Myth #1

Countries With National Health Insurance Have Been More Successful Than The U.S. In Controlling Health Care Costs.

Figure 1

The United States spends more on health care than any other country in the world, both in dollars per person and as a percent of gross national product (GNP). Does this mean that the United States, with a predominantly private system, is less able to control health care spending than are developed countries with national health insurance schemes?

As we shall see, international comparisons of health care spending are difficult, not least because of differences in measuring techniques. But first we should note that the United States is wealthier than other countries. Almost without exception. countries with more income spend more on health care. In fact. health economists have discovered that 90 percent of the variation in, health care spending among developed countries is based on income alone. [9]

This should give pause to anyone who believes the United States will significantly lower health care spending by adopting the system or institutions of some other country. Apparently, as people have more income, they spend more on health care, whether their spending takes place through the market, the political system or quasi-public institutions.

United States vs. Canada: Growth in Spending.

Let's take a closer look at the United States and Canada, whose health care system is often held up to us as a model. In 1987, the United States spent $2,004 per person on health care, whereas Canada spent only $1,520. Some people argue that if the U.S. adopted Canada's health care system, it could cut health care spending by 25 percent. They buttress their argument by looking at the record over time. In 1967, the United States and Canada spent virtually identical proportions of GNP on health care (6.33 percent in the United States, and 6.38 percent in Canada). Canada's system of national health insurance was implemented between 1968 and 1971. Since then the U.S. has surged ahead. In 1987, the United States spent about 11.1 percent of its GNP on health care, whereas Canada spent only 9.0 percent. [10]

The problem with those comparisons is that health care spending as a percent of GNP is a fraction. If the fraction grows over time, we need to know whether the growth is being caused by changes in the numerator (health care spending) or in the denominator (GNP). As it turns out, the above differences can be almost totally explained by the behavior of the denominator. Over the 20-year period (1967 to 1987), Canada's real GNP per capita grew 74 percent, while the U.S. figure grew only 38 percent. [11] If we look at health care spending alone, rather than its relationship to GNP, we discover that:

  • Before Canada implemented its system of national health insurance, the country was spending 75 percent of what the United States spent on health care per person.

  • In 1987, Canada continued to spend 75 percent of the U.S. level.

  • Over the 20-year period, real increases in health care spending per capita have been virtually the same in both countries. (The increase was 4.38 percent in the United States versus 4.58 percent in Canada.)

Canada has been no more successful than the United States in controlling health care spending. As Figure I shows, in recent years it has been less successful. [12]

United States vs. Canada: Levels of Spending.

There are other problems in comparing United States and Canadian health care spending:

  • First, the Canadian number doesn't include capital spending to the same extent that the U.S. number includes it.

  • Second, the U.S. number includes research and development (R & D) costs. Canada engages in very little R & D spending, while U.S. R & D spending results in technological innovations that benefit Canada as well as the rest of the world.

  • Third, the U.S. population is slightly older, and older people inevitably consume more health care.

  • According to one study, correcting for these differences between the two countries cuts the gap in the fraction of GNP spent on health care in half. [13]

Other adjustments also must be made. In both countries, the costs of administering government health care spending are largely hidden. For example, the cost of collecting tax dollars to pay for health care does not show up in the health care budgets of either country, whereas the cost of collecting private insurance premiums is counted as part of U.S. health care costs. Similarly, auditing expenses are usually included in the budgets of other public agencies. But since Canada's public sector is relatively larger than that of the United States, far more of Canada's costs are buried in bureaucratic budgets.

United States vs. Canada: Differences in Health Care Needs.

Because of historical and cultural differences between the two countries, the need for health care spending is often higher in the United States than in Canada. For example, the United States has a much higher violent crime rate, heavier illegal drug use and a greater incidence of AIDS – all of which generate more health care spending. According to Leroy Schwartz (Health Policy International): [14]

  • The U.S. male homicide rate is five times that of Canada, and for every homicide there are 100 assaults reported to hospital emergency rooms.

  • The U. S. rate of incidents of AIDS is three times that of Canada, and the lifetime cost of treatment is about $85,000 per patient:

  • More than 25 percent of the 10,000 to 15,000 annual spinal cord injuries in the United States are due to violent assaults, and treatment and rehabilitation costs are about $600,000 per patient.

  • There are about 375,000 drug-exposed babies in the United States with an average treatment cost of $63,000 per baby. This problem is negligible in Canada.

The United States also has health care costs related to war injuries (including those of Vietnam veterans), which Canada does not have. And Figure II illustrates another important difference: U.S. teenage women have almost 2 1/2 times the pregnancy rate of teenagers in Canada, twice the birthrate, about three times the abortion rate and more than twice the miscarriage rate. Because teenage mothers are more likely to have premature babies and other complications, these differences cause higher health care spending in the United States.

Other Comparisons.

No one has tried to sort out these differences to arrive at a bottom line. But there is considerable anecdotal evidence that the real cost of U.S. health care may actually be lower than Canada's. For example, hospitals in British Columbia contract with U.S. hospitals across the border in Seattle to perform heart surgery on Canadian patients. [15] There is a similar arrangement between Ontario hospitals and those in Detroit. Canadian hospital managers apparently have concluded they make a "profit" on these transactions, and at the same time reduce the public outcry over long waiting lists.

Another way of comparing the two nations' health care costs is to compare Canada with some of the largest HMOs in the United States. The "managed care" programs of HMOs resemble the cost controls imposed in Canada in the sense of a commitment to control spending. Moreover, some HMOs are as populous as Canadian provinces. About half of Canada's provinces have a population of one million or fewer people, while seven HMOs in the United States have more than one million. Although people enrolled in HMOs may not be a random sample of the U.S. population, Figure III shows that large HMOs in the United States have lower costs per person than Canada has:

  • The Harvard Community HMO in Massachusetts spends only 73 percent as much per person as Canada spends.

  • Both the Kaiser Permanente and Cigna HMOs spend about 65 percent as much per person.

To summarize, we can draw at least four important conclusions. 1) There is no evidence that Canada has done a better job than the United States at controlling health care spending overtime. 2) Canada's spending on health care – under both a private and a public system – consistently has been about 75 percent of what the United States spends. 3} Although international statistics show that the United States spends more per capita on health care than Canada, these statistics can be very misleading. 4) There is some evidence that U.S. health care is less expensive when the comparison is made on a more level playing field.

The United States vs. Other Developing Countries.

In comparing United States health care with that of other developed countries, we encounter the same difficulties. In addition, most international statistics on health care spending are produced by the Organization for Economic Cooperation and Development (OECD). Yet because of differences in reporting standards of different countries, OECD statistics are not always reliable. [16]

Table I shows the results of an attempt to develop more accurate health care spending measurements among OECD countries:

  • Using more precise measuring techniques, we find that the United States spends more of its income on health care than other countries – but the difference is smaller than people commonly believe.

  • During the 1980s, the real growth rate for health care spending was higher in 11 of 15 countries than in the U.S.

  • In per capita terms, most countries had real growth rates that were more than double the U.S. rate.

    Many believe that countries with national health insurance have an "advantage" the U.S. health care system does not. In those countries the government can, in principle. limit health care dollars and tell hospital managers to ration the money they are given to spend. But that power is more apparent than real, and politicians who exercise it risk being replaced by their competitors. In the political systems of other countries, as in the U.S., there is unrelenting pressure to spend more on health care.