Health spending abroad: it's not what you think

Ezra has a great post on Reinhardt and Hussey's Health Affairs paper on U.S. health spending and the rest of the world:

A lot of libertarian economists (Arnold Kling and the like) tend to argue that the high costs of care in America are a simple result of how much we pay for services. They, predictably, ascribe the sums to the awesome technologies and phenomenal operations we deploy. But it's more structural than that. In their (damn good) paper on the variance between US health spending and costs in other countries, Uwe Reinhardt, Peter Hussey, and Gerard Anderson explain.

According to the authors, higher costs can be attributed, in part, to health practitioner's wages and a fragmented delivery system that gives more market power to the supply side of the equation. Which puts a hole in arguments over technology, but lays open quite clearly that things like high deductible health plans (HDHPs) and other plans to shift cost to consumers won't make a huge difference. The increased spending vis a vis other nations is on the backs of doctor's and hospitals fees for care, as well as gaping holes in the delivery system that give them more market power. Integration of care within regions (and between them), coupled with larger payers with more power will help bring us back in line with the rest of the world.

Comments

[Trapier K. Michael]

Re: "[This] lays open quite clearly that things like high deductible health plans (HDHPs) and other plans to shift cost to consumers won't make a huge difference."

Wrong. HDHPs/HSAs/CDHPs swing the power pendulum back to the demand side by empowering millions of consumers to become informed, active consumers each seeking lower prices and better quality. This is how demand is supposed to work, and does over and over in other industries. If your theory is correct, we need one strong centralized soda purchaser, one strong centralized car purchaser, one strong centralized clothes purchaser, etc., etc. But that is obviously silly. Millions and millions of decentralized buyers and fierce competition from pepsi make it impossible for Coke to leverage "supply side market power" in the way Reinhardt suggests healthcaer providers do.

I agree that healthcare providers are monopolistic. But the answer is to get consumers in the game to induce competition and to reverse policies that legalize medical monopoly, such as Certificate of Need (CON) laws for hospitals.