Note: This rather wonkish article is much easier to read on the website (link below) since it includes a series of graphs that helps to visualize the concepts presented.
Inequality Is At The Core Of High Health Care Spending: A View From The OECD
By Richard “Buz” Cooper
Health Affairs Blog, October 9, 2013
It is commonly said that the US spends more than twice as much on health care as other developed countries, yet its outcomes are worse. The inference is that too much care is provided, to no good end.
Such international comparisons are drawn from the Organization of Economic Cooperation and Development (OECD), a group of 34 developed countries. Analyzing these data is a multi-step process, like peeling an onion, and the truth resides deep within its core.
The process starts by adjusting health care spending for āpurchasing power parityā (PPP) and expressing it in US dollars. By that measure, per capita spending in the US is 160 percent more than the OECD mean, and this is the basis for the notion that the US spends more than twice as much. But it is only the first layer.
The second layer is the economy. The US spends more principally because it is wealthier, but even in proportion to its gross domestic product (GDP), the US spends more, about 60 percent more. But that is only the second layer.
The third layer is price. Health care prices are inordinately high in the US and inordinately low in many other countries, particularly those that exercise price controls. Therefore, to understand how much care is given, comparisons of health care spending must be adjusted for the purchasing power parity of health care (HC-ppp). When so adjusted, spending in the US is still higher relative to its GDP, but by only 31 percent. This represents the core difference in services. Some are administrative, but most are health care services.
What explains this 31 percent? A large body of evidence suggests that it results from poverty and income inequality, which are more prevalent in the US than in any other OECD country except Chile, Mexico and Turkey. And poverty is associated with substantial increments in spending. For example, the poorest decile of Medicare beneficiaries spends 30-40 percent more than the wealthiest; overall hospital utilization rates in large urban areas are 25-35 percent more than in their wealthiest Zip codes; and hospital readmissions are most prevalent from poor neighborhoods and in safety-net hospitals.
Much of this relates to chronic illness, which is most prevalent among the poor. And chronic illness rates are higher in the US than in most other OECD countries, higher than Canada or England and higher than the average of France, Germany, Italy, Japan, Spain and the UK. Similarly, obesity, which is most common among the poor, is most prevalent in US. And the rates of infant, maternal and preventable mortality, which are often taken as measures of health care effectiveness but are actually markers of poverty and the burden of disease, are all higher in the US than in any other advanced economy.
The Gini coefficient is a measure of income inequality. To estimate the impact of income inequality on health care spending, it was applied to the spending level in each of the OECD countries. So doing erased the difference between the price-adjusted level expected from GDP and the actual expenditures in the US. Thus, while the US spends more than twice as much on health care than the mean of other OECD countries, its greater GDP and higher prices explain most of it, and income inequality offers an explanation for the rest.
But there is more, and it is the core of the core. The OECD measures a host of spending categories in addition to health care. In most, spending in the US is proportional to its GDP. Health care, which exceeds the OECD norm, is one exception. A second is social spending, and it deviates in the opposite direction. Social spending in the US is 33 percent less than predicted from GDP. And recent trends are constraining it further by limiting funds for food stamps, housing subsidies, and programs that serve youth, the elderly, and the homeless.
It is difficult not to connect the dots from inadequate social spending to excess poverty and income inequality to more chronic illness and higher health care spending. These dots reside in the core of the OECD onion, and the failure to cope with them is placing an unsustainable burden on our health care system.
http://healthaffairs.org/blog/2013/10/09/inequality-is-at-the-core-of-high-health-care-spending-a-view-from-the-oecd/
Comment:
By Don McCanne, M.D. In this article, Richard “Buz” Cooper develops the theme that income inequality and excess poverty along with our inadequate compensatory social spending are the primary reasons that our health care spending is so high. Others might prefer to frame the reasons in different terms, but that does not change the fact that it is imperative that we establish policies to cope with these societal deficiencies. As an aside, he does mention that some of the core differences in U.S. services are administrative, but then does not mention that much of that administrative waste could be recovered by establishing a more effective and efficient health care financing system (i.e., single payer). Buz Cooper’s Health Affairs biography states, “He has rediscovered the essential role of professionalism in health care and the central importance of poverty in the growth of health care spending.” Let’s see what we can do to help the rest of the policy community and our politicians make the same discovery.
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