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Wanted: A Universal Metric for National Health Expenditures

September 20, 2012

The World Bank, WHO, and just about everyone else measure national health expenditures against Gross National Product (GDP) in the sure and certain knowledge that the metrics are an apples to apples comparison between nations.  Within a one week period, two different Washington Post columnists wrote similar columns, using national health expenditures as a percentage of GDP. One claimed that “ Other industrialized countries provide universal health coverage for their entire populations for a fraction of what we spend in the United States, and those other countries achieve equal or better health outcomes”. The other commented: “the United States spends twice per person on health care what most other advanced nations spend without better outcomes to show for it”. However, in neither case did the columnist provide any examples of health outcomes relative to GDP on health expenditures. The ‘outcomes’ were limited to the readers’ imagination.

While GDP is the sum total of all goods and services within one sector of an economy, when measuring it against health expenditures in pluralistic sectors like the U. S., can it yield the same measurement as in a universal sector, such as England and Canada’s national health services, or France’s national health insurance system?

One of the most commonly used outcomes is infant mortality rates, in which the U.S. consistently ranks lower than many other developed countries. This rate is heavily influence by difficult to control social and cultural factors which dampen the effects of health inputs. A significant portion of the infant mortality rate in the U. S. is due to a lack of pre-natal care for immigrant and teen-aged mothers. The former have a tendency to wait until they can access emergency room services, and the later—usually because of stigmas, forestall medical attention until the last moment when delivery is evident.

What is the difficulty in relating outcomes to expenditures between countries? For instance, the US is the only country in the world with a mandatory Mal-practice Insurance System. Approximately 52% of the health system expenditures are in the private sector where accelerated depreciation of plant and equipment is a standard tax deductible business expense, as are capital investments. Contributions from employers and employees 401 (k) and other retirement plans are included, as are payroll contributions to Medicare, Workmen’s Compensation, and Social Security. Lastly, millions of foreign patients come to the US annually for health services that are available free of charge in their home countries—if they were willing to stand in line. Those expenditures are added to the US GDP and deducted from the GDP of their universal systems.

In universal systems, such as in England and Canada, the GDP expenditures are based on the annual health budgets appropriated by their respective governing bodies. They have to tailor service delivery to specific budget allocation, a system that often leads to rationing in order to meet pre-established fiscal targets.  Since they are universal systems financed directly from general tax revenues, there is no need to charge tax deductible expense items, such as plant and equipment, or finance Mal-practice insurance, or to provide pension benefits which fall under entirely different components of England and Canada’s comprehensive national budgets.

There are also more subtle pricing anomalies on goods and services which mask total expenditures between countries.  On medicines, England operates a system of profit regulation that constrain prices to yield no more than a target overall rate or return on capital.  The Canadian government monitors price levels at launch and rates of increase to assure that they are ‘reasonable’. Japan, Denmark and France subsidize the R&D components of their pharmaceutical and vaccine industries. When price per gram of active ingredients in a pharmaceutical product are compared, Japan and Switzerland are more expensive than the U. S.  And Germany, the Netherlands, Denmark and New Zealand operate reference price systems on reimbursement and thereby exert strong pressure on prices charged by manufacturers.

Another subtlety is the hidden subsidies between the U. S. and other developed countries, as can be seen in France’s national health insurance system. France decides which drugs to use and at what prices; American pharmaceutical companies must either accept the dictated prices or lose enormous market. The companies therefore sell their medicines in the U. S. in order to cover their expenses and turn a profit; the surplus is then sold cheaply to the French, who take the same pills as Americans but at half the price or less.

If one were to deduct from the U. S. health expenditures those items that are not in the GDP of universal systems, how far would its current 17% of GDP—15%? fall and close in on those lower percentages in other developed countries!

When lamenting the U. S. expenditures of 15% of GDP on health, one would think that the money is going into some black hole in space and has no redeeming value to society.

In major U. S. cities, like Houston, San Francisco, Seattle, Boston, Rochester, Pittsburg, Cleveland, and New York, the health sector is within the top three levels of contributions to their GDPs.  It accounts for the highest rate of new union workers.  And in an economy which desperately needs to create more jobs, the health sector has delivered its fair share.

For all these reasons, using the current metrics on where a nation stands relative to any other nation is an imperfect tool for policy prescriptions in the health sector. If they tell us anything when we peel back its layers, it is that they are an apple to brick comparison.

One Comment leave one →
  1. October 10, 2012 11:56 am

    Jerry… you have defined for me what “scratching below the surface” means. So, putting aside comparing apples to bricks, have you written about solutions regarding, e.g., lowering costs; measuring health outcomes; how to get preventive and curative health care for the poor and uninsured; the responsibility and role of docs, pharmas, insurance companies in all of those and how to get them to do that? I assume you have pieces and references;a great book, perhaps, and if it hasn’t been written NOW THERE’S A MISSION FOR YOU.

    Enjoyed your piece and feel edified. Now to breakfast this AM. Best.

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