The US leads the world in many ways, but its costly and confusing healthcare system has proved to be a lesson in what shouldn’t be done, says Alex Rankine.
The US leads the world in many ways, but its costly and confusing health system has proved to be a lesson in what shouldn't be done, says Alex Rankine.
What's the issue?
America spends more than other developed countries on healthcare. The OECD club of rich countries reports that in 2015 America devoted 16.9% of its GDP to healthcare, compared with 9.8% of GDP in the UK and 11% in France. Even Japan a nation whose population is ageing fast spent substantially less. The Commonwealth Fund reports that US healthcare spending works out at $9,086 per person per year; the UK gets by on $3,364 per person per year.
Who pays?
Private healthcare is part of the story. Each year Americans pay more than three times as much as Britons out of their own pockets to access healthcare, while private health insurance is a costly additional burden for many American households and employers. This is not too surprising, given there is no American parallel to the NHS. Strikingly, the US government spends more than the British government per head on public healthcare ($4,197 per head per year in America versus $2,802 per head in the UK) despite the fact that prior to President Obama's reforms ("Obamacare") only 34% of the population was covered by government programmes such as Medicare and Medicaid. Contrary to the common perception of American healthcare as a private-sector affair, the American Journal of Public Health reports that more than 60% of its costs are met through government expenditure, and that figure is rising.
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Not a great deal. It is true that US cancer care is good by international standards, with cancer mortality rates falling faster than they have in other countries since the 1990s. Overall, however, America fares poorly compared with other countries in the OECD. Life expectancy, at 78.8 years, is below the OECD average, while the infant mortality rate is more than double the rate in Sweden and almost triple that of Japan. Most extra US health spending is swallowed up in higher healthcare costs. A routine visit to the doctor is three times more expensive in the US than in neighbouring Canada, and a CT scan in America costs five times more than in Canada. Add up the higher costs of drugs, medical equipment and personnel, and the cost differences between the US and other countries can be stunning. The average heart bypass surgery costs $15,742 in the Netherlands; in the US it costs $75,345.
Why is it so expensive?
Republicans frequently blame Obamacare, but the problems long pre-date Obama's presidency. What seems clear is that structural features of the American healthcare system keep costs high. Veteran US healthcare reporter TR Reid points to the extraordinary complexity of a system where multiple government programmes for different groups jostle with for-profit insurance companies to buy health services, each programme requiring its own bureaucracy and administrative system to deal with payments. For every dollar Americans spend on healthcare, 20 cents goes to "marketing, underwriting, administration and profit". It is worth noting that some countries run private-insurance-based healthcare systems without the huge waste of the US model (see below).
What else is to blame?
Drug costs are higher in America than elsewhere. To take one example, a vial of the cancer drug Rituxan costs the NHS in England $1,364; the US Medicare programme shells out $3,678 for the same treatment. In Europe, state-run healthcare systems are able to force drug prices down because they are the only major buyers of healthcare products. By contrast, the fragmented US system favours the drug companies, and federal agencies such as Medicare are banned from using their buying power to negotiate lower prices. Many argue that the upshot of this is that Americans are subsidising the research and development costs of new drugs that are then sold on more cheaply in the European market. United Therapeutics CEO Martine Rothblatt states: "It seems to me not right that the US taxpayer, through Medicare and Medicaid, which pay for roughly half of the drugs in the country, should be subsidising the healthcare costs of the wealthier countries in the world."
What has Obama done about this?
The Obama administration's Affordable Care Act aimed to curb rising costs and expand healthcare access to millions of previously uninsured Americans. The reforms are still a work in progress, but with several major private insurance companies announcing in recent months that they would be leaving key elements of the programme, some commentators are already branding the act a failure. In any case, Obama's reforms fall far short of implementing the kind of "single payer" system in the UK, making it likely that US medical costs will remain high. The US leads the world in many fields, but as the NHS faces its own funding crisis, America's disjointed and expensive healthcare system provides some clear lessons in what not to do.
Is the Swiss system a better model?
Rather than the state-backed medical insurance systems in countries such as Britain, Switzerland provides universal medical coverage by requiring residents to buy private medical insurance. The state keeps costs low by regulating the price of drugs, while private insurers send written warnings to doctors who prescribe too many expensive treatments. The Swiss system has attracted the attention of figures on the American right, such as Fox News host Bill O'Reilly, because it allows patients to choose their doctors and the government does not ration healthcare through waiting lists. All this choice comes at a cost: Switzerland is the only OECD country where patients pay more out of their own pocket for medical costs than they do in America.
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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
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