Is the US an outlier on health care spending?
By Scott Sumner
Alex Tabarrok says no:
as other countries reach current US levels of income their health care spending will look more like the United States does today.
I’m skeptical of this prediction. According to the IMF, there are 11 economies that already have higher per capita income than the US (PPP adjusted) and they all spend far less on health care as a share of GDP. (The second link doesn’t include Hong Kong and Macau, but I found other data suggesting low health care spending in those two city-states.) Admittedly many of these 11 countries are “weird” and thus plausible outliers, but even semi-normal rich countries like Switzerland and Norway spend far less. So how does Alex reach this conclusion? He provides a graph showing a link between health care spending and net adjusted household disposable income per capita:
I’m not sure why the study he cites chose “net adjusted household disposable income per capita” as the independent variable, and given that it did chose this variable I’m not sure why Alex referred to “income” in the sentence I quoted at the beginning of the paragraph. Does it make a big difference? Look at another graph, this one with actual “income” on the horizontal axis:
Now the US looks like a huge outlier. What explains the difference? I’m not sure. I’m also not sure why “net adjusted household disposable income per capita” is the correct income measure. I could see using disposable income if you were looking at automobile purchases. After all, people buy cars out of their disposable income. But health care is provided by the government in many countries on the graphs above, not purchased out of disposable income. Where taxes are high, disposable income is often a smaller share of GDP than in the US. But why compare health care spending to a measure of income that is not generally used to buy health care? Maybe I’m missing something.
In my view, the reason the US spends 17% of GDP on health care is that our insurance and regulatory systems vastly inflate the price and quantity of health care above free market levels. I suspect that 1/2 to 2/3 of medical spending in the US is pure waste. That’s been true of most of the people I’ve known during my life (including me). And that’s what economic theory would predict given the massive tax/subsidy/regulatory distortions in our health care system.