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Follow the goods, not the money.

Follow the goods, not the money.

So, it is widely agreed that health outcomes in the U.S. are not better than in other countries, though if you adjust for various behaviors and risk exposures those differences go away. For argument’s sake, just assume the U.S. gets no better outcomes than its other wealthy country brethren (I am not sure why this matters, but that is for another day).

How would you measure how costly the U.S. medical system is? Would you look at how many dollar bills are spent? Or would you examine what real resources are used up in order to deliver said outcomes? Good economics suggests the latter. In a recent post by Tim Taylor, he links to an OECD study that includes information on resources used in each country. It includes:

Countries with a high number of doctors, like Germany, Sweden, and Austria, have 4-5 doctors per 1,000 people. The average for OECD countries is 3.3 doctors per 1,000 people. In the US, it’s 2.6 doctors per 1,000 people.

When it comes to hospital beds, Japan by far leads the way with 13.3 per 1,000 population. For comparison, Germany has 8.3 hospital bed per 1,000 population, France has 6.3 hospital beds per 1,000 population, the OECD average is 4.8 beds per hospital population, and the US has 2.9 hospital bed per 1,000 population.

When it comes to MRI scanners, Japan leads the way by far with 46.9 per million population, but the US isn’t far behind at 35.3 per million population. The OECD average is 14.1 MRI scanners per million population. CT scanners are a similar story. Japan again leads by far with 101.3 per million population, but the US is in the top three with 43.5 per million population.

To summarize, we get similar outcomes as other countries, but we require far fewer doctors and hospital beds to do this.  Doesn’t that make us extremely cost effective? Finally, has anyone seen a study that applies US prices to international medical procedures?  For example, I thought I once heard that average doctor pay in the UK was $75,000 or so (about 50,000 pounds). Maybe that is low. It’s pretty clear that US doctors earn twice as much as British doctors. How would British health spending change if we doubled the price we applied to all doctors?

To make this clearer, if it requires one doctor, similarly trained with similar opportunity costs, to heal one patient in America and the UK, then the cost of treatment is the same in both countries. It does not matter whether I pay a doctor four quadrillion dollars or four dollars, the social cost is identical in each case. The expenditures are merely a way to see which way net transfers are going.  You may not like the idea that the medical professionals in the US extract a greater share of the surplus from their customers than in other countries, but from that information alone you cannot say whether or not the U.S. is less efficient than its peers in delivering health care.


4 Responses to “Does the U.S. Have the Cheapest Health Care in the Developed World?”

  1. Brian says:

    No, it makes us more productive. Not more cost efficient. Prices of inputs matter in cost efficiency. Number of inputs (such as number of doctors and beds etc.) tells us about the productivity of those resources.

    • sherlock says:

      In a transparent, competitive market, prices are the best and most reliable method of measuring input costs (and thus real resources used). I believe wintercow is implying that prices may not be the most efficient of measuring the cost of healthcare due to how removed the consumer is from actually paying for healthcare and how the system is structured . For example, I had to get a tooth filled over the winter (sorry mom). The conversation was something like this when scheduling the procedure:

      Me: “How much does this cost?”
      Office: “Eh, not really sure. Depends on your insurance.” (Note I have already given them my insurance info and such).
      Me: “Well how much does this cost them?”
      Office: “Eh, again depends on the insurance and if they’re in the network, etc.”
      Me: “Um ok. I guess go ahead with it, since that what the dentist said to do.” (By the way, the tooth that needed to be filled was at the very beginning stages of a cavity. Only the dentist noticed it upon xrays. Looking back, I’m not even sure if there were alternatives to the filling. The dentist never talked about it and I had no idea what anything cost so I didn’t bring it up.)
      /I schedule the date of procedure
      /I get the tooth filled the next week or so
      Me: “So what do I owe?”
      Office: “Eh not sure. We have to submit it to the insurance company.”
      Me: “Umm ok.”
      /I leave
      /A few weeks later I get a bill for $230.

      Yeah I know anecdotal evidence is no evidence at all, but this is getting a tooth filled (fairly common procedure one would imagine). I had no idea what the cost would be to me until I got the bill and I still don’t know what the total bill to the insurance company was.

      • Scott says:

        I’ve experienced very similar circumstances at the dentist. Absolutely infuriating. What kind of business can’t tell their customers what the service costs? It’s something that strikes me as so crooked and dishonest that I can’t believe this is the status quo in healthcare – how am I the only one who thinks this is absolute madness? They should be able to give you a straight total cost without hesitation, you as the customer can figure out what you are responsible for by knowing your insurance plan. Why can’t that be a regulation? Doctors have to tell you what they are charging you?

  2. Scott says:

    But you can say from that information alone, extracting a greater share of the surplus, that Americans have more incentive to provide healthcare, and more incentive to develop new healthcare technology, relative to other countries.

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