NCPA - National Center for Policy Analysis


February 23, 2007

Does the United States spend too much on health care? A report from the McKinsey Global Institute, an economics think tank, shows that in 2005 the United States spent $1.9 trillion on health care. That's more money than the nation spent on food and $477 billion more than any developed country in the world.

However, the report made a fundamental economic error by not taking into account the many ways in which other countries subsidize their health systems. The report associates the cost of the services with money spent rather than the resources used, says John Goodman, president of the National Center for Policy Analysis (NCPA).

"The suppression of market forces in every country makes cash flows an unreliable indicator of real resource use," explains Goodman:

  • In the United States, there are fewer practicing physicians, nurses and hospital beds per capita than in the average country surveyed in the McKinsey report, and the intake of prescription drugs in the United States is 20 percent lower than in those countries.
  • European governments use their buying power to drive down reimbursement rates to health care providers, forcing them to take below-market payment.
  • The same is true of Medicare and Medicaid in the United States, but otherwise our health care system is strictly private.

The "monopolistic buying power"of government does not lower the real cost of health care, it only shifts it, explains Goodman.

"If health outcomes among developed countries are pretty much the same, the United States does not look so bad in terms of resources used to produce those outcomes; the outcomes are probably better or at least as good," says Goodman.

Source: Gregory Lopes, "Health spending report debated," Washington Times, February 23, 2007.


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