In fiscal 2013, the federal deficit is projected to be 5.5 percent of GDP, a level that according to many in Washington threatens our basic solvency and that must be addressed by any means possible, as long as “any means possible” does not include tax increases.
Meanwhile, Americans spend 17.6 percent of GDP on health care, more than three times our deficit. Much of that money is of course considered well-spent, keeping ourselves and our loved ones alive and healthy. But here’s the problem:
By any measure that you care to use, U.S. health-care spending vastly outstrips those of our competitors in the industrialized world. Here’s the comparative data, as compiled by a new report by the International Federation of Health Plans, a global network of health-insurance companies:
If we reduced health-care spending to the level of the average member of the 34-member Organization for Economic Co-Operation and Development, we would offset our deficit entirely and free up another half-trillion dollars a year to invest in other needs, including economic growth.
If we could merely manage to reduce spending to the level of the second highest spender — socialized, union-ridden, supposedly inefficient France — we would still more than offset our entire deficit and have hundreds of billions in cash left over.
But we can’t. The reason that we can’t is reflected in other charts contained in the IFHP report:
Note that the U.S. cost figures are expressed three ways: as an average, as the 25th cost percentile (meaning that 75 percent of daily hospital costs are higher, and 25 percent lower), and at the 95th percentile.
Let’s look now at comparative costs for the most basic and straightforward of surgical procedures:
How about the cost of something more complicated, involving the highly profitable medical-devices industry?
Finally, with a pollen-laden Atlanta spring facing us, let’s take a look at the prices paid for a commonly prescribed allergy drug:
The IFHP report contains a slew of other charts as well, covering additional procedures and drugs. If you have the stomach for them, they’re available here, but they all tell the same story.
Now, the obvious question is why, and the answer is equally obvious: In the United States, health-care providers enjoy a combination of economic and political pricing power that they enjoy nowhere else on the planet. That advantage is clearly reflected in the charts above.
For example, when drafters of ObamaCare tried to create a panel of experts to recommend the cheapest way of providing health care, the effort was transmogrified by the political process into “death panels.” When the Bush administration passed the Medicare Part D drug program, it did so only under the condition that it contain provisions barring Medicare administrators from trying to negotiate lower drug prices. More recently, in an effort to recover some of the exorbitant costs charged by medical-device suppliers in this country but nowhere else, ObamaCare levied a 2.5 percent tax on those devices. But under intense lobbying by the industry, the Senate — with considerable support from Democratic members — voted earlier this month to abolish that tax.
It should be noted that because Medicare and Medicaid do have some pricing power over the American health-care industry, they pay prices on the lower end of the scales depicted above. Private insurance companies, which have less pricing power than the government agencies, pay considerably higher rates. And the uninsured, which have little to no such market power, pay the highest rates of all.
That ought to raise serious questions about the solution favored by conservatives, which is to push individuals out of government- and employer-provided insurance programs and turn them into individual purchasers of health care, thus supposedly enlisting market forces to lower costs. However, that approach makes sense only on the purely theoretical level, because it assumes that a 70-year-old heart patient has the time, know-how and market power to drive a harder bargain with his surgeon and hospital than a private insurer or a government agency.
It just ain’t so. But that’s the kind of foolishness that cripples efforts at cost containment and drives prices sky-high in this country, putting us at a considerable and growing economic disadvantage.
– Jay Bookman