Time International - 02.03.2020

High costs, low return

The U.S. has spent more on health care per person since 1970 than other

developed countries, but doesn’t have a higher life expectancy to show for it

Health care

spending

per person

Life

expectancy

at birth

U.S. Switzerland France Canada Australia U.K.

70

’10 1970 ’80 ’90 2000 ’10 ’17

75

80

85 YEARS

1970 ’80 ’90 2000 ’17

0

4

8

$12K

U.S.

$10,739

78.5

YEARS

U.S.

NOTE: SPENDING IN 2017 U.S. DOLLARS. SOURCES: AUTHORS’ CALCULATIONS BASED ON DATA FROM MAX ROSER AT UNIVERSITY OF OXFORD, WORLD BANK AND OECD

operate profitable practices. Physicians
are the largest single occupation among
the top 1% of incomes. The industry
also delivers vast sums to the own-
ers and executives of pharmaceutical
companies, to medical- device manu-
facturers, to insurers and to large, ever
more monopolistic hospitals. Much of
the difference in costs compared with
those of other countries comes from
vastly higher prices. American doctors
get paid almost twice as much as the
average doctor in other wealthy coun-
tries. The effect on costs is limited be-
cause the U.S. also has fewer doctors
per capita—physician-led groups have
been effective in holding salaries up by
holding down the number of places in
medical schools, and by excluding well-
qualified foreign doctors.
In a private health- insurance sys-
tem like that in the U.S., insurance
companies, doctors’ offices and hos-
pitals spend huge sums on adminis-
tration. In a single- payer system, more
than half of these costs would be eliminated. Last, con-
solidation of hospitals reduces competition and raises
the prices that insurers pay to cover patients; hospi-
tals are more profitable and patients pay more for their
health care.
Half of all non-elderly Americans (about 158 million peo-
ple) have health insurance through an employer. Employer-
provided insurance is typically well liked by those who are
covered, although it is not without costs for the employee.
On average, employees in 2017 paid about $1,200 (18%)
of the cost of an individual policy, or $5,700 (29%) of a
family policy. They also pay health- related taxes, and they
have to meet co-payments at the time of treatment, as well
as deductibles.
Many employees think employer contributions—the
other 71% of the (average) $20,000 family policy—are
free to them. Yet they are not free to the firm, and they
affect how much firms are prepared to pay in wages and
how many workers they employ. For an employer, it is not
the wage that matters but rather what the firm has to pay
to hire the worker, including the costs of health insurance
and other benefits. Employees may think they are being
given a gift, little realizing that what their employers care
about is the total they pay, not to whom they pay it. The
employee “gift” is being deducted, partially or fully, from
wages. Worse still, employers faced with large increases in
health premiums may eliminate jobs or outsource work to
firms that pay less and provide fewer benefits.
Insurance works only when sick and healthy people are
pooled together, in America by employment, and in other
rich countries by government fiat across the whole popu-
lation. Without subsidies for those with low incomes, and
without some guarantee that everyone is always in the

system, insurance cannot work. Leaving

health care to the market leaves many

uninsured.

Americans like to believe that their

system is a free- market one, in spite of

the fact that the government is paying

half of the cost, is paying the prices de-

manded by pharmaceutical companies

without negotiation, is permitting pro-

fessional associations to restrict supply,

and is subsidizing employer- provided

health care through the tax system.

The historical accident of employer-

based coverage is a huge barrier to re-

form. So is the way that the health care

industry is protected in Washington by its

lobbyists—five for every member of Con-

gress. Our government is complicit in an

extortion that is an important contribu-

tor to income inequality in America today.

Through pharma companies that get rich

by addicting people, and through exces-

sive costs that lower wages and eliminate

good jobs, the industry that is supposed

to improve our health is undermining it.

Deaton, the recipient of the 2015 Nobel

Prize for Economics, and Case are profes-

sors of economics at Princeton Univer-

sity. This essay is adapted from their new

book, Deaths of Despair and the Future

of Capitalism. Copyright © 2020 by

Princeton University Press

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