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In which John discusses the complicated reasons why the United States spends so much more on health care than any other country in the world, and along the way reveals some surprising information, including that Americans spend more of their tax dollars on public health care than people in Canada, the UK, or Australia. Who's at fault? Insurance companies? Drug companies? Malpractice lawyers? Hospitals? Or is it more complicated than a simple blame game? (Hint: It's that one.)

For a much more thorough examination of health care expenses in America, I recommend this series at The Incidental Economist:
The Commonwealth Fund's Study of Health Care Prices in the US:
Some of the stats in this video also come from this New York Times story:

This is the first part in what will be a periodic series on health care costs and reforms leading up to the introduction of the Affordable Care Act, aka Obamacare, in 2014.
Good morning, Hank, it's Tuesday.

I wanted to talk today about why healthcare costs in the United States are so phenomenally, fascinatingly expensive, but first I have to blow your mind.

Alright, so you've probably heard that the reason people enjoy "free" healthcare in Australia and the UK and Canada, etc., etc., is that they pay higher taxes. That money then goes into a big pot and is used to pay for peoples' healthcare. But IN FACT, in the United States, we spend more tax money per capita on healthcare than Germany, Australia, the United Kingdom, or Canada. That's right Hank, you pay more in taxes for healthcare than you would if you were British, and in exchange for those taxes, you get... no healthcare.

In fact, only about 28% of Americans get their health insurance through government funded programs -- mostly poor people, old people, and Congresspeople. But as you can see in this graph, our private healthcare spending -- most of Americans are privately insured through their employers -- is WAY higher than anywhere else in the world.

In total, the US currently spends about 18% of its gross domestic product on healthcare costs; Australia by comparison? -- 9%.

Why is this? Well, because everything costs more, which seems obvious, but apparently it isn't, because every article you read is like, "Oh, it's because of malpractice insurance!" Or, "It's because we're obese," or, "We go to the doctor too much," or, "People are prescribed too many medications." Well, not really. It's because everything costs more.

A hip replacement in Belgium costs $13,000; in the US, it's often over $100,000. Colonoscopies average over eleven hundred bucks a piece in the US; in Switzerland, they're $655. And on average, a month of the drug Lipitor will cost you $124 if you live in the United States; if you live in New Zealand, seven dollars.

Now we are also, not to brag, richer than all of these countries, so it makes sense that we should spend a little more on healthcare. But we don't spend a little more -- we spend a ton more. And vitally, we don't get anything for that money, which means we are essentially paying people to dig holes and then fill those holes back up. Like we don't live longer -- in fact, we're thirty-third in life expectancy -- and in everything from asthma to cancer, according to one recent, non-partisan study, American health-out-care-comes [healthcare outcomes] are "not notably superior."

So why are we spending all of this money for nothing? Well, first let's discuss some of the problems that are not actually problems. For instance, the problem is NOT so-called over-utilization, the idea that Americans go to the doctor more and get more tests and spend more time in hospitals. We know this because Americans actually go to the doctor less than Europeans and spend much less time in hospitals, although to be fair, you can stay in a Dutch hospital for seven nights for what it costs to stay in an American one for one night, and no wonder we're hesitant.

Also, it is not because we are sicker than other people. Everybody likes to blame obesity on our rising healthcare costs, but yeah, no. That argument is just not supported by data. For one thing, disease prevalence does not affect healthcare costs that much. And for another thing, while we do have more obesity in the United States, which sometimes leads to health problems, we have fewer smokers and less alcohol consumption -- REALLY? Apparently yes. So that saves us a little money, and if you compare us to like the British or the French, in the end it's probably a wash.

Hank, the truth, as usual, is complex. Like there are obvious inefficiencies in our healthcare system. For instance, not everyone has insurance. If you don't have insurance, you still get healthcare but you are responsible for paying for that healthcare which often you can't do, so you end up going bankrupt. That sucks for you, obviously, because you're bankrupt, but it also sucks for the rest of us because we have to pay not only for your care, but also for all the money the hospital spent trying to get you to pay for your care. Also, the only options available to uninsured people are usually the most expensive options, like emergency rooms, which is just bananas.

But those inefficiencies are hard to measure. Fortunately, there are things that we can measure. So like I said before, because the US is one of the richest countries in the world, you would expect us to pay a little more for healthcare than most people. The question is when do we pay more than you would expect us to pay, and that turns out to be pretty interesting.

Let's start with malpractice and so-called "defensive medicine." The idea here is that doctors are scared of huge malpractice suits, so they order a lot of unnecessary tests in order to like, cover their butts. That does contribute to our healthcare costs, like there are more MRIs and CT scans in the US than anywhere else. However, there are a bunch of states, like Texas, that have passed tort reform to limit malpractice suits, and in those states healthcare costs have dropped by an average of a whopping .1%. The biggest estimates for the total cost of defensive medicine put it around $55 billion, which is a lot of money, but it's only 2% of our total healthcare costs.

Another smallish factor, doctors - and, to a lesser extent, nurses -- are paid more in the United States than they are in other countries. And by my possibly-faulty math, we end up spending about $75 billion more than you would expect us to there. Then we have the cost of insurance and administrative costs like paperwork and marketing and negotiating prices, all that stuff -- that's about $90 billion more than you would expect us to spend. We spend about $100 billion more than you would expect on drugs, not so much because we take more of them but because the ones that we take cost more per pill.

Okay, and now for the big one. I'm going to lump in-patient and out-patient care together because in the US we do a lot of things as out-patient procedures -- like gallbladder surgeries -- that are often in-patient procedures in other hospitals. So we're just going to make a big ball. That big ball is $500 billion more than what you would expect given the size of our economy. Per year. Why? Well, because in the United States, we do not negotiate as aggressively as other countries do, with healthcare providers and drug manufacturers and medical device-makers.

So like in the UK, the government goes out to all the people who make artificial hips and says, "One of you is going to get to make a crap-ton of fake hips for everybody who is covered by the NHS here in the United Kingdom. But you better make sure your fake hips are safe, and you better make sure that they're cheap, because otherwise we're going to give our business to a different company." And then all the fake hip companies are motivated to offer really low prices because it's a huge contract. Like think if your company got to put hips inside of everyone in England and Scotland and Wales and Northern Ireland -- I guess not everyone, just the people who need hips.

But in the US we don't have any of that centralized negotiation so we don't have as much leverage. The only big exception is Medicare, the government-funded healthcare for old people which, not coincidentally, always gets the lowest prices.

So basically, Hank, in the United States, providers charge whatever they think they can get away with, and they can get away with a lot because it's really difficult to put a price on like, not dying. This is a phenomenon called "inelastic demand": like if you tell me that this drug that will save my life costs $7 a month, I will pay you $7 a month for it; if you tell me that it costs $124 a month, I will find a way to find $124 a month to pay for it. You can't negotiate effectively on your own behalf for healthcare services because you NEED them, and not like you need a new MacBook Air or the new season of Sherlock, but actual, physical need -- I guess it is like the new season of Sherlock...

So basically Hank, until and unless we can negotiate as effectively with the people providing healthcare as Australians and British people do, US healthcare costs will continue to rise faster than anywhere else in the world, and we won't get better healthcare outcomes.

Hank, I know this video is long -- although it could have been much longer -- but I am so tired of people offering up simple explanations for what's wrong with our healthcare system. They say, "Oh, it's malpractice," or, "It's doctors who must also be business people," or, "It's insurance companies," or, "It's insane rules for who can get insurance." "It's drug companies," "It's government bureaucracy," "It's an inability to negotiate prices" -- Yes, yes, yes, yes, and yes. It is all of those things and more! It is not a simple problem, there will not be a simple solution, but it is probably the biggest single drag on the American economy, and it's vital that we grapple with it meaningfully instead of just treating healthcare costs as political theater.

So I hope I've at least introduced the complexity of the problem. I put some thoroughly non-partisan links in the doobly-doo for further reading.

Hank, welcome back to the United States! As you can see, everything is peachy here. I'll see you on Friday.

Friendly reminder: educational videos are allowed to be more than four minutes long; all the people who are commenting about how punished I am did not watch to the end of the video! I feel dizzy.
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