Monday, July 27, 2009

Cost Challenges

One of the Obama administration's biggest selling points for a centralization of health-care resources is the claim that such measures would limit the growth of health-care costs; the argument goes that the US system of health-care has led to rocketing costs, ones that more government-managed systems have been able to avoid.

However, as these pieces by David Gratzer and this Andrew Biggs post argue, American health-care costs may not be increasing at a rate beyond those of the rest of the industrialized world. Here's some data from Gratzer:

But health care has changed, and costs are rising worldwide without regard to each nation's health insurance model. In 2007, the Kaiser Family Foundation used OECD data to show that the growth of American health care spending slowed considerably in recent years. Between 1990 and 2003, America's per capita health care inflation was 3.6% (less than in the 1980s). America's "spiraling health costs" were in fact comparable to growth in France and Iceland, and even lower than many countries, including Australia, Belgium and Britain.

OECD data confirms that the trend continues through this decade, with American health spending increases being about the average for OECD countries (see below). And public systems continue to spill red ink; even with pharmaceutical price controls and rationing, limited access to technology, and minimal capital investments, Ontario's health budget is projected to grow by 16.5% over the next three years. Quebec's annual health inflation rate is almost 6%. In Britain, the NHS reports a 60-year average increase of 3% over inflation. Ireland's single-payer system has experienced constant price turbulence. Despite 4.7% deflation this May, Irish health costs still grew at an annualized rate of 3.5%.

By Gratzer's calculations, the US has experienced a health-care spending growth rate of 4.95% between 2000 and 2006, while the OECD (an organization mostly comprised of industrialized nations) experienced a growth rate of 4.9%. Yes, there's a difference there, but it is not exactly collossal.

Biggs used another method to estimate the growth of the health-care sector, and this one shows similar results:

Using OECD data, I calculated the rate of “excess cost growth” for 23 countries over the period 1990-2006. Excess cost growth is the rate at which per capita health costs grow “in excess” economy-wide expansion. When excess cost growth is positive, healthcare costs increase relative to Gross Domestic Product (GDP).

As it happens, the United States rate of excess healthcare cost growth from 1990-2006 is right about average among developed countries. U.S. health costs grew an average of 1.66 percent faster than the economy from 1990-2006, while the OECD average was 1.62 percent. Clearly, the U.S. has not had unusually fast health care cost growth over the last decade and a half.

Moreover, countries with far more government control over healthcare have had just as much difficulty controlling costs as the U.S. The UK, for instance, in which doctors and hospitals are directly controlled by the government, saw costs rise 2.08 percent faster than GDP.

These numbers seem to indicate that a centralized command-control approach to health-care need not reduce health-care costs. Indeed, some of the most centralized health-care systems (e.g., the UK) can be less effective in controlling costs than the slightly more market-oriented American one.

1 comment:

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