Why Americans pay more for healthcare


The United States spends more on healthcare than comparable countries do and more than its wealth would suggest. Here’s how—and why.

The health care debate in the United States excites great passion. Issues such as how to make care available, to structure insurance, and to rein in spending by the government, corporations, and individuals frequently take center stage. Often missing, though, are basic economic facts. New research from the McKinsey Global Institute (MGI) and McKinsey’s health care practice sheds light on a critical piece of the puzzle: the cost of care.

Our research indicates that the United States spends $650 billion more on health care than might be expected given the country’s wealth and the experience of comparable members of the Organisation for Economic Co-operation and Development (OECD). The research also pinpoints where that extra spending goes. Roughly two-thirds of it pays for outpatient care, including visits to physicians, same-day hospital treatment, and emergency-room care. The next-largest contributors to the extra spending are drugs and administration and insurance.

It’s not clear whether the United States gets $650 billion worth of extra value. Parts of the US health care system, such as its best hospitals, are clearly world class. Cutting-edge drugs and treatments are available earlier there, and waiting times to see physicians tend to be lower. Yet the country lags behind other OECD members on a number of outcome measures, including life expectancy and infant mortality. Furthermore, access to health care is unequal: more than 45 million Americans lack insurance.

The challenge for health care reformers is to retain the current system’s strengths while addressing its deficiencies and curbing costs. That won’t be easy. Our research on the system’s costs and the incentives underlying them indicates that without the involvement of all major stakeholders (such as hospitals, payers, and doctors) reform is likely to prove elusive. The research also suggests that while there are many possible paths to reform, it is unlikely to succeed unless it deals comprehensively with health care demand, supply, and payments.

This originally appeared in Health International