Why U.S. health care expenditure and ranking on health care indicators are so different from Canada’s

[Guest guest]

I haven't had a chance to read the whole article in depth, but

fascinating tidbits below.

Author is from The Netherlands which may or may not be relevant.

Sometimes those completely outside the system have the best insights.

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A. H. G. M. Spithoven is from Utrecht School of Economics, Janskerkhof

12, 3512 BL Utrecht, The Netherlands

Contact author at -- Email: a.spithoven@...

The school is at... http://www.ucu.uu.nl/

http://www.uu.nl/EN/faculties/leg/organization/schools/schoolofeconomicsuse/Pages/default.aspx

http://www.springerlink.com/content/f579866k58m4636x/#ContactOfAuthor1

Here is a google search of the author and what he has written.

http://tinyurl.com/cje8xn

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Anyway, he makes the argument that much of the discrepancy between

health outcomes and spending between US/Canada are related to

personal/societal choices made due to different cultural approaches to

life.

See below for the teasing out of his argument.

Not sure if he is right or wrong, but a fascinating idea.

Possibly begs the question -- Is the downside of a "free society" that

it can never achieve the highest levels of healthcare quality due to

personal decisions made by individuals (ie smoking, avoiding doctor

visits, making poor choices on diet, exercise, etc) and influenced by a

culture that supports the qualities of responsibility for one’s own

life or in other words about “microeconomic efficiency”, “freedom of

choice for consumers” and  “appropriate autonomy for providers”  over

“adequacy and equity in access”,  “income protection” (that is,

“patients should be

protected from payments for health that represent catastrophic threats

to their income or wealth”) and  “macroeconomic efficiency” (that is,

cost control).

He also makes an argument that much of the difference in outcomes

(despite all the high tech access the US has) is related to income

inequalities.

....The poor health of Americans in comparison to citizens of other

countries seems mainly attributable to income, which is much more

unequal in America than in other countries.

The relationship between income and health status is supported by

several studies

Ross et al. (2001) extended this relationship by incorporating

segregation into their analysis. They found a relationship between

increased segregation “and increased mortality for the U.S.

metropolitan areas.”

The distribution of income is about 20% more equal in Canada than in

the United States, namely the GINI coefficient is 33 in Canada in 1998

and 41 in the USA in 2000.

Sort of implies -- "We have met the enemy and he is us".   ;-)

Locke, MD

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Full text of article at --

http://www.springerlink.com/content/f579866k58m4636x/fulltext.pdf

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http://www.springerlink.com/content/f579866k58m4636x/

http://www.springerlink.com/content/f579866k58m4636x/fulltext.pdf

Why U.S. health care expenditure and ranking on health care

indicators are so different from Canada’s

A. H. G. M. Spithoven1 

(1) 

Utrecht School of Economics,

Janskerkhof 12, 3512 BL Utrecht, The Netherlands

Received: 31 July 2006  Accepted:

6 June 2008  Published online: 1 July 2008

Abstract  Compared

to other industrialized countries, the U.S. spends most of all on

health care. Nonetheless, the U.S. ranks relatively low on health care

indicators. This paradox has been already known for decades.

For

example, the turning point comparing the U.S.

and Canada was in 1972.

Health expenditure as a percentage of GDP was

higher in Canada than in

the USA from 1960 until 1972.

Since 1972 expenditure on health care has

been higher in the U.S. than in Canada (OECD 2005a, Health data 2005,

fourteenth OECD electronic database on health systems, date of release

June 2005, last update 04/26/2005).

The present study integrates the

dispersed literature on spending and health care rankings and adds some

statistical analysis to these studies. The evaluation of different

factors influencing health care expenditure in the U.S. relative to

other countries is restricted to a comparison with Canada. The U.S. and

Canada are two countries that are sufficiently similar to make

comparisons useful.

The comparison of factors influencing health care

expenditure in the U.S. and Canada in 2002 reveals that health care

expenditure in the U.S. is higher than in Canada mainly due to...

            administration costs

            Baumol’s cost disease

            pharmaceutical prices.

It is not primarily...

            inefficiency in health care production

 but the

dominant prevalence for...

         free choice

         own responsibility

 that

explains the paradox of high expenditure on health care and low ranking

on health care indicators.

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Interesting Canada has more preventive mammographs and Radiation Tx

than US, but less of the other.

Baumol’s costs disease

Besides investment and pharmaceutical prices, productivity in relation

to income of health

care workers also partly explains higher health care expenditure in the

U.S. in comparison

to Canada. Productivity in health care is difficult to improve because

health care relies for

a large part on a direct face to face relation between the health care

worker and the patient.

For example, washing a patient needs time that cannot be reduced beyond

a certain point.

Assuming that wages in low productivity sectors must keep up with wages

in high productivity

sectors, prices for labor intensive goods or services will rise

relatively to prices of goods

and services produced by the high productivity sectors (McPake et al.

2003).

This is called Baumol’s cost disease.

Health care, where a large part of cost comes from staff looking after

patients, is a low productivity sector. If it is true that Baumol’s

costs disease is overstated

because the “output” used in measuring the productivity in health care

fails to capture major

improvements in quality (Newhouse 1993; Triplett and Bosworth 2003),

focusing on one

country give biased results.

Conclusion and discussion

Supply factors seem to explain a larger part

of health care expenditure than demand factors.

The difference in health care expenditure between the U.S. and Canada

can mainly be attributed to...

            administration costs and

            Baumol’s costs disease (see Table 1).

The impact of other factors may be small in relation to total health

care expenditure, but most of them are still substantial since every

0.01% of GDP equals a little more than 1 billion US$.

The different factors that explain the

difference in health care expenditure primarily seem to be a

manifestation of the national cultures.

The U.S. has a strong belief in individualism and limited

government,while Canada attaches great value “to communal obligations

and a robust public sector” (Inglehart 2000).

American culture14 is more concerned about...

                    responsibility for one’s own life or in other words

about “microeconomic efficiency”,

                    “freedom of choice for consumers” and

                    “appropriate autonomy for providers”

than that it is concerned about

                    “adequacy and equity in access”,

                    “income protection” (that is, “patients should be

protected from payments for health that represent catastrophic threats

to their income or wealth”) and

                    “macroeconomic efficiency” (that is, cost control)

(Hurst 1991).

In other words, the market is the dominating governance structure in

U.S. health care while regulation of health care is the more dominating

governance structure in Canada.

These features are most prominently reflected in the insurance

arrangements:

                    the employer based insurance arrangements in the

U.S. and

                    the single-payer arrangement in Canada.

From this point of view, the relatively high health care expenditure

in the U.S. in comparison to other industrialized countries is

primarily a matter of choice of governance structure.

Higher health care expenditures related to the choice of governance

structure in U.S. health care system include:

                    firstly, high administrative costs that result from

the differentiated payment system;

                    secondly, the relatively high remuneration of

health care specialists; and

                    thirdly the relatively high pharmaceutical prices.

Not only national differences in expenditures but also the relatively

ranking on health care indicators and the fact that millions of

Americans are uninsured seem to be manifestations of the overarching

cultures.

One of the elements of U.S. culture is that people are responsible for

their own income and wealth.

Big income differentials are related to a culture of free choice and

own responsibilities.

Because poverty negatively affects the health status of individuals,

higher income differentials in the U.S. relative to Canada, make the

U.S. have a relatively lower ranking on some health care indicators

than Canada, and may well offset the effects of the superior care made

possible by the high tech investment.

The paradox of high health care expenditure

and low ranking on health care indicators persisting for decades seems

to be rooted in the overarching culture, resulting in an unequal

distribution of income.

The relatively unequal distribution of income in the U.S. seems to be

the crux behind the paradox.

Improvements in microeconomic efficiency are likely to reduce, but will

not solve the paradox as long as the U.S. keeps track with free choice,

competition etc. as benchmarks of health care.

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14 The American medical system reflects the

hallmarks of American culture.

Firstly, American culture seems to be characterized by a strong confidence in the blessings of individual

economic independence.

It is anchored in the assumption that an individual, as far as

economic matters are involved, knows better what is good for him or her

than someone else or whatever institute/authority.

Attached to this assumption is the conviction that everybody has an

own responsibility in preparing him or herself for the challenges of

life in a free society.

This includes among other things that health

insurance is an individual responsibility.

Secondly, American culture seems to be qualified

by an optimistic outlook on the future.

on (1985, p. 38) has formulated this as follows “Workers

and their families are irrepressible optimists. They are taken in by

vague assurances of good fait, by legally unenforceable promises and by

their hopes for the good life. Tough-minded bargaining in its entirety

never occurs or, if it occurs, comes too late.”

Both hallmarks of American culture are summarized concisely by

President Bush in his inauguration of 2005:

“By making every citizen an agent of his or

her own destiny, we will give our fellow Americans greater freedom from

want and fear, and make our society more prosperous and just and equal”

(Bush 2005b). 123