Opinion > Op-Ed Columnist: The Medical Money Pit" href="http://www.nytimes.com/2005/04/15/opinion/15krugman.html?">The New York Times > Paul Krugman: The Medical Money Pit
Most Americans probably don't know that we have substantially lower life-expectancy and higher infant-mortality figures than other advanced countries. It would be wrong to jump to the conclusion that this poor performance is entirely the result of a defective health care system; social factors, notably America's high poverty rate, surely play a role. Still, it seems puzzling that we spend so much, with so little return.
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Why is the price of U.S. health care so high? One answer is doctors' salaries: although average wages in France and the United States are similar, American doctors are paid much more than their French counterparts. Another answer is that America's health care system drives a poor bargain with the pharmaceutical industry.
Above all, a large part of America's health care spending goes into paperwork. A 2003 study in The New England Journal of Medicine estimated that administrative costs took 31 cents out of every dollar the United States spent on health care, compared with only 17 cents in Canada.
America spends nearly twice as much or health care than France and Germany, most of it from our employers or our pockets in the form of healthcare insurance premiums and co-payments. Conventional wisdom would have it that "you get what you pay for." In this case, its not happening that way. The reasons are not as simple as the three listed above, but they do explain the lion's share of the problem.
Let's talk about the first and most complicated answer. The US has a higher rate of poverty than France and Germany. Why is that? The difference is largely accounted for by the nature of the social safety nets. Germany and France spends more on non-medical services supporting the disabled, the unemployed and the elderly. Systems are designed to encourage self-sufficiency with a "hand-up" approach to help.
The US punishes any form of dependency by a de-humanizing system of means testing the poor. People are humiliated by the time they receive any help by a paper trail that strips people of privacy and dignity. Then once on the system, they are punished for any efforts to be self-sufficient by loss of benefits usually on a dollar per dollar basis. In otherwords, people can support themselves as well by being totally dependent as they can by making any effort to improve themselves. Then usually, at some arbitrary time period, support is eliminated and people are on their own. Without extended family support, people and families quickly become homeless. Once homeless, breaking back into self-sufficiency becomes very difficult without homeless shelters and comprehensive support. There are not enough homeless beds to help those that want the help.
Those that qualify for disability status after one or more "mandatory" (meaning everyone is turned down on first application) appeals, get a meager stipend from Social Security and Medicare, which requires a 20% co-pay. Some people can afford the premium for Medicare B, but even then, there are co-payments. If the disabled take a part-time job, they can suppliment their income up to a point. Above that point, their stipend is reduced and eventually, they lose their status as "disabled", their stipend and medical coverage. The disabled have higher medical costs, even if they are only partially disabled. Few can afford healthcare on part-time work, and few employers pay for insurance for part-timers. Obviously, not very many willingly come off of disability.
The disabled are often faced with chosing between paying for food and shelter and medical care. The unemployed and the underemployed have no health insurance. All of these folks delay any medical care until its an emergency. Emergency care is MUCH more expensive than preventive care. And our emergency rooms are full of people who have no insurance and for the most part are not eligible for government support. Hospitals find themselves offering a huge proportion of their budgets paying for this free care. On top of that, government pays a discounted rate for all its services, a rate that does not cover for the actual cost of the service. Private insurance pays a premium fee to help hospital covers their losses in free treatment and to subsidise government discounts. Taken together, this amounts to a big part of the added expense.
Doctors are paid more in America than in France and Germany. Actually, physician salaries have been dropping pretty steadily over the past decade with the exception of certain specialties. Ultimately, salaries I think will continue the trend and equalize over time with the new global economy.
The pharmaceutical companies however have a golden egg. The same company gets about twice the price on the same drugs in the US than they do anywhere else in the world. They spend much of this money lining the pockets of physicians who help sell their drugs and on "educational" seminars that wine, dine, and inform other physicians with the lates in company funded research. As has been recently noted, pharmaceutical companies seldom report the negative results of their research. And few independent researchers can afford the kind of studies necessary to check up on the manufacturers. The federal government has cut back on research funds.
So there we have it. We have the most expensive healthcare system in the world. But it gives us mediocre quality care. Is this what you want from your healthcare system?
Complete Article
The New York Times
April 15, 2005
OP-ED COLUMNIST
The Medical Money Pit
By PAUL KRUGMAN
A dozen years ago, everyone was talking about a health care crisis. But then the issue faded from view: a few years of good data led many people to conclude that H.M.O.'s and other innovations had ended the historic trend of rising medical costs.
But the pause in the growth of health care costs in the 1990's proved temporary. Medical costs are once again rising rapidly, and our health care system is once again in crisis. So now is a good time to ask why other advanced countries manage to spend so much less than we do, while getting better results.
Before I get to the numbers, let me deal with the usual problem one encounters when trying to draw lessons from foreign experience: somebody is sure to bring up the supposed horrors of Britain's government-run system, which historically had long waiting lists for elective surgery.
In fact, Britain's system isn't as bad as its reputation - especially for lower-paid workers, whose counterparts in the United States often have no health insurance at all. And the waiting lists have gotten shorter.
But in any case, Britain isn't the country we want to look at, because its health care system is run on the cheap, with total spending per person only 40 percent as high as ours.
The countries that have something to teach us are the nations that don't pinch pennies to the same extent - like France, Germany or Canada - but still spend far less than we do. (Yes, Canada also has waiting lists, but they're much shorter than Britain's - and Canadians overwhelmingly prefer their system to ours. France and Germany don't have a waiting list problem.)
Let me rattle off some numbers.
In 2002, the latest year for which comparable data are available, the United States spent $5,267 on health care for each man, woman and child in the population. Of this, $2,364, or 45 percent, was government spending, mainly on Medicare and Medicaid. Canada spent $2,931 per person, of which $2,048 came from the government. France spent $2,736 per person, of which $2,080 was government spending.
Amazing, isn't it? U.S. health care is so expensive that our government spends more on health care than the governments of other advanced countries, even though the private sector pays a far higher share of the bills than anywhere else.
What do we get for all that money? Not much.
Most Americans probably don't know that we have substantially lower life-expectancy and higher infant-mortality figures than other advanced countries. It would be wrong to jump to the conclusion that this poor performance is entirely the result of a defective health care system; social factors, notably America's high poverty rate, surely play a role. Still, it seems puzzling that we spend so much, with so little return.
A 2003 study published in Health Affairs (one of whose authors is my Princeton colleague Uwe Reinhardt) tried to resolve that puzzle by comparing a number of measures of health services across the advanced world. What the authors found was that the United States scores high on high-tech services - we have lots of M.R.I.'s - but on more prosaic measures, like the number of doctors' visits and number of days spent in hospitals, America is only average, or even below average. There's also direct evidence that identical procedures cost far more in the U.S. than in other advanced countries.
The authors concluded that Americans spend far more on health care than their counterparts abroad - but they don't actually receive more care. The title of their article? "It's the Prices, Stupid."
Why is the price of U.S. health care so high? One answer is doctors' salaries: although average wages in France and the United States are similar, American doctors are paid much more than their French counterparts. Another answer is that America's health care system drives a poor bargain with the pharmaceutical industry.
Above all, a large part of America's health care spending goes into paperwork. A 2003 study in The New England Journal of Medicine estimated that administrative costs took 31 cents out of every dollar the United States spent on health care, compared with only 17 cents in Canada.
In my next column in this series, I'll explain why the most privatized health care system in the advanced world is also the most bloated and bureaucratic.
E-mail: krugman@nytimes.com
Copyright 2005 The New York Times Company
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