Healthcare Spending and Provider Cost in the US

In a new report from The Commonwealth Fund comparing healthcare spending in the US versus 12 other industrialized countries (h/t HealthPopuli) it is striking how much more it costs in the US for the same sorts of procedures – and NO, quality is not that much better.

A few examples. The average income during 2008 for a primary care physician in the US was $186,582, in France it was $95,585. The average income during 2008 for an orthopedic physician in the US was $442,450, in France it was $154,380. The average hospital discharge cost adjusted for cost of living during 2008 in the US was $18,142; in Canada $13,483; and, in Australia $8,350. There are several other examples in the report of these sort of striking differences.

The main difference between the US and the other countries is the strong use of government price controls to control healthcare spending. In the US there are some soft price controls through Medicare and Medicaid, however these are subject political pressure. Many observers would say that only through a single payer system would price controls be effective because the private health insurance system has been unable to accomplish cost control.

However, I contend that the real crux of the problem is the tax deductible nature of employer based health insurance. The US market based system is ineffective in controlling healthcare spending when the purchaser of the product is relatively price indifferent (as opposed to an individual health insurance purchaser who gets no such tax break). The removal of the employer health insurance tax break would go a long way towards forcing price discipline without resorting to overt government price control.

 

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