In fact, we'll see that while most other countries seem to get a pretty good return on their investment when it comes to healthcare spending, much of the medical and drug spending in the U.S. seems to provide no aggregate health benefit and actually leads to worse health outcomes. Many countries achieve similar or better longevity and health outcomes than the U.S. for a fraction of what the U.S. spends. There are of course some countries that also seem to receive less health benefits than we might expect from their healthcare spending, but because the spending in those other countries is so much less than in the U.S., their spending mistakes and inefficiencies are less costly. Since the U.S. spends such incredible amounts on healthcare, with so much less to show for it, the poor returns on Americans' investment in healthcare make it the greatest loss of industry resources in the world.
While longevity is not the only factor that measures health, it is highly correlated to overall health of a country, particularly for older citizens. Using even broader measures of healthcare and health outcomes across countries the U.S. routinely ranks far from the top, despite easily being the largest spender on healthcare. Also, because mortality is an aggregate of so many health conditions affecting a population, and because longevity is easier to quantify as a health factor compared to many others, it is good, if imperfect, barometer for the aggregate health of a particular country's citizens. (It is of course recognized that other factors affect a given country's mortality that don't directly relate to health, such as deaths due to accident, homicide, war, famine, natural disasters, etc. However, while all these are tragic, for most of the countries of the world, those non-health mortality factors are relatively low compared to overall mortality, and not particularly significant for examining the health of most of the countries in the world.)
As mentioned last time, according to World Health Organization (WHO) data, in 2015 the U.S. ranked 31st among all countries in terms of longevity. At the same time, it is also by far the largest spender of healthcare in the world, not just on a country-wide level, but per person, as well as when adjusted for cost of living (PPP, or Purchasing Power Parity), spending more than 25% more than the next highest per capita health spending country (Switzerland).
Below I have used data from the World Health Organization and the International Monetary Fund to compare healthcare spending to longevity. I used the top 120 nations of the world in terms of longevity in which healthcare spending data was available (the pattern stayed relatively consistent when lower longevity, generally poorer countries – mostly in Africa - were included, but these poorer countries are more affected by other health factors, making it less relevant for comparing health factors affecting most of the world's population.)
What we see in the graph is that there is indeed a strong correlation between healthcare spending and longevity. Higher healthcare spending correlates strongly to higher longevity, especially for women. (It should also be noted that the general wealth (GDP) of a country also correlates highly with longevity, though not as high as healthcare spending.) As the regression below shows, based on this data, fully 74% of combined male-female longevity of a particular country is explained by the healthcare spending of that country.
The trend line represents longevity expectations based on healthcare spending. The “line” in this graph is actually a logarithmic curve on a log scale. This accommodates the extreme range of yearly medical spending, and the fact that there are natural limits to longevity, both on the high end and the low end. In other words, spending ten times as much per person doesn't expand longevity ten times because of natural biological limitations. The spending data on healthcare are adjusted for differences in respective countries' cost of living. The fact that these figures are all adjusted for cost of living makes the very wide differences in health spending all the remarkable. Thus, yearly healthcare spending per person ranges from less than $100 a year spent in countries like Bhutan and Bangladesh to the roughly $10,000 a year spent in the U.S.
If we look just at the 30 countries that have a higher average longevity (combined, male and female) than the U.S., most of them are above that longevity-per-spending trend line. That means these other countries are living even longer than would be expected based on their healthcare spending. Compared to all the countries shown, it is actually the higher spending countries that seem to get a better return on their investment of healthcare spending. The notable and glaring exception to that extra-longevity group of higher spenders is the U.S. The average (median) spending for those top 30 longevity countries is about $4,100. That's less than half of the $9,500 or so the U.S. spends per person each year. (These are 2015 data, spending for most of these countries, and certainly the U.S., are higher now). And yet those same countries have an average life expectancy about 2 ½ years higher than in the U.S., which is quite a lot given the shape and natural limits of the longevity curve .
If we look at where the average life expectancy in the U.S. would be if longevity matched their medical spending, then average lifespans in the U.S. would be about four years higher. Even in that case, the U.S. would still be ranking below most wealthier nations in terms of longevity per spending. Actually, if the U.S. was doing as well (outperforming longevity expectations) as the top thirty longevity countries, the average life expectancy in the U.S. would be about 5.5 years higher. Or from another perspective, based on what its higher-spending peers are getting in terms of life expectancy for their healthcare spending, the U.S. should be spending less than $2,500 per person a year on healthcare instead of about $10,000. On a country-wide level, compared to other developed nations, the U.S.' average longevity indicates the U.S. should be spending less than a trillion dollars a year on healthcare instead of the roughly $3.6 trillion it currently spends.
The graph below quantifies the longevity and health spending data in a slightly different way. The data point for each individual country reflects how much above or below expected longevity the country is compared to what would be expected based on healthcare and medical spending. The average country would be on the zero line. The countries above or below that zero line reflect how many years of average longevity a country experiences that is higher or lower, respectively, than what would be expected based on spending. (This data combines male and female longevity. There is sometimes significant variation in male to female longevity within and across countries (for instance, in eastern European countries women usually far outlive men; much less so in most Middle Eastern countries). Averaging these differences produces even stronger longevity per spending trends across countries.) On this graph, the higher numbers do not necessarily reflect the countries with the highest longevity, but those with the most extra longevity they are achieving based on spending levels. (The countries are plotted in terms of increasing longevity going left to right.)
As noted, the highest correlative factor to longevity for each individual country, is healthcare spending for each respective country. It seems worthwhile then to examine especially those countries that are not conforming to that trend, either better or worse, and identifying possible reasons why. In the graph we see that even though they are not the highest countries in terms of absolutely average longevity, the countries of Cuba, Vietnam and Bangladesh have very high average longevity compared to their much lower levels of medical and healthcare spending. (Cuba, in fact, has average longevity nearly identical to the U.S. despite spending less than a tenth as much per person on healthcare.) In general, western European countries do better on this measure than those in eastern Europe, and especially weak countries by this longevity measure are over-represented by former Soviet block countries. The possible reasons for the health problems in this latter group of countries have long been discussed, often centering on their high consumption rates of alcohol and especially spirits, though there are undoubtedly other contributing factors.
Among higher-spending countries, the U.S. stands alone in terms of such underperformance of average longevity. Based on the longevity and health spending trends for all these countries, at least $2 trillion of yearly U.S. healthcare spending each year is wasted or inefficiently spent. In the first article in this series I referred to health spending analysis that indicated that perhaps $750 billion to more than a trillion dollars a year was wasted. The factors contributing to these huge losses include unnecessary services and overtreatment, including over-prescribed antibiotics and unnecessary diagnostic lab tests. Reasons for waste also included administrative inefficiency, healthcare provider errors, inflated prices for drugs and services and inefficiently delivered services. Besides extensive government regulations and malpractice concerns, factors leading to such outcomes are blamed on “structural flaws” in the way healthcare services are delivered, including the tendency for doctors to overtreat and over diagnose, direct-to-consumer marketing, physician-directed pharmaceutical marketing, medical malpractice laws, and lack of cost transparency.
All these problems lead to higher medical costs (but revenues to the healthcare industry). When over-prescribed pain medication leads to millions of hospital visits and thousands of deaths, this is considered “healthcare” spending. When synthetic drugs are prescribed to treat symptoms from a simple nutrient deficiency, which then results in more prescription drugs needed to treat the symptoms resulting from the first drug, that is called “healthcare” spending. When infections, medical and hospital errors lead to re-hospitalization, extended hospitalizations, emergency care and death, that spending is “healthcare” spending. When “adverse drug reactions” lead to more than 100,000 deaths in the U.S. and millions of hospitalizations they add to “healthcare” spending.
When drugs are prescribed or unnecessary surgeries are performed instead of diet and lifestyle improvements, these represent “healthcare” spending. When unnecessarily or even dangerous diagnostic tests are performed to avoid malpractice liability risks, this is called “healthcare” spending. When customers pay inflated costs for health insurance, medical treatment and drugs this adds to our “healthcare” spending bill. When nutrition and alternative treatments are ignored or restricted in favor of more expensive and dangerous treatment, that is “healthcare” spending. When prescription painkillers lead to deadly opioid use and abuse, emergency treatment or death, that is “healthcare” spending. When 2,500 teenagers a day in the U.S. overuse and abuse prescription painkillers for the first time (average age 13-14) that is “healthcare” spending. When those same teenagers go on to use illegal street drugs with the resulting health consequences, that is “healthcare” spending. (According to the National Center on Addiction and Substance abuse, such teenagers who start by over-using prescription painkillers become 12 to 20 times as likely to later use drugs like heroin, Ecstasy, and cocaine.)
I have made the case before that all spending is not alike and much of it should not rightly be considered to contribute to “economic growth” (or in this case, “healthcare” spending). Some economic activity and spending is productive and should rightly be called economic growth. Some economic spending is not particularly helpful, but not that harmful (think of the many historical government “work” projects, where spending, or “work”, was the primary goal, not economic productivity or outcomes). And some spending is counterproductive, leading to negative economic output, and higher costs with less to show for it than before. Unfortunately, much of the medical spending in the U.S. is in that latter category. Perhaps it is a trillion dollars a year as experts claim, perhaps more. The extent of such waste and lost economic output in medical treatment and mistreatment is difficult.
Even if it is the case that a trillion dollars or more is lost in the U.S due to these devastating and expensive outcomes, it is unlikely the only factor accounting for the $2.5 trillion or so of health and medical spending each year that is unrewarded in terms of aggregate health. In that case, there may be other factors more significant or unique to the U.S. that also helps to explain the shortfall in health outcomes.
It is these other possible explanatory factors that are possibly shortchanging the health and finances of American consumers and taxpayers that I'll consider next time, to wrap up this topic.