American Health Economy Illustrated

Christopher J. Conover is a research scholar at the Center for Health Policy and Health Inequalities Program at Duke University.

• AcknowledgmentsForeword, Mark V. PaulyPreface Chapter 1: Rise of a Massive Health Sector4. Over eight decades, constant dollar health spending per person increased five times as much as real output per capita.6. Inflation-adjusted health output per capita has increased at least 8-fold over thepast 80 years.8. The health sector absorbs an increasing share of national resources.10. Health spending per capita is significantly more in the United States than in other large “rich” countries—18 percent more than second-ranked Norway.12. For 80 years, growth in real per capita health spending almost always outpaced growth in the rest of the economy by as much as six percentage points.14. In the past 50 years, health spending as a share of GDP has risen in all advanced countries.16. Most of the world’s population live in countries where health spending per capita is much less than that of the United States, yet the gap has been increasing for some of the largest countries in recent years. Chapter 2: How is Each Health Dollar Spent?20. Most health spending is for personal health services; for 40 years, such spending has exceeded 80 percent of all health expenditures. 22. From 1929 to 2009, inflation-adjusted personal health spending per capita has doubled approximately every 25 years.24. Insurer administrative costs decline as group size increases and vary by type of coverage.26. The combined percentage of health spending related to hospitals and nursing homes doubled from 1929 to 1989 but currently is declining.28. More than half of health spending is for chronic diseases; chronic illness accounts for an increasing share of health spending.30. At least half of personal health spending is for behavior, lifestyle, or other avoidable causes. Chapter 3: Who Pays for Health Services?34. Regardless of how it is measured, the public sector role in U.S. health financing has increased.36. Private health insurance pays for a smaller share of health spending than public insurance does, even though many more Americans have private insurance.38. For the past 70 years, virtually all growth in health spending relative to the economy has been financed by public and private health insurance.40. Though far less visible to the average American, federal tax subsidies for health exceed federal spending on Medicaid.42. For 80 years, the out-of-pocket share of health spending has declined while the portion paid by third parties has increased.44. Despite a much lower publicly financed share of health spending, the U.S. out-of-pocket share of spending is among the lowest in the world.45. The elderly and disabled constitute 25 percent of Medicaid enrollees but more than 75 percent of Medicaid spending.46. Beneficiaries directly pay less than 15 percent of Medicare costs, but Medicare also covers less than half of all their health spending.48. From 30 to 65 percent of all health spending by individuals who are uninsured all year is subsidized by taxpayers or private payers. Chapter 4: The Employer Role in U.S. Health Care52. A growing share of worker compensation is paid in the form of wage and salary supplements, including social insurance—such as Medicare—and private health insurance.54. The tax subsidy for employer-provided health insurance increases with income; high-paid workers get a larger subsidy—in both dollar terms and in the fraction of premiums subsidized—than do low-paid workers. 56 For a variety of reasons, workers in small firms, health care and retail trade are least likely to be offered health coverage at work.58. Despite relatively stable health insurance offer rates, there has been a secular decline in employer-based health coverage across almost all firm-size categories. Chapter 5: Government Expenditures, Taxes, and Deficits62. Real government expenditures for health rose 30-fold during the past 50 years—or 17-fold in per capita terms. Between 1966 and 2007, the entire increase in government’s share of GDP is attributable to growth in tax-financed health care.64. Tax-financed health expenditures have risen much faster than government spending on defense, income support and education.66. Tax-financed health expenditures explain little of the difference between the United States and its major competitors in public sector spending as a percent of GDP.68. The public sector pays 80 percent of health costs for people in poor health. 69. Taxpayers finance almost half of health spending for the highest-income families.70. Almost all Medicare beneficiaries pay less in payroll taxes than the dollar amount of benefits they receive from the program.72. The Medicaid share of state health spending varies by a factor of three across states. Chapter 6: Health Services and the Family Budget76. Health care is currently the second largest component of personal consumption. Since 1929, the share going to health care has risen faster than any other major category of personal consumption.78. Because so much health spending is hidden, direct family spending on health care and health insurance premiums has accounted for only five percent of income for 20 years.80. In the past 25 years, the relative burden of paying for health care has grown slightly faster among families that have the highest incomes.84. The elderly and children rely more heavily than others do on tax-financed health coverage.85. The risk of being uninsured is at least three times as high among young adults as among children younger than 10 or the elderly.86. The risk of being uninsured is substantially higher among young adults than among children or the elderly.86. The average American’s chance of being uninsured has declined substantially over the past 70 years.88. Although per capita health costs for persons uninsured all year are less than half the amount spent for those with private coverage, more than 65 percent of their costs are subsidized.90. In elderly households, the share of household spending for health care is both more for those headed by the non-elderly and has increased faster over time.92. Despite higher health costs, real non-health spending per person in elderly households is higher than in households headed by younger people. Chapter 7: Who Produces Health Services?96. Compared with the rest of the economy, a much larger share of health output is provided by non-profit organizations or publicly owned enterprises.98. In most subsectors of health care, government-owned firms account for only approximately 10 percent of activity.100. The increasing share of final demands related to health care has been a major factor in the growth of the service share of national output after World War II.102. Over the past 80 years, the increase in health services output was almost 50 percent higher than was the increase in economy-wide output. Chapter 8: Health Services and the Distribution of National Income106. Health-related supplements accounted for almost 12 cents of every dollar of national income in 2008 compared with less than three cents four decades earlier. 108. More than 80 percent of 2009 national income for health services was for compensation of employees compared with only 50 percent in 1963.Reflecting the decline of physicians in solo practice or partnerships, the share of health-related national income accounted for by proprietors’ and rental income has fallen steeply in the past 50 years.110. The share of health-related national income accounted for by proprietors’ and rental income has declined steeply in the past 50 years.112. Corporate profits before and after taxes have now reached their highest share of health services income in the past 50 years.114. Corporate profits before taxes in the health sector are less than that of other major sectors and private businesses overall.116. Publicly traded health services companies generally have lower profits than do other firms listed on the stock market.118. Pharmaceutical and medical devices have higher profits than do most industries, reflecting returns for discovery and innovation. Chapter 9: Productivity in the Health Sector122. Only recently has the increase in real health services output exceeded the increase in the input of labor or the combined increase in the inputs of labor and capital. Output per unit of input is called productivity.124. Productivity growth is less in the health sector than in private business in general.125. Productivity tends to be lower in the health sector despite more education among health workers compared with those in the rest of the economy.126. Information capital per hour has risen far less slowly in ambulatory health services than in private business overall.128. Expenditures for R&D have expanded our scientific and technological knowledge; this has contributed to the increase in health sector productivity.130. Since 1982, increased personal health spending alone can explain approximately 80 percent of the decline in personal savings. Although U.S. health spending matches its gross savings, most of the nation’s major competitors save much more than they spend on health care.132. In many parts of the health sector, output generally has increased more slowly than the combined inputs of labor, capital and other factors of production. Chapter 10: The Labor Force and Employment in the Health Sector136. Since 1930, if health services employment had increased only as fast as in the rest of the economy, the health sector would have employed nearly 11 million fewer workers in 2009. Employment has increased faster in ambulatory health services than in hospitals or nursing homes.138. The health sector as a share of total employment is higher in the United States than in other industrialized countries. The industry’s growth relative to all employment appears comparable with other G7 nations in recent years.140. Whether the opportunity cost of health sector employment in the United States is more or less than in the rest of the G7 depends on how it is measured.142. Females account for more than 75 percent of health sector employees but constitute fewer than half of employees in the goods-producing part of the health sector.144. Compared with employees in general, the work year per FTE is several hundred hours shorter for health services employees. Recently, annual work hours per employee generally have declined in long-term care facilities while increasing in hospitals.146. Increased longevity and a shorter working life have lengthened the period of retirement for men but not for women. Chapter 11: Personal Incomes and Health Care150. For the average American worker, growth in real hourly earnings has in recent decades lagged behind growth in real compensation per hour, due in part to rising health costs.152. Employee compensation in the health industry is much more than the average for other service industries but only slightly more than the average for all workers.154. Real compensation per hour has increased more slowly in the ambulatory health sector than in the rest of the economy.156. Health professionals in the United States have much higher relative incomes than do their counterparts in other industrialized countries.157. Physicians in the United States enjoyed rising rates of return for medical education for decades. Although such returns might have fallen recently, they appear to be similar for those who pursue careers in law or business. Chapter 12: Distribution of Health Services162. One percent of the population accounts for approximately 25 percent of health spending; five percent accounts for almost half. 164. After accounting for all hidden costs and subsidies, the net burden of paying for health care is 2½ times as much for the very lowest-income families compared with the very highest-income families.166. The net burden of paying for health care has increased. The relative burden for low- versus high-income families appears unchanged.168. Per capita health spending generally increases with age; annual health costs for the elderly are at least four times as high as for children and young adults.170. During their reproductive years, women’s health costs are much higher than are men’s and only slightly higher in early retirement.172. Regional differences in both health spending per capita and income per capita have widened somewhat since 1980. Before that time, per capita income differences had been narrowing for at least 50 years.174. Regional differences in the financial burden of health spending narrowed between 1980 and 1987 but have increased in subsequent years. Chapter 13: Poverty and Health178. Millions of people no longer would be categorized as poor if medical expenditures were handled differently when measuring poverty.180. Approximately half of those below poverty are covered by government insurance (primarily Medicaid). Approximately 30 percent are uninsured. The chances of being uninsured decline steadily with increasing income.182. Health status generally is worse among those who have lower incomes; poverty status explains only some of the health status differences related to race.184. Poor children are much less likely to have private coverage than any other agegroup. Almost seven in 10 poor children have Medicaid coverage.186. Fewer than 30 percent of non-elderly adults who are poor are covered through Medicaid. More than 40 percent are uninsured. Although more than 90 percent of the elderly poor have government coverage, approximately three in 10 have some sort of private insurance. Chapter 14: The Structure of the Health Sector190. More than half of U.S. health sector workers are employed by firms that have fewer than 500 workers. The share of employment accounted for by large firms varies significantly across health industry subsectors.192. Seemingly high levels of concentration in the health insurance industry might not accurately depict its competitiveness. Concentration is increasing in both hospitals and health insurers.194. The health sector is more highly regulated than almost any other segment of the U.S. economy. However, the extent of regulation varies widely across states.196. Unionization rates in the health industry are comparable to the economy-wide rate. The unionization rate within some health occupations is much higher. Chapter 15: Health, Wealth and Debt200. Since the early 1950s, real health spending per capita has grown approximately twice as fast as real per capita net worth.202. A relatively small fraction of American households incurs annual health expenditures that exceed their net worth.204. “Medical” bankruptcies account for 25 percent to possibly 35 percent of all bankruptcies in the United States. Chapter 16: Economic Fluctuations and Health208. Aggregate health spending growth appears to be largely independent of fluctuations in the business cycle.210. Medicaid expenditures tend to be more countercyclical than are other components of NHE, generally rising faster during recessions than during recoveries.212. Unemployment rates for workers in the health sector are lower for males but not for females, compared with workers in the rest of the economy. Chapter 17: Health Services and Quality of Life216. The value of typical Americans’ stock of health at birth is several multiples of their lifetime earnings.218. In price measurement, the treatment of innovations or new products is perhaps the most difficult aspect of handling quality change.220. Technology has been an important driver of health spending. However, measuring its precise role has been difficult.222. If premature mortality and morbidity are measured in terms of lost production, the social burden of illness has increased since 1963; however, if the intangible value of human life is taken into account, the social burden of illness has declined despite the large increase in health expenditures duringthis period. Chapter 18: U.S. Health Care in a Global Economy226. The United States leads the world in medical innovation.228. Among the top 10 global funders of pharmaceutical R&D, the United States accounts for more than 50 percent to 65 percent of total spending.230. Despite its global dominance in pharmaceutical R&D, the United States accounts for a small share of pharmaceutical exports among industrialized nations. Conventional measures of U.S. trade provide an incomplete picture of the contribution of the health sector to imports, exports or the country’s overall balance of trade. Chapter 19: Do Americans Get Good Value for Money in Health Care?234. Health spending in recent decades appears to have been “worth it” on average, but this likely masks much wasted spending.236. Geographic differences in broad health outcomes generally are associated with higher health spending both across countries and within the United States. Because higher spending also is associated with higher incomes, it is difficult to untangle the separate contribution of higher income to better health.238. In Medicare, there are sizable geographic variations in spending and spending growth. Only a relatively small part of geographic variations in Medicare spending can be explained by differences in health status, income or race. Most of the difference relates to “practice style.” 240. Health spending per capita in the United States is not necessarily more thanexpected relative to the pattern seen in other industrialized countries.242. Increased spending in the United States cannot be explained by higher use of health services, although Americans do have greater access to some expensive technologies than do those in other industrialized countries.244. Compared with some major competitors, the United States relies more on specialists than on primary care doctors.246. Americans pay higher prices for brand-name pharmaceuticals but lower prices for over-the-counter drugs than do residents in other major industrialized countries.248. The American system of medical malpractice likely accounts for some, but assuredly not all, of the difference in health expenditures between the United States and its competitors.250. Excluding deaths due to violence, the United States generally leads the world in life expectancy at birth.252. Few countries match the performance of the United States in saving the lives of pre-term infants. The higher rate of pre-term births in the United States is an important contributor to its low international ranking for infant mortality overall.254. On average, Americans who have various types of cancer have markedly better chances of surviving five years compared with cancer patients in other industrialized nations. For several reasons, survival rates for blacks trail these averages.256. Despite its superiority in many health outcomes related to medical care, the United States has relatively more avoidable deaths amenable to health care than do many other industrialized countries.258. Most “avoidable” deaths are related to lifestyle or behavior.260. The nation’s obesity rate is the highest in the world, but smoking is somewhat less common among adults in the United States compared with most other industrialized countries. There are big differences in obesity and smoking rates across states.262. Comparing health system performance across states poses many of the same challenges as comparisons across countries. Chapter 20: Are Health Spending Trends Sustainable?266. Over the next 75 years, health benefits as a share of worker compensation could more than quadruple. Despite this, real cash wages per worker will be 7.5 times as much as the amount in 2008.268. Technology has been a far more important driver of health spending growth during the past 60 years than has been population growth or aging. 270. The excess cost ratio measures how much faster per capita health spending—adjusted for changes in age and gender—increased relative to growth in per capita GDP. Historical variations in the excess cost ratio make predicting future health spending difficult, especially over a long time.272. Over the next 50 years, the country can “afford” growth in health spending that exceeds growth in the general economy only if the difference is not too much. Continuing historical rates of excess growth in health spending could result in a decline in real GDP per capita within 30 years.274. Much uncertainty exists in 75-year forecasts of health spending; yet if even one percent excess cost growth persists, almost 90 percent of GDP growth will be devoted to health care by 2085.276. In today’s dollars, the long-term unfunded liabilities associated with health entitlements exceed $66 trillion—approximately four times as much as the unfunded liabilities related to Social Security.278. The projected 75-year increase in mandatory federal health spending exceeds current revenues from the three largest sources of federal tax revenue.280. U.S. competitors have already had to confront the challenge of an increasing number of dependents—both children and elderly—per working adult. For the United States, much of this challenge still lies in the future.282. Projected increases in government-related health spending could, within 50 years, eradicate the margin of advantage that the United States currently has over its major European competitors in terms of the burden of government.  GlossaryReferencesSourcesAbout the AuthorIndex

A new way to understand our health care system. This book offers x-ray slices of many parts of our complex system, a CT scan that penetrates the workings of all hospitals, doctors offices, health insurance companies, etc. Economists will love it, but everyone who wants to understand more about American health care should study it. Conover’s quantitative “just the facts” approach helps us cut through political rhetoric by understanding what makes our system tick.