karl-henrik pettersson


Filosofiska tankar om företagande och ekonomi

Vilket samhälle vill vi ha? Hur mycket marknad? Hur mycket politik? Varför dessa ekonomiska orättvisor?

Notes on a society in crisis (4): U.S. Health Care

On April 1st, my book,” Dagbok från USA”, came out in Sweden. It will also soon be published in English (as an e-book for Kindle and for other readers) with the title: “Diary from the United States – Notes on a society in crisis“. As an appetizer for English speaking readers, I will the coming weeks publish some excerpts from the book.

United States spends the most, gets the least

In the September 2009 issue of the journal Health Affairs, there’s an interesting article by Henry J. Aaron and Paul B. Ginsburg, “Is Health Spending Excessive? If So, What Can We Do About It?” The article systematically tries to find reasons why the United States has such high relative costs of health care, and still cannot get more health benefits from the system. It’s in fact quite the opposite. The United States spends most of all OECD countries on health care but is verging on the weakest in terms of health indicators. It’s an upside-down situation.

A chart in the article (Exhibit 3) shows the relationship between life expectancy and costs of health care in various OECD countries.

The United States isn’t identified as a nation in the chart but as a collection of states. In other words, there are two clusters: one cluster with various OECD countries (marked with gray squares in the figure), another cluster with America’s 50 states (black squares).

That the U.S. is in a class by itself in terms of life expectancy and investment in health care can be seen from the chart. It’s just that the United States, the cluster of black squares, is literally in the wrong place in the diagram. If the United States is investing more than others in its health care system, here on a per capita basis, it should arguably be reflected in higher life expectancy, especially since the country has had a high relative cost of their health care for such a long time. But this isn’t the case. The U.S. has on average about three years shorter life expectancy, 77 years, than the average for the other OECD countries, 80 years.

The second observation one can make is that the spread within the United States, among the different states, is very large. That goes both for health care costs and life expectancy. The state that has invested the most, and thus appears at the far right of the figure, is Massachusetts, which in 2004 invested $6,683 per citizen in their health systems. At the other end of the figure is Utah with $3,978 invested per citizen, closely followed by Arizona with $4,103. Looking at the graph as a whole, one might think that health care costs per capita increase the farther east you go in the U.S. Life expectancy is the highest at 79.8 years in Hawaii and the shortest at 73.7 years in Mississippi. The third observation is that life expectancy apparently will be slightly higher, the higher the investment in health care, but only if the OECD countries are looked upon as one group, and U.S. states as one group. This suggests a severe failure of the U.S. health care model.

The September 2009 issue of Health Affairs is also interesting for those looking for an explanation of the U.S. health care paradox – that the country is investing the most, but getting the least. One of the most insightful articles was written by Bruce C. Vladeck and Thomas Rice, “Market Failure and the Failure of Discourse: Facing Up to the Power of Sellers.” The basic theme is that the high relative cost of the U.S. health care more than anything else can be associated with a too weak ordering function. The many and fragmented private insurance companies in the U.S. aren’t strong enough to withstand the cost increases on the provider side. The result is a huge transfer of resources to hospitals, doctors, clinics, and other providers. The outward sign is constantly rising costs. Or in the words of the article:

The current U.S. health care system can be described, in at least one respect, as a massive engine for the redistribution of resources from employers, taxpayers and households to the organizations that provide health care goods and services, and the people (including us) who work for such organizations.

For my part, I would argue that it’s only a partial explanation for the high cost of the American health care system that Vladeck and Rice report. Another explanation – and at least as important – is that the administrative costs of health care rise dramatically with the number of insurance companies that are involved. This is a question to which I shall return.


Aaron, H. J. & Ginsburg, P. B., 2009, “Is Health Spending Excessive? If So, What Can We Do About It?“, Health Affairs, September / October 2009, Vol. 28, no. 5;

Vladeck, B. C. & Rice, T., 2009, “Market Failure And The Failure Of Discourse: Facing Up To The Power Of Sellersburg”, Health Affairs, September / October 2009, Vol. 28, no. 5;

First published (in Swedish): December 7, 2009


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