Americans’ high level of spending results not so much from factors specific to the healthcare sector, but rather from the fact that Americans have high incomes, high accumulated wealth, and low rates of saving. As a percentage of household consumption (as opposed to GDP), American healthcare spending is relatively in line with that of other countries. Reforming American healthcare will not alter these macroeconomic fundamentals.
Canada’s Fraser Institute noted that 2013 per capita healthcare expenditures were $9,086 in the United States and $4,569 in Canada (17 percent of GDP in America versus 11 percent in Canada). But the Fraser Institute’s point was that these numbers do not constitute a crisis for America. America’s 2013 per capita GDP was $53,135; Canada’s was $42,701. In income terms, Canadians are 20 percent poorer than Americans. The average American who spends $9,086 on healthcare still has $44,049 left over for food, shelter, clothing, roads, military, entertainment, etc. The Canadian spending $4,569 on healthcare only has $38,132 remaining for other items. If Canada is not in crisis with $38,132 per person after healthcare, then it is strange to argue that Americans, with $44,049 after healthcare, are in crisis. Simply put, Americans spend a lot on health not because their healthcare providers are greedy or inefficient, but rather because Americans are blessed by unparalleled wealth.
America’s health status shortcomings are also largely explained by factors outside of healthcare. By one typical estimate, 11 percent of health variation is explained by medical care. By that same estimate, 36 percent of that variation is owing to individual behavior (drug use, motor vehicle behavior, etc.). Twenty-four percent results from social circumstances (incarceration, religious involvement, family status, etc.). Twenty-two percent comes from genetics and biology (heredity, nutrition, etc.). Seven percent is explained by environmental factors (pollution, allergens, etc.). One 2006 study suggested that if one filters out instantaneous deaths by homicide, suicide, or accidents—events largely unrelated to healthcare—America would have the longest lifespan of any OECD country. America’s infant mortality rate is higher than some other countries’ rates, in part, because it fully airs its statistical dirty laundry, whereas other countries underreport infant deaths by falsely categorizing many as stillbirths.
If America seeks to adopt other countries’ healthcare systems like off-the-rack suits, then Americans are bound to be disappointed. Yes, Canadians spend less on care than Americans do, but mostly for reasons that are not replicable in the United States. Consider an analogy: In 2018, a Big Mac hamburger cost $5.51 on average in the United States and $5.07 in Canada. That 8.7 percent difference does not represent inefficiency or profligacy or failure in the United States. It simply represents different market conditions. Adopting a “Canadian-style hamburger system” in America will not bring those prices any closer together. One factor that makes Canadian healthcare less expensive than America’s is the fact that Americans pay doctors more than Canadians do. In 2008, primary care physicians (family doctors, internists, obstetrician/gynecologists, and so forth) earned 50 percent more on average in America than in Canada—$186,582 versus $125,000. (The differences were even larger in some specialties.) One possible reason Canadian doctors accept $125,000 per year is that alternative opportunities for highly intelligent, deeply motivated individuals may be more limited in Canada than in America. Offer physicians $125,000 in the United States, and would-be medical students will choose careers in law, finance, or information technology instead.
What are America's Biggest Opportunities?
The more one dives into the numbers, the more obvious it is that the sky is not falling on American healthcare. But America could still do far, far better than it does at present. A traditional assault on waste, fraud, and abuse will almost certainly leave Americans disappointed. Though all three problems exist in American healthcare, their severity and solvability are likely exaggerated in the minds of many medical professionals and laypeople. Unless America allows markets to find new and innovative ways of delivering care, the cost of reducing waste, fraud, and abuse will almost certainly eat away a large percentage of whatever savings America realizes through those efforts.
The real opportunities lie in changing the recipes by which the country delivers care. Americans’ enemy is not so much waste, fraud, and abuse as it is stagnation—miring American healthcare in the technologies of yesterday. One way to get more bang for the buck is to substitute less expensive modes of care for more expensive ones:
A telemedicine visit by a patient may be less expensive for both doctor and patient than an in-office visit, and the ability to contact a doctor from one’s own residence in the dead of night can lead to the early detection of serious problems. Yet some states throw up barriers against the adoption of telemedicine.
In some states, relatively low-cost nurse practitioners, pharmacists, and others perform tasks that, in other states, require high-cost physician labor.
In some states, certificate-of-need laws prevent new and innovative hospitals and other providers from competing with older, less efficient institutions or expanding coverage to underserved areas.
Direct primary care and other novel organizational structures can reduce costs and provide better care in some settings, yet some states erect roadblocks deterring the development of these novel delivery mechanisms.
Artificial intelligence offers new and promising ways of diagnosing illness and monitoring patients, but America’s healthcare system has been slow to make full use of these opportunities.
In Rwanda, Tanzania, and Vanuatu, unmanned aerial systems are transporting blood products, drugs, and other medical goods at low cost—an especially important innovation in vast rural areas. The United States has barely begun to make use of this technology.
Many of these opportunities depend on state laws and regulations. Federal laws and regulations also have the capacity to expand or contract the states’ leeway in these and other areas. One of the truly encouraging aspects of these ideas is that they can appeal to legislators on both sides of the aisle. America has seen surprising and heartwarming displays of bipartisanship on these issues in a number of states. That by itself is a rare gift in this era.
We at the Mercatus Center are pleased to offer research and encouragement in the six aforementioned areas. We wish you, your committee, and Congress much luck in your search for solutions.