Inequality at the core of high health care spending: A view from the OECD

From the Health Affairs blog:

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 “purchasing power parity” (PPP) and expressing it in US dollars. By that measure, per capita spending in the US is 160 percent more than the OECD mean (Panel A, left bracket), 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 (Panel A, right bracket), 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 (Panel B). 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.

Read the complete post here.

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