Why health care costs so much more in the US compared to other developed countries

October 23, 2023

Source: Turner, et al Commonwealth Fund, October 5, 2023 LINK

The United States has the most expensive health care system in the world, and there is general agreement that this is largely due to high unit prices. The Commonwealth Fund deconstructed higher US costs compared to other developed countries, and estimates that the overall cost of health care here is twice that of comparable countries, even when adjusted for purchasing parity. They largely used data from the Organization for Economic Cooperation and Development (OECD).

They estimated that 60% of the excess cost of health care in the US is due to higher prices. The cost of administration (both for insurers and providers) represents about half of that, and the higher wages of physicians and nurses represents much of the rest. The researchers note that the US has fewer health care workers for its population than other countries. Excess prices for brand name drugs represent about 10% of excess cost of care in the US.

Implications for employers:

• Employers can continue to press carriers to control unit prices, although provider consolidation and increased labor costs don’t make this easy.

• Providers unhappy with prior authorization might cite this study as a reason to oppose utilization management efforts.

• Artificial intelligence could lower the administrative cost of the health care system to the extent it reduces the need for expensive labor.

• Higher costs in health care represent higher revenue for companies, and higher pay for many people. This helps demonstrate why it is so difficult to control health care costs.

Tomorrow: Medicare price negotiations not likely to delay new cancer drugs

Thanks for reading.  You can find previous posts in the Employer Coverage archive

Please “like” and suggest this newsletter to friends and colleagues. Thanks!

Addendum: A colleague asked about US hospital costs compared to other developed countries. These are quite high. Here are a few examples from the International Federation of Health Plans via the Health Care Cost Institute (2022)

(Cholecystectomy is a gallbladder removal)