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Posted at 4:13 PM ET, 11/23/2010

Americans pay too much for health care -- in charts

By Ezra Klein

There are a lot of complicated explanations for why American health-care costs so much, but there are also some simple ones. Chief among them is "we pay too much." And I don't mean in general. I mean specifically. Mountains of research show that for every piece of care you might name -- a drug, a doctor visit, a diagnostic -- you'll pay far more in the United States than in other countries. That's why seniors head to Canada to buy drugs made in the United States. In Canada, the government negotiates one low price. In America, insurers with much less bargaining power negotiate many higher prices.

But it's one thing to say that that's true. It's another thing to see it. Here are four graphs from the International Federation of Health Plans tracking what people in other countries pay for various medical services and items, and what we pay. Note that the American number manifests as a range, while the others don't: That's because in other countries, the government gets one price, while in our country, an array of insurers get many different prices.

phydiciansfees.jpg

mriscans.jpg

drugprices.jpg

The most positive spin you can give this data is that we're paying too subsidize innovation for everyone, and though that's not ideal, it's better than that innovation not happening. The less positive spin is that we're just getting ripped off.

Many more charts here. For an analytical take -- and a good look at the political economy of the problem -- read Alec MacGillis's October article on the subject.

By Ezra Klein  | November 23, 2010; 4:13 PM ET
Categories:  Charts and Graphs, Health Economics  
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Comments

We pay what the market will bear, and as long as we continue to do so, costs will rise out of sight. Cutting back on health care,forgoing treatment, is also an option, one that will be forced on us by costs.

Posted by: samsara15 | November 23, 2010 4:31 PM | Report abuse

Do any of your charts compare the overhead percentages, especially the cost of staff to handle billing and re-billing and re-billing to insurance companies for medical services rendered, among developed nations? I'd wager that most of the difference between France and the US is the difference in the type of overhead costs that single-payer would eliminate, including negotiated prices for drugs.

Posted by: tbetz | November 23, 2010 4:46 PM | Report abuse

"The most positive spin you can give this data is that we're paying too subsidize innovation for everyone"

We totally are paying to subsidize innovation for everybody else, and should we ever turn our system into the UK system it's all she wrote for the kind of innovation to which the world has become accustomed. But fear not Europe, Obamacare has done nothing to control the costs of our medical care, so we will continue subsidizing innovations so you can then get them at reduced rates for the forseeable future.

Posted by: bgmma50 | November 23, 2010 5:23 PM | Report abuse

Tbwtz is wrong THANK YOU ezra for pointing to this. My question is If we got their per unit costs could we pay for all of PPACA and more. I'd say yes. Tbetz goes by the crazy assumption that single payer pays for everything. Currently the province of Alberta is debating what services they can still afford to pay for and diSsenters are being fired. Single payers major flaws are being borne out just as we will end up shoved into it.

Posted by: visionbrkr | November 23, 2010 6:07 PM | Report abuse

"The most positive spin you can give this data is that we're paying too subsidize innovation for everyone"

We totally are paying to subsidize innovation for everybody else, and should we ever turn our system into the UK system it's all she wrote for the kind of innovation to which the world has become accustomed. But fear not Europe, Obamacare has done nothing to control the costs of our medical care, so we will continue subsidizing innovations so you can then get them at reduced rates for the forseeable future.

Posted by: bgmma50

==============

I'm not sure what you mean by "innovation". A Brit invented the Catscan, the MRI was a joint invention by a Brit and an American. Who did the first heart transplant? The first face transplant? laser eye surgery, commonly called today, LASIK ... Who came up with that innovation?

Medical tourism:

United States

Although much attention has been given to the growing trend of uninsured Americans traveling to foreign countries, a McKinsey and Co. report from 2008 found that a plurality of an estimated 60,000 to 85,000 medical tourists were traveling to the United States for the purpose of receiving in-patient medical care;[66] the same McKinsey study estimated that 750,000 American medical tourists traveled from the United States to other countries in 2007 (up from 500,000 in 2006).[67] The availability of advanced medical technology and sophisticated training of physicians are cited as driving motivators for growth in foreigners traveling to the U.S. for medical care,[66] whereas the low costs for hospital stays and major/complex procedures at Western-accredited medical facilities abroad are cited as major motivators for American travelers.[67] Also, it has been noted that the decline in value of the U.S. dollar is offering additional incentive for foreign travel to the U.S., although, costs differences between the US and many locations in Asia far outweigh any currency fluctuations."

http://en.wikipedia.org/wiki/Medical_tourism#United_States

BTW. I lived in England for several years and was pretty impressed with the efficiency of the NHS. In addition to the NHS there is a private health care system as well, which Americans don't even seem to know exists.

My sister was visiting us in England and she forgot her blood pressure medication. After a few days of sightseeing her ankles were swollen and blood pressure was up. It took me a few days to see a doctor. At 9:00 am. I called my doctor who didn't have Saturday hours but was immediately forwarded to another doctor who had Saturday hours. By 11:30 am, she had an appointment, seen the doctor, got a script written and filled at the local pharmacy. As she was "elderly" the cost of the prescription was $0; the cost of the visit was $0.

God help us if we every get a medical system like that here in America.

Posted by: James10 | November 23, 2010 6:19 PM | Report abuse

You make an outstanding point here on the fact that we are paying for the innovation and more specifically the IT infrastructure and transaction fees that go along with care today. We need software and some of the anti fraud algorithmic formulas that run by all means, but the business keeps feeding itself. There are companies traded on the stock exchange making millions on these types of services and when someone writes another piece of code they want to get paid for it and a lot of the time it's in a transaction fee.

This is partially why fraud prevention move so slow and the government is really the best asset we have to combat as with mergers and acquisitions today it gets foggy and thus you may have a subsidiary company running software that finds queried items for fraud; however, their other subsidiary company may be collecting transaction fees on those medical claims so one is not going to be too pro-active in reducing the revenue flowing to the other company and billing transactions of course pay on both legit and fraudulent claims, that is until they are caught:)

These are the items that run 24/7 with algorithmic formulas that are somewhat invisible to the average lay person when trying to see costs as they pretty much go unnoticed and not challenged simply due to not enough folks are educated fully in how this takes place and it's complicated.

Here's an example with medical records where open source and free software was made available for medical record developers 3 years ago and is still there for that matter, but nobody would bite.

Instead everyone was busy building the better mouse trap and we had no collaboration and thus today we have each medical record system being completely different with complicated clinical screens as everyone touted theirs as the best and we have doctors who are on staff at more than one hospital having to learn many software systems today and that takes time and one reason why the medical record business has been slow to adapt, complication.

http://ducknetweb.blogspot.com/2010/10/innovation-without-collaboration-is.html

A footnote here too, by using this interface for the clinical screens to make it easy for a doctor to go to any hospital and know where to locate information would not have meant giving up any of the rest of their systems and functions, just similar and common screens at the doctor level. If vendors would have just made the clinical search and entry screens similar in nature, this would have helped a lot but again we have innovation with a back of collaboration and as that continues we foot the bill for most of it, or it certainly seems that way.

Posted by: ducknetservices | November 23, 2010 7:54 PM | Report abuse

I don't suppose that our legal system has anything to do with the high costs? This would cover everything from pharmaceuticals (we've all seen the TV ads for folks who've taken some recalled drug), to physician care to diagnostic tests (incuding imaging).

Posted by: Beagle1 | November 23, 2010 8:53 PM | Report abuse

"In addition to the NHS there is a private health care system as well, which Americans don't even seem to know exists."

I know perfectly well that private health care exists in the UK and Europe, and have so informed Ezra on any number of occasions when he waxes eloquent on the subject of single payer and I let him know that every single person I know of across the pond gives lip service to the wonders of their public health care but absolutely draw the line at using it.

And I didn't say nobody else ever in the history of medical treatment innovated anything, just that the bulk of innovations are developed where there is money to incentivize it.

Spare me the medical tourism. We already know other countries can deliver the innovations developed here cheaper. That, in fact, is the subject of Ezra's post.

Posted by: bgmma50 | November 23, 2010 9:04 PM | Report abuse

If these prices were passed onto the consumer, we would have a real market and they would drop significantly. I doubt we would be able to negotiate better prices- remember Medicare part D? Medicare Doc Fix?
Our government can't and won't do it until they run out of money, and they can't do that either.

So let's have them stop subsidizing this nonsense. Just like homes and college, when the government heavily subsidizes the buy side, the price goes up.

The insurers have very little incentive to keep costs down when their profits are limited to a percentage- raise the basis cost, raise the profit (and then next year raise the rates). Government action at work!

Look at the average cost of LASIK surgery between countries to get a better idea of how a real market works.

Posted by: staticvars | November 23, 2010 9:52 PM | Report abuse

Here's another way to look at it. We provide hundred of thousands of health care and pharmaceutical industry jobs because of this structure, that would go away under single payer. Is that good? Maybe yes in 10% unemployment, no under normal conditions.

If there were easy and obvious answers, we'd have them.

Posted by: 54465446 | November 23, 2010 10:32 PM | Report abuse

Spare me the medical tourism. We already know other countries can deliver the innovations developed here cheaper. That, in fact, is the subject of Ezra's post.

Posted by: bgmma50

Spare me the arrogance. That is not the subject of Ezra's post. He clearly says that's spin. A doctor's visit doesn't pay for innovation anywhere including the US. A lab fee doesn't reward the developer of the test, it rewards the lab. The lab doesn't innovate.

The "majority" of innovation occurs here. And what majority is that exactly? Are you going to tell me Bayer AG is one of the American innovators?

There are other reasons besides costs that motivate medical tourism outside of the US. People have surgery performed outside of the US to avoid the superbugs the exist in our hospitals. There are treatments in other countries that are not available here.

Make up your mind on the NHS. Either they use it in the UK or they don't. The private insurance coverage begins after NHS coverage. You contradict yourself.

Posted by: James10 | November 23, 2010 11:37 PM | Report abuse

I have posted this already here before You guys should stop complaining because, one the health care we have now isnt as good as it was supposed to be. also the law has just been signed so give it some time. so if u want to say u have the right to choose tell that to ur congress men or state official. If you do not have insurance and need one You can find full medical coverage at the lowest price check http://ow.ly/3akSX .If you have health insurance and do not care about cost just be happy about it and believe me you are not going to loose anything!

Posted by: ricardoeddy | November 24, 2010 5:14 AM | Report abuse

Well, Kid, since GUM-MINT controls DIRECTLY 50% of USA health care (and indirectly the other 50%) -- why don't you go after O-bumbler and his lawyer buddies?

Oh. You don't want to be accused of being a racist?

Never mind. Res ispa, Kid.

Posted by: russpoter | November 24, 2010 5:43 AM | Report abuse

The cost of innovation may explain high costs for new drugs and new treatments. It doesn't explain why I pay more for a routine physical exam that uses technology that's been around for decades. The highest-tech piece of equipment I encounter in the course of routine health care is an EKG, which isn't exactly cutting edge.

Posted by: tl_houston | November 24, 2010 9:28 AM | Report abuse

We spend too much on health care because we can't control our consumer habits.

Having spent a quarter of a century in the health care trenches I see the terrible waste and inefficiencies on a daily basis. I am a Democrat, a physician, but I am not a member of the AMA nor do I espouse the typical AMA stance (my proposal would decrease my income!). What I propose works with the strengths of both parties proposals and deals with criticism of those proposals by the other party.

Republicans do not want to consider a single payer system and Democrats do not want to consider HSA's. If we think outside the box and creatively we can address the concerns that each party has with those two components and move forward.

Republicans don't like the single payer public option because they equate it with government running health care. So instead, put the insurance component out to bid regionally amongst the private insurers (competition would be fierce) and then treat the winner as a utility. This would reduce administrative redundancy and profiteering. In essence we create a non-governmental single payer. This satisfies the proponents of single payer efficiencies but deals with the concerns of detractors. You then cannot contend that it is government running medicine. Republicans (and people in general) have not been picking up their pitchforks protesting or railing against utilities. The utility model may be imperfect, but it is MUCH less imperfect than the insurance model and its poor regulation. Insurance is an easy utility as there is little infrastructure and it provides the least critical component of the health care delivery model.

Democrats do not like HSA's because of the perceived financial exposure of high deductible insurance. However, Republicans rightfully recognize this as a model where personally accountability is paramount. So instead, consider HSA's where the premium difference between the high and low deductible insurance plans is used to fund HSA's for individuals. This merely shifts money from the insurers hold to the patients hold, making HSA's a cash neutral event for the patient at worst (if they use all their deductible) to a cash earning event at best with cost conscious consumerism/ healthy lifestyle changes (if they do not reach their deductible limit).

Establish the "medical coach", an individual or organization free of profit motive to advise the patient, if they wish to take advantage of this advice. If not, the patient can still make their own decisions based on their personal needs and desires, to use or conserve their own HSA's as they see fit.

We will never control costs if we do not control utilization. Utilization controlled internally is called consevationism and controlled externally is called rationing. We are on a crash course to rationing because we can't control our consumption.

google "theintelligentHSA" to read more about it

Posted by: bsaks | November 24, 2010 9:41 AM | Report abuse

Let's connect the dots here. This is why we have a deficit. If we paid what other countries do (for better overall health), we'd have a large surplus right now. And this is what's wrong with the Deficit Commission. They totally punted on the issue of health-care costs. Didn't even acknowledge the prime importance of the issue, while focusing on non-issues like Social Security.

Posted by: jtmiller42 | November 24, 2010 10:06 AM | Report abuse

For those who have spent time in other countries or even had to use services, these figures do not surprise at all.
After a clerk in my insurance company decided her 22 year old life experience was better informed than my doctor and denied a hip replacement that was essential, I was offered the replacement for $90,000 plus therapy. I ended up having it done, with wonderful care, attention and results for $5,700 in St Petersburg Russia. I have full coverage insurance now that I live there for $448 a year, which includes house calls and same day appointment, no co-pay. The doctor explained that having home care for non-emergencies results in faster recovery and less chance of hospital sources infections which is a tremendous problem in the US. My mother in California was using a medication that was outrageously expensive. It was produced in Germany but was available all over Europe for 1/100th the price. No, it was not because the US consumers pay for innovation. Look at where much of the research is done, and what countries the drug companies are incorporated. Drug companies spend 20 times as much on advertising as research.
The problem is not medical, it is financial in that a billion in buying congress means 100s of billions in income. Why would any rational person, unless bribed to do it, pass a law saying that the government can't negotiate prices for billions in drug purchases? Why does a nicer cleaner, lower infection rate hospital in France or Finland cost 1/10th as much as an inferior hospital in the US? Corruption. Congress, particularly the republicans, are there to stuff their own and master's pockets and never consider the millions of American families that have been destroyed by financial ruin from their being in bed with big pharma and the insurance, and medical services industries.
The news media must be on the take also, the ill-informed electorate believes that we have the best system and best outcomes from the best care. Those people have never been to other countries to see why the US is so low in rankings on such things as infant mortality, life expectancy, hospital contracted infection etc. Not only are we getting ripped off, we are getting inferior treatment to boot. People go to other countries for care not only for low cost but for better results and services. Why do so many Americans believe the propaganda that we have the best system and the best technology? Compared to Scandinavia and much of Europe the US is backwards in technology and quality.

Posted by: km6xz | November 24, 2010 10:19 AM | Report abuse

Km6sz.

I hate to ruin your post but 22 year old customer service reps do NOT make medical decisions

Posted by: visionbrkr | November 24, 2010 11:47 AM | Report abuse

Km6sz.

I hate to ruin your post but 22 year old customer service reps do NOT make medical decisions

Posted by: visionbrkr | November 24, 2010 11:47 AM | Report abuse

The basic premise that our prices are higher than those of other nations is certainly correct. Alec MacGillis was precisely on target in the article that you cite.

But the claim that we "subsidize innovation for everyone" needs to be challenged.

Donald Light, in a Health Affairs article last year, wrote, "... a comprehensive data set of all new chemical entities approved between 1982 and 2003 shows that the United States never overtook Europe in research productivity, and that Europe in fact is pulling ahead of U.S. productivity."

Also the Nobel prizes for C-T scanning and MRIs were shared with British scientists. So we don't even have an exclusive claim on our budget-busting technology. (In fact, the Beetles financed the British development of C-T scanners.)

And our outrageous pricing has proven that the private insurance industry has failed us miserably in its most important function - negotiating value in health care.

Our pharmaceutical and technological firms do excel in one regard. They know how to manipulate the political process to prevent an effective public role in setting best prices (legitimate costs and fair profits), even though all other nations have done so.

Maybe someday we'll be smart enough to follow their lead, but, until then, we'll keep paying dearly for the failures of our electorate to become adequately informed and then to take appropriate action in the polling booth.

Fixing Medicare and providing it for everyone would create a beneficent public monoopsony (single purchaser) which would be capable of enforcing value in our health care purchases.

Even Milton Friedman's mentor, F.A. Hayek, wrote, in The Road to Serfdom, "Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision."

Posted by: dmccanne | November 24, 2010 1:02 PM | Report abuse

At least as far as drug research, a very recent research paper in Nature bears out that the United States DOES lead in innovative medicines. Here is a summary of it on a well known drug discovery blog:

http://pipeline.corante.com/archives/2010/11/09/where_drugs_come_from_by_country.php

Some highlights:

"Taken together, it appears that the US biotech industry has been the main driver of innovative drugs over the past ten years...whatever you might think about the idea of American exceptionalism, it's alive in drug discovery."

So you think we should set price limits like all the other countries do (as your chart shows) and kill the innovation? I agree that it is unfair that Americans pay a lot more than most other countries for drugs (and other health care), but I don't think the solution is to somehow force drug companies to charge the same of Americans as the other countries. On the contrary, I think there needs to be a balance --- Americans need to pay less, but to compensate the other countries need to pay more; prices across the world need to be set more even, at a level that maintains innovation incentive.

Posted by: AKSM | November 24, 2010 7:08 PM | Report abuse

"Here's another way to look at it. We provide hundred of thousands of health care and pharmaceutical industry jobs because of this structure, that would go away under single payer. Is that good?"

It may sometimes be necessary, for a brief time, to tolerate waste and inefficiency, but we should always seek to eliminate both. The problem with the U.S. health care system is that it has long been wasteful and inefficient and matters are continuing to get worse rather than better. This trend has been continuing for a time that is anything but brief.

The health insurance plan that was introduced last year will probably reduce the unfairness of the system that has locked so many from having access to insurance and has condemned to many to inferior care, bankruptcy and premature death. It will probably do little if anything to reduce costs or make the system more efficient, and many will still be locked out of proper health care because of the high cost.

The inefficiencies and waste may mean great riches for a few and jobs for more. Those may be good things in themselves but the waste and inefficiency are terrible for our society and they harm the great majority of people.

Private enterprise has demonstrated quite clearly that it is incapable of providing a satisfactory health care system. As with providing roads, police, fire protection and defense, government must step in when this is so clearly demonstrated.

Posted by: pecohen | November 25, 2010 10:20 AM | Report abuse

"Taken together, it appears that the US biotech industry has been the main driver of innovative drugs over the past ten years...whatever you might think about the idea of American exceptionalism, it's alive in drug discovery."

The ability of the pharmaceutical industry to charge Americans exorbitant prices for newer patent drugs no doubt encourages the invention of new drugs, but so does the fact that the U.S. government funds a wide variety of research, including research on drugs. Perhaps the government should auction off the rights to the results of such research, but it usually gives it away to this very profitable industry, free of charge while the taxpayer picks up the expense.

For-profit drug companies, seeking the higher prices that they can charge for new drugs while they are under patent protection, produce new and occasionally better drugs and they actively market them to physicians.

Meanwhile, older and often very effective generic drugs fall into disuse because they forgotten, at least by our domestic physicians. No one seems to have much interest in informing physicians about these inexpensive remedies that may be as good or better choices for their patients.

Sometimes, but certainly not always is newer and innovative a good thing.

Posted by: pecohen | November 25, 2010 11:45 AM | Report abuse

Health insurance is a big Ponzei scheme which will collapse as our population ages. Until patients become the consumer, and not insurance companies, healthcare costs will continue to rise.

Posted by: Jeff37 | November 26, 2010 10:33 AM | Report abuse

"The insurers have very little incentive to keep costs down when their profits are limited to a percentage- raise the basis cost, raise the profit (and then next year raise the rates)."

I assume you're referring to the future requirements that insurers spend a minimum percentage of their bill on medical costs. Of course, that's correct; it will in fact make it self-defeating for an insurer to attempt to cut down on medical costs, compared to the current situation, where the only party anywhere in the system who has any financial incentive to lower actual medical costs is the insurer.

For example, look at a typical transaction, as detailed on the EOB your insurer sends you: original medical charge, $500; insurer's discounted charge, $250. That is, if you didn't have insurance, you'd be paying $500; as it is, you're paying (the average overall the insured people) the $250, plus about 25% overhead, including the insurer's 3% or so profit, $312.50. That makes the insurer's medical costs only 75% though, so that will have to end once minimum medical cost ratios go to 80% or whatever. In contrast, if the insurer just passed on the $500 to you plus the same overhead, they'd be on the right side of the new law, and you'd be out an additional $250. Make sense to anyone?

There is no logic to actual medical charges. Why does a lumber spine MRI cost $2300 in the hospital here, and $1700 in the low cost imaging clinic across the street, and the same MRI costs $160 in Japan (actual prices)? Because an MRI machine costs twice as much here as in Japan for the same machine. Why? Because that's what the Japanese will pay, and that's what we will pay. You don't think they're selling the machines at a loss in Japan, do you? But we pay more and then make it up by charging more. And competition doesn't bring the prices down; obviously, see prices above. Instead, as the low cost clinic cuts into the hospital's profits, they raise the price on the fewer MRIs they do to get back in the black. This complete lack of sense and no adherence to the fabled "free market" theory goes for just about every procedure, test, or medication. It's the oldest rule of commerce, older than free market: "Whatever the traffic will bear". You charge them whatever they have in their pockets, be it one dollar or a million dollars.

Posted by: gzuckier | November 26, 2010 9:36 PM | Report abuse

It is true that one of the few benefits for our gross overpayment for medical services is that a small fraction of this money will eventually trickle back to the innovators who created the technology or procedures. However, if this is our goal, it could be accomplished much more cost effectively by expanded funding for NIH, CDC, SBIR grants, etc. We are overspending by many hundreds of billions of dollars per year. All the programs I mentioned above amount to around $40 billion. Let's cut the overspending fat and put ten percent of the savings towards doubling these programs.

Posted by: brickcha | November 28, 2010 8:59 AM | Report abuse

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