more than five times the OECD median of $451.

In most OECD countries the privately financed share of total health spending increased during the 1990s ( Table 1 ). The private share tended to increase more rapidly in countries with lower shares of private health spending in 1990. The explanation for the increase varied from country to country. For example, the level of cost sharing increased in Sweden, while private insurance coverage increased in Switzerland.[9] Countries with the largest share of private financing in 1990 - the United States, Mexico, and Korea - had a decreasing private share of financing during the 1990s ( Table 1 ).

Although the percentage of the health care dollar financed from public sources in the United States is low compared with other OECD countries, the absolute amount is relatively similar to other OECD countries. Public sources in the United States accounted for spending of 5.8 percent of GDP in 2000, very close to the OECD median of 5.9 percent. In fact, on this measure of public spending, the United States is virtually identical to the United Kingdom, Italy, and Japan (5.9 percent each) and not much smaller than neighboring Canada (6.5 percent). Finally, U.S. public sources spent $2,051 per person in 2000; this places the United States among the top four countries listed in Table 1 , just behind Luxembourg ($2,510), Iceland (2,202), and Germany ($2,063). On that measure, the United States ranks far above the OECD median of $1,502, Japan's $1,542, and the United Kingdom's $1,429.

Furthermore, as Steffie Woolhandler and David Himmelstein pointed out recently in Health Affairs, the OECD data (and the U.S. national health accounts on which the OECD database draws) actually understate the role of the public sector in health care. These researchers measured the public sector's share of total health spending not by who ultimately paid the providers of health care, but by the fraction of health spending that originated in households in the form of taxes. On that measure, close to 60 percent of total U.S. health spending in 1999 - 7.7 percent of GDP - was financed through taxes.[10]

Spending per capita on - pharmaceuticals a subject of interest to policymakers throughout the OECD countries - varied from $93 in Mexico to $556 in the United States in 2000 ( Table 2 ). In spite of having the highest per capita spending, the United States is closer to other countries on pharmaceutical spending than spending for other health services and goods.

Average annual growth in real per capita spending on pharmaceuticals during 1990-2000 increased at an annual compound rate of 4.5 percent in the median OECD country ( Table 2 ). Only Australia, Norway, and Sweden registered higher rates than the United States during the 1990s.