Healthcare Background Info

I spent today researching health care in preparation for a discussion about the presidential candidates. Here are my findings.

Healthcare Spending

We're spending a lot, and the spending rate is growing.
- In 2005, the U.S. spent $2 trillion on health care, which is 16 percent of GDP and $6,697 per person. (KFF August 2007)
- Health care costs have grown on average 2.5 percentage points faster than U.S. gross domestic product since 1970. (KFF August 2007)
- Health care costs are also rising in other OECD countries, at somewhat slower rates (KFF January 2007)


Two other surprising figures.
- Almost half of health care spending is used to treat just 5 percent of the population. (KFF August 2007)
- In 2005, nearly half of US health expenditures were public (just under $3,000 per capita). US public health expenditures per capita (in terms of USD PPP) are among the top in the world (behind only Luxembourg and Norway) (OECD)


Where the money goes.

(from KFF)
A note: "Program Administration" here means marketing and billing by health insurance plans. Other administrative costs are included in other categories. One study on 1999 data estimated total administrative costs at $1059 per capita (or almost 31% of total expenditure that year), compared with $307 per capita (for 16.7% of total expenditure) in Canada. (NEJM August 2003) A response in the same journal says this gap is overestimated by 25%. (NEJM August 2003) Also, much of the gap appears to be attributable to Canada's public health insurance program; Canadian private insurers have slightly higher administrative costs than their American counterparts, but make up a much smaller share of the health market.

Potential reasons for increasing health costs.

• increases in expertise and technology have made more (and more expensive) care possible (KFF August 2007)
• US population is aging (KFF August 2007)
• US population's health is worsening (Michael Pollan claimed in a recent interview that our health care spending has been inversely correlated with our spending on food during the last half century)
• improving insurance coverage encourages higher rates of care access (KFF August 2007)

Potential reasons which are clearly not large factors (at least not directly).

• medical malpractice suits: Total costs of defense, awards, and settlements is less than 1% of total health expenditure in US. [This figure does not include malpractice insurance costs, which appear to total $2 billion, less than .5% of total health expenditure (Healthcare Financial Management 2002 )]. This is not far out of step with other countries' malpractice costs. (Health Affairs 2005)
• greater basic access, no queues: The US has less healthcare availability (in terms of hospital beds, doctors and nurses, and MRI and CT scanners per capita) than the OECD median. Procedures for which some countries have queues (i.e. some elective surgeries) account for only 3% of US expenditures. (Health Affairs 2005)

The Uninsured
Total US population: 301,000,000 (CIA World Factbook July 2007)
Uninsured population: 46,500,000 (Kaiser Commission on Medicaid and the Uninsured. "The Uninsured and Their Access to Health Care," Oct. 2007)
Uninsured as proportion of total population: 15.4%
Uninsured as proportion of nonelderly population: 18%

Estimated undocumented immigrant population: 11,500,000 (Pew Hispanic Center Factsheet April 26, 2006)
Estimated uninsured undocumented population: 7,800,000 (inference from above and below)
Estimated uninsured as proportion of undocumented population: 68% (RAND Corporation November 2005)

(from KFF)

A Problem with Individual Health Insurance Markets

From my somewhat dusty memory of a lecture by Peter van Doren; similar points are made in an article by Paul Krugman. The problem stems from the fact that, unlike in many other insurance markets, many of the costs being insured against in health insurance are known in advance.

Imagine that there is only one health insurance company in the US, offering full-coverage plans to everyone at the average annual health costs per capita (plus a little extra for overhead). These plans cost *a lot* more than the healthiest Americans expect to get back in terms of benefits, so most of the healthiest don't participate. The very sick, on the other hand, are eagerly joining up. Now, the company is charging average rates and providing care for a group with higher-than-average costs.

The company can increase rates, but the same thing will happen -- the healthiest of the old participants now prefer to take their chances in exchange for much lower average costs, while the sickest are eager to participate. This cycle will not end unless the insurance company is allowed to exclude the sickest from buying its coverage. Insurers have no incentive to insure the sick, unless the sick are included in a large, varied population as part of a group plan (in which case their higher costs are offset by healthy participants with lower costs).

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General Resources
Kaiser Family Foundation (KFF)
OECD Health data
RAND health
A collection of links to Paul Krugman's NYT articles on health
An econ professor draws and discusses various charts about national health spending.