Health Care Cost Analysis

The previous posting displayed the cost per capita of health care spending in major developed countries and the life expectancy in these countries. Most countries fell into a tight range of spending and there was a pattern of relationship between spending levels and life expectancy.  There was one very significant exception – the US of A. US expenditures were much higher per capita and life expectancy was lower. Why is that?

We don't know.  There is really only one way to answer that question and that is to do a cost analysis of the expenditure components and compare them with other countries. Costs can be analyzed in several ways. Two of the most common ways are to define them by their function or by their category. So, in dealing with health care expenditures, functional costs would include the costs associated with doctors, hospitals, pharmaceuticals, insurance companies, legal components, tests, treatment programs and other forms of therapies. Categories of costs would look at the actual forms of expenditure such as wages, benefits and other personnel costs, equipment costs, buildings and facilities, lawyers and insurance and overhead expenditures for all forms of support activities. In a good analysis, the functional costs would also be broken down according to the cost categories and this analysis could be compared to other countries where the costs are lower, sometimes much lower. In this manner it is possible to determine areas of either functional expenditures or categories of expenditures that are much higher in the US than other countries. This analysis would move the debate along with actual facts. Facts are important in determining the proper corrective action.

What would this analysis show? We don’t know. We do know that health care is a personnel intense business. Lots of people are engaged at all levels in the health care business. So, we can safely assume that the analysis will show some areas in the US where personnel costs are considerably higher than elsewhere. It could be a staffing issue (more staff to do the same activity in the US than elsewhere) or it could be a cost issue (more wages/benefits and other personnel costs to do the same activity in the US than elsewhere) or it could be a combination of both. It could be that drug costs are much higher in the US than elsewhere. Maybe we have many more doctors per capita than elsewhere or maybe we pay the doctors much more. We know that the US has many more lawyers per capita than any other country. Could this be part of the huge cost discrepancy? Could we have many more people in the insurance business than elsewhere? Insurance profits?  Perhaps we do more tests than other countries? But why would that be the case if the life expectancy is lower in the US than elsewhere? There would be no payoff for the tests; would there? Without the analysis and a thorough, transparent understanding of the reasons for the much higher cost of health care in the US, how can we even begin to address the real problems? We don’t know what the real problems are? Without a good cost analysis this health care problem will not be corrected. It will go on and will continue to burden the US economy and business competitiveness.

This approach of acting without information and analysis may make political sense to someone but it sure doesn’t make common sense to anyone.  Why does it cost so much more to provide health care in the US?