Is healthcare keeping the economy strong?

According to the Financial Times, a country’s economy can benefit from spending on healthcare, even if the health outcomes are not excellent. In the United States, spending on healthcare is high, but the health outcomes are not good. This could mean that the healthcare system is inefficient and not very effective. So, we should be careful when we say an economy is vital because we need to understand where the money is going and why.

Could lousy health outcomes, like the high prevalence of chronic illness or obesity, actually prop up a nation’s gross domestic product by maintaining high levels of healthcare-related expenditures and jobs? Interesting question.

Health care in the United States—the largest industry in the world’s largest economy—is notoriously cost-efficient. It consumes substantially more money per capita to deliver far inferior outcomes relative to peer nations. What is less widely recognized is that the industry is also remarkably energy inefficient.

Americans pay more for health care than any other people on Earth. Medical debt is the leading cause of personal bankruptcy in the U.S. High healthcare costs affect every level of our economy, from the federal government to the private sector.

The US spends over $4tn annually on healthcare, or around 17 percent of its GDP — well above the share in other comparable economies. The “strong” American consumer — and service sector — you are hearing about primarily comes from spending on healthcare services. One interpretation is that America’s healthcare system generates more jobs and spending — and hence, GDP — in part by being inefficient and ineffective in the first place. However, given the high healthcare expenditure per capita, poor health outcomes, and high prices — relative to peers — there is enormous inefficiency.

The cost and quality of the U.S. healthcare system are among the most prominent issues Americans face daily. It is a top policy concern for voters, a key indicator of economic efficiency, and a significant driver of the national debt. The recent release of the Organisation for Economic Co-operation and Development’s (OECD) 2023 Health Statistics — a comprehensive source of comparable statistics on healthcare systems across OECD member countries — provides policymakers and the public with some insight into how America’s healthcare system compares to others.

If the U.S. healthcare system were a country, it would rank 11th worldwide in GHG pollution. If every nation produced an equivalent per capita volume of healthcare emissions, it would immediately consume nearly the global carbon budget required to limit global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit) by 2030. 

There are many possible reasons why healthcare prices in the United States are higher than in other countries, ranging from the consolidation of hospitals — leading to a lack of competition — to the inefficiencies and administrative waste that derive from the complexity of the U.S. healthcare system. The United States spends over $900 per person on administrative costs — four times more than the average of other wealthy countries and about the same as we spend on preventive or long-term healthcare.

What can we do?

1ne: Streamlining administrative processes can significantly cut costs. Research by Himmelstein and Woolhandler suggests that billing inefficiencies between healthcare providers, private insurers, and government agencies account for many expenses. Transitioning to a more unified system can reduce these overheads.

2wo: Expanding coverage options and making insurance more affordable is vital. Models from other countries and recommendations from the Congressional Budget Office suggest that government-regulated insurance programs can provide comprehensive coverage at lower costs.

3hree: Investing in primary care infrastructure is essential. Encouraging patients to establish relationships with primary care physicians and promoting preventive care can divert non-urgent cases from emergency rooms.

4our: Greater transparency in pricing and more robust negotiations between the government, insurance companies, and pharmaceutical companies can bring down costs. Exploring models like Health Maintenance Organizations (HMOs) or how countries with better health outcomes manage prescription costs can provide insights.

5ive:  Simplifying health care insurance options and ensuring more precise communication about benefits, coverage, and costs can help. The Commonwealth has shown that when patients are well-informed, they make choices that are beneficial for their health and cost-effective.

It’s going to be complicated. There is so much money in healthcare that the key players want it left alone, but the current system is unsustainable.