1. Reasons Why US Healthcare Costs Are Out of Control
2. Other Reasons Why US Healthcare Costs So Much
3. We Spend More But Outcomes Are Often Worse
At Halbert Wealth Management, we often assist clients with their financial planning and such discussions invariably turn to medical costs in retirement. As everyone reading this knows, healthcare costs in America are off the charts.
While the final figures are not out yet, it is widely estimated that Americans spent well over $3.5 trillion (17% of GDP) on healthcare last year, and that figure is estimated to rise to $5.7 trillion (20% of GDP) by 2026, if not sooner.
Healthcare costs per person in the US are well over twice the costs in the average developed nation ($9,000 vs $3,600), as illustrated in the chart below. And our healthcare costs increase at the rate of over 5% a year, more than double the rate of inflation.
The question is, why? Is it because Americans require more healthcare than our brethren in other developed countries? Is it because the quality of our healthcare, and therefore outcomes, are superior to other countries? Actually, no! In far too many cases, we pay more for healthcare and receive less value and poorer outcomes when compared to other developed nations.
Today, I will try to identify some of the reasons why healthcare costs in America are so much higher than in other industrialized nations. While this subject is admittedly outside my usual themes such as the economy and investments, I trust that everyone reading this has more than a passing interest in rising healthcare costs.
Reasons Why US Healthcare Costs Are Out of Control
There are many reasons cited for America’s runaway healthcare costs, some of which we have all seen and heard before. However, in doing my research for this E-Letter, one fact jumped out at me that I have never seen cited before. Here it is.
The US and New Zealand are the only two industrialized nations on the planet that allow pharmaceutical companies to engage in direct-to-consumer advertising of their drugs. We consumers pay for this advertising with significantly higher drug prices.
In other countries, most people find out about available drugs and medicines from their doctors or other healthcare providers. They don’t learn about them on TV and other media.
Did you know that pharmaceutical companies pay more to lobby politicians than the lobby expenditures of oil & gas combined? That’s a crazy amount of money! No wonder our drugs cost more than other countries where direct-to-consumer advertising isn’t allowed.
Thanks to the widespread advertising, we have been conditioned to think that we can just pop a pill and cure anything – without having to improve our diet or exercise or do any of the other healthy practices that keep our sister nations healthier. We’ve been brainwashed by the drug companies and at a very high price.
Let’s now turn to some cost comparisons for healthcare services in the US versus other industrialized countries. If you have not needed these services, you may be very surprised. Perhaps the most alarming and eye-popping comparison is the cost of a day/night in the hospital.
The average cost for a day/night in the hospital in the US is nine times as high as a stay in a Japanese hospital and over 42 times the cost in Spain.
Americans spent over $323 billion on prescription drugs in 2016, over three-and-a-half times what Japanese citizens paid.
Then there is the cost of diagnostic tests. Have you noticed that US doctors are so quick to run all sorts of tests on you? Doctors tell us all these tests are necessary to confirm their diagnosis, right? In this litigious world we live in, most doctors would rather over-diagnose than take any chances.
We pay more for our healthcare overall because all this testing is part of the diagnostic healthcare paradigm in this country. That’s not so in most of the rest of the world according to Focus for Health.
These extra tests can be very expensive and time-consuming. Many of these tests are often unnecessary and can result in the doctor prescribing a pharmaceutical drug even before a disease is truly evident. That’s a huge money maker for drug companies, and these prescriptions can be a gateway to your life dependency on drugs, some of which may only treat the side effects of the drugs you are already taking.
Then there are the costs of the medical tests and procedures themselves. Let’s look at the cost comparison for an angiogram in the US versus other countries.
Other Reasons Why US Healthcare Costs So Much
An extensive new analysis of why the US spends so much more on healthcare than other developed countries reinforces the answer previous studies have found. It’s not that Americans get more healthcare or rely on specialists to a greater extent than people in those other countries. It’s that Americans pay more for everything from administrative costs to hospital stays to doctors and drugs.
The new study by researchers at Harvard and the London School of Economics uses less pointed language but nevertheless comes to the same basic conclusion: “Prices of labor and goods, including pharmaceuticals and administrative costs, appeared to be the major drivers of the difference in overall cost between the United States and other high-income countries.”
The researchers point out that it’s not news the US healthcare system fails to deliver better care, or “healthier outcomes,” for its higher cost. The new study uses data from the Organization for Economic Cooperation and Development (OECD), made up of 35 developed countries, and other sources to provide some details on that front:
- The United States spent 17.8% of its gross domestic product on healthcare in 2016, far more than countries such as Australia (9.6%), the UK (9.7%), Canada (10.3%) or Switzerland (12.4%).
- The US had a smaller percentage of its population covered by health insurance (90.9%) than those in other developed countries, where 99.8% to 100% were covered.
Average life expectancy in the US (78.6 years) was the lowest of any country in the study and has actually dropped the last two consecutive years.
Infant mortality in the US was the highest of any country in the study. While infant mortality rates have declined since 1960, the US has failed to keep pace with other industrialized nations.
Per-capita spending on pharmaceuticals was $1,443 in the US, far higher than the range of $466 to $939 in the other countries studied. Prices of drugs like cholesterol-lowering Crestor or diabetes medication Lantus were more than twice as high in the US than in other countries.
Administrative costs alone accounted for 8% of GDP in the US, compared to 1%-3% in the other countries.
Doctors and nurses made more money in the US than in the other countries, with non-specialist physicians (GPs) getting salaries of about $218,000, compared to an average of about $123,000 for eight other countries in the study.
“These findings indicate that efforts targeting utilization alone are unlikely to reduce the gap in spending between the United States and other high-income countries, and a more concerted effort to reduce prices and administrative costs is likely needed,” the authors concluded.
We Spend More But Outcomes Are Often Worse
Researchers at the Kaiser Family Foundation, a non-profit organization that studies national health issues, concluded last year: “The U.S. spends more on healthcare [than any other country], but we don’t have the same health outcomes.”
“Viewed from a global perspective, the current U.S. healthcare impasse underscores just how poor health outcomes for people in the United States are when compared with other countries.”
In 2016, the US spent almost three times more ($9,000 vs $3,600) on healthcare than the average industrialized countries, as shown above. Yet despite spending substantially more, the results don’t yield better health. Both Britain and Italy, for example, spent at least $5,000 less per person than the US on healthcare, and yet the population of each of those countries has a higher life expectancy than America.
The new findings from the study summarized above dispel such widely-held notions that Americans have too many doctor visits, hospitalizations, medical procedures and specialists – and spend too little on social services that could mitigate healthcare needs. Such assumptions are largely wrong.
The study confirmed that the US has substantially higher healthcare spending, worse population health outcomes on average and worse access to care than other wealthy countries.
Today’s discussion barely scratches the surface on the subject of high healthcare costs in America. But hopefully it dispels some widely-held myths regarding spiraling healthcare costs in the US. Sadly, I’m not sure what we do about it.
All the best,
Gary D. Halbert
Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.
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