The Three Health Cost Drivers: What Could It Mean

There's a report from the Journal of the American Medical Association that fingers the three main reasons that US health care costs are higher than other first world countries, according to a piece in the American Spectator.

First, drug costs. "We expend almost double on pharmaceuticals than the mean for the peer group [of "ten other wealthy countries"). A lot of that is from drug prices being much higher in the US.

Second, "We pay healthcare professionals much greater salaries than every other nation examined." That includes generalist doctors, specialist doctors, and nurses.

Third, “Administrative costs of care (activities relating to planning, regulating, and managing health systems and services) accounted for 8% in the US vs a range of 1% to 3% in the other countries.”

The JAMA authors also write that usual explanations for high US costs,

such as underinvestment in social programs, the low primary care/specialist mix, the fee-for-service system encouraging high volumes of care, or defensive medicine leading to overutilization, did not appear to be major drivers of the substantially higher US health care spending compared with other high-income countries.

Another cost driver is that "Out-of-pocket spending was also surprisingly low in the United States" compared to other countries.

Well. The first thing to recognize is that, per Jason Riley in Rising Life Expectancy, "bio-medicine" is only one of several factors that contribute to modern life expectancy. Among the others are women's education, wealth, better food, better sanitation, and better disease control. So it really doesn't make much difference how much you spend.

But really, it doesn't seem a mystery to me why the US spends so much and gets so little. In the first place, countries like Britain and France have a two-tier system. The poor get a lousy government system that is "free at the point of delivery" while the middle class with jobs buy private insurance. Actually the same is true in the US, where the poor get a lousy Medicaid system for free while the rich pay a bit more and get a lot more.

But the obvious problem is the cartelization of health care. It takes a ton of time for doctors and nurses to get credentialed, and the doctors get to define what hoops medical students have to go through to get qualified, and what medical schools get chartered. So of course their salaries are inflated. That is what you get with a regulated industry, as in "regulator capture."

And drug prices? Well, most of the drug research is done in the US by US companies whereas other countries set low drug prices on the notion that the rich and greedy US can pay for all the research.

Administrative costs? Well of course, when you have third parties paying for most medical care then people are going to be scamming the system and you have to have bureaucrats in place to pretend to be doing something about it.

So what is to be done? I'm afraid I'm a complete whacko on health care, as on most things.

First, I believe that routine health care should be conducted on the WalMart model. You want basic health care? Go to WalMart. You want to be fussed over and get charged three times as much? Go to Neiman Marcus. No, really! Why not?

Second, let each person decide how much they want to get extraordinary care. Let there we bronze, silver, and gold plans that specify how much money you are prepared to spend on heroic life-saving measures. The point is that once your kids are grown then you are no longer a mission-critical human. Your continued life is a luxury, and I for one, as a fiendish Medicare recipient, don't think that young people in the middle of raising families should be paying big bucks for my health care. (Actually the majority of Medicare revenue comes from the federal income tax, meaning rich people. I would rather the rich people spend money investing their ill-gotten gains in new jobs for young people rather than health care for grandpa).

Third, de-cartelize health care. How much education is needed to become a physician? I don't know but I bet that Amazon CEO Jeff Bezos could drive a bulldozer through the current system without impacting health outcomes. And let hospitals and doctors compete for business; let a hundred flowers bloom.

But really nothing will change because government is all over health care like a cheap suit. Nothing will get done; nothing will improve, because government rewards its supporters and its supporters include everyone from "our" doctors and nurses to individual men and women that want free if they can possibly get it. And government cannot cut its entitlement programs, not even if the whole country is going down the toilet.

Plus women. Liberated or not, women live by caring, and one of the things that women are always talking to their friend about is health care. And women understand that society just has to provide what women want. Whether it is health care or schools, women want and expect the necessary resources to be available for them as they raise their children or care for their ageing parents; it's in the DNA. When it comes to saving the life of their child or easing the pain of their parents women instinctively feel that the sky is the limit.

And that is the real reason why health care in the US is so expensive. It's what women want. For some reason women in the other countries haven't yet figured out how to get what they want. But they will.