# Health Care: Where does the Money Go? **URL:** \ **Category:** Great Debates\ **Created:** [September 13, 2009, 9:05pm UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952 "2009-09-13T21:05:12Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Mr.Duality](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mr.duality/32/4098_2.png) [@Mr.Duality](https://boards.straightdope.com/u/Mr.Duality)\ **Post date:** [September 14, 2009, 3:11am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/21 "2009-09-14T03:11:04Z")
[Wikipedia](http://en.wikipedia.org/wiki/Health_care_in_the_United_States#Administrative_costs) says “An oft-cited study by Harvard Medical School and the Canadian Institute for Health Information determined that some 31% of U.S. health care dollars, or more than $1,000 per person per year, went to health care administrative costs, nearly double the administrative overhead in Canada, on a percentage basis.[124]” So _there._ ---
**Author:** ![RingsOfPylon](https://avatars.discourse-cdn.com/v4/letter/r/3da27b/32.png) [@RingsOfPylon](https://boards.straightdope.com/u/RingsOfPylon)\ **Post date:** [September 14, 2009, 10:33pm UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/22 "2009-09-14T22:33:19Z")
> [@Isamu](#): > > This link > > [http://money.cnn.com/magazines/fortune/fortune500/industries/Health\_Care\_Insurance\_Managed\_Care/1.html](http://money.cnn.com/magazines/fortune/fortune500/industries/Health_Care_Insurance_Managed_Care/1.html) > > shows the top 12 US private health insurance financials (2006). Take a look at the profits column. > > Pretty impressive huh? Those profits are money being spent on health insurance but which do not end up being used to pay for any health care. That’s a huge drain right there. Surely that money could be better spent, you know, actually paying for health care, right? The information is a couple of years old, but the average profit margin is just under 6%. Health insurance is not a high profit industry. It is good to have some profits, as the companies need to have money in reserve in case of things like flu epidemics, or a bad year the following year(s) where payouts exceed revenues. After all, they’re not like the government and can’t print up funny money to cover costs of a sudden surge in claims. ---
**Author:** ![hobscrk777](https://avatars.discourse-cdn.com/v4/letter/h/a6a055/32.png) [@hobscrk777](https://boards.straightdope.com/u/hobscrk777)\ **Post date:** [September 15, 2009, 12:50am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/23 "2009-09-15T00:50:52Z")
> [@Sage\_Rat](#): > > Trying to determine that is the goal of this thread. My point was that, based on the steepness of the US curve as compared to the curves of other countries with UHC, it would appear that UHC does indeed have a positive impact on reducing the long-term increase of health care costs. This was in response to your OP, in which you said: > [@Sage\_Rat](#): > > If UHC changed the course of health care spending, you would be able to see that in this graph. My interpretation of this is that you were asserting that UHC had no impact on health care spending. Clearly, though, (based on the graph you provided) it does. ---
**Author:** ![Isamu](https://avatars.discourse-cdn.com/v4/letter/i/7c8e57/32.png) [@Isamu](https://boards.straightdope.com/u/Isamu)\ **Post date:** [September 15, 2009, 1:40am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/24 "2009-09-15T01:40:18Z")
> [@RingsOfPylon](#): > > The information is a couple of years old, I specifically indicated the year for that data - 2006, so don’t act like I’m trying to pull a fast one. > [@RingsOfPylon](#): > > but the average profit margin is just under 6%. Health insurance is not a high profit industry. Forget percentages. Look at the raw numbers: 10,318,000,000 dollars in profit. And that’s just for the top 12 insurers. That’s money that people like you and your employer paid for health care insurance but instead went to pay for insurance company executive beach homes. > [@RingsOfPylon](#): > > It is good to have some profits, as the companies need to have money in reserve in case of things like flu epidemics, or a bad year the following year(s) where payouts exceed revenues. After all, they’re not like the government and can’t print up funny money to cover costs of a sudden surge in claims. 10,318,000,000 dollars. ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [September 15, 2009, 3:43am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/25 "2009-09-15T03:43:01Z")
> [@Mr.Duality](#): > > [Wikipedia](http://en.wikipedia.org/wiki/Health_care_in_the_United_States#Administrative_costs) says “An oft-cited study by Harvard Medical School and the Canadian Institute for Health Information determined that some 31% of U.S. health care dollars, or more than $1,000 per person per year, went to health care administrative costs, nearly double the administrative overhead in Canada, on a percentage basis.[124]” > > So _there._ Which study is in fact cited in the OP, if you bothered to read it. ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [September 15, 2009, 3:44am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/26 "2009-09-15T03:44:02Z")
> [@hobscrk777](#): > > My point was that, based on the steepness of the US curve as compared to the curves of other countries with UHC, it would appear that UHC does indeed have a positive impact on reducing the long-term increase of health care costs. This was in response to your OP, in which you said: > > My interpretation of this is that you were asserting that UHC had no impact on health care spending. Clearly, though, (based on the graph you provided) it does. Except for that, like I said, several nations have gone from non-UHC to UHC in that graph without any reduction nor visible change in the slope of spending. ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [September 15, 2009, 3:46am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/27 "2009-09-15T03:46:35Z")
> [@RingsOfPylon](#): > > The information is a couple of years old, but the average profit margin is just under 6%. Health insurance is not a high profit industry. > > It is good to have some profits, as the companies need to have money in reserve in case of things like flu epidemics, or a bad year the following year(s) where payouts exceed revenues. After all, they’re not like the government and can’t print up funny money to cover costs of a sudden surge in claims. 6% profits would only add another $400 or so per year, still leaving $1600 to $1900 left unexplained. ---
**Author:** ![Wesley\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wesley_clark/32/20581_2.png) [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)\ **Post date:** [September 15, 2009, 5:42am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/28 "2009-09-15T05:42:39Z")
> [@hobscrk777](#): > > My point was that, based on the steepness of the US curve as compared to the curves of other countries with UHC, it would appear that UHC does indeed have a positive impact on reducing the long-term increase of health care costs. This was in response to your OP, in which you said: > > My interpretation of this is that you were asserting that UHC had no impact on health care spending. Clearly, though, (based on the graph you provided) it does. The thing is, different nations implemented national UHC at different times, and all still kept medical costs at $2000-4000 per person, and about 8-11% of GDP while the US shot up radically to 16% of GDP and nearly $7000 per capita. For example, the NHS in Britian was started in the late 1940s. Australias nationwide system was introduced in the 70s. The netherlands didn’t have UHC until a few years ago. Israel’s UHC system didn’t start until the 1990s. But all have far lower health care costs than we do both in per capita and as a % of GDP. So it didn’t matter when every country other than the US implemented UHC (the 40s, 70s, 90s, etc), they still spend far less on health care than we do. ---
**Author:** ![lee](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lee/32/7455_2.png) [@lee](https://boards.straightdope.com/u/lee)\ **Post date:** [September 15, 2009, 3:01pm UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/29 "2009-09-15T15:01:04Z")
There are unbelievable wastes out there in hospitals often due to shortsighted cost cutting and political maneuvering. One example: When I worked at a hospital we had racks and racks of modems talking to terminals which were being replaced slowly by other systems or moved. The connections to the terminals were through phone lines which were billed, not internal networks. Instead of having enough people to actually manage the documentation along with the removal and keep track so the phone line could be canceled, they reduced tier 1 support to a skeleton crew. They also could have hired a couple of temps, explained how to track down what modems were in use and which were not, and covered their cost in the first week of reduced phone bills. They did not do it partially because to do so would admit they did not have enough people to keep up before cutting the support staff. Also, they had to pay overtime because they did not retain enough people to cover adequately. I worked over a years worth of hours in 8 months, and I had only been working overtime in the last 5 months. They could have had an extra person for all the money they wasted in overtime. Reducing support staff meant that it was no longer possible to actually clean the machines on schedule, which lead to fires which ruined the equipment. Twice I had to call someone asking if their terminal was still on fire when I came on shift. Once the Pentium I was using to write a report on caught fire due to dust in the case. Hospitals are very dusty places with all the linens being changed everyday and cleaning IT equipment periodically is necessary, more so than in most business environments. I could attribute the waste I saw often with particular individuals trying to gain political advantage. I hear that it is pretty typical. I don’t know that any health care reform will address this, but it is one place health care dollars go needlessly. ---
**Author:** ![Mr.Duality](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mr.duality/32/4098_2.png) [@Mr.Duality](https://boards.straightdope.com/u/Mr.Duality)\ **Post date:** [September 15, 2009, 5:54pm UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/30 "2009-09-15T17:54:30Z")
> [@Sage\_Rat](#): > > Which study is in fact cited in the OP, if you bothered to read it. So why did you ask for a cite from me? In the OP you made it seem as if you were only including administrative costs of insurance companies in your total. ---
**Author:** ![RingsOfPylon](https://avatars.discourse-cdn.com/v4/letter/r/3da27b/32.png) [@RingsOfPylon](https://boards.straightdope.com/u/RingsOfPylon)\ **Post date:** [September 16, 2009, 3:54am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/31 "2009-09-16T03:54:16Z")
> [@Isamu](#): > > I specifically indicated the year for that data - 2006, so don’t act like I’m trying to pull a fast one. Well, I wasn’t trying to be snarky; I was thinking that those figures were pre-recession. I think the average profit projection is more like 2.2%, according to an article I skimmed in Forbes while waiting for the dentist. > [@Isamu](#): > > Forget percentages. Look at the raw numbers: > > 10,318,000,000 dollars in profit. And that’s just for the top 12 insurers. That’s money that people like you and your employer paid for health care insurance but instead went to pay for insurance company executive beach homes. 10,318,000,000 dollars. If 20 million people get H1N1 and half of them, or 10 million, seek treatment that costs $1000 each – not an unreasonable figure – that’s $10 billion right there. Either way, the executive still gets a beach home because it’s illegal to not pay employees their agreed-upon salaries, but the company itself must have some cash reserves for worst case scenarios. Generally speaking, health insurance itself is not a high profit business. Perhaps one solution would be to make all the health insurance companies private, taking them off the stock market. Then they don’t have to spend time, money, and effort pleasing shareholders or trying to lure new buyers. ---
**Author:** ![Isamu](https://avatars.discourse-cdn.com/v4/letter/i/7c8e57/32.png) [@Isamu](https://boards.straightdope.com/u/Isamu)\ **Post date:** [September 16, 2009, 6:00am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/32 "2009-09-16T06:00:30Z")
> [@RingsOfPylon](#): > > Well, I wasn’t trying to be snarky; I was thinking that those figures were pre-recession. I think the average profit projection is more like 2.2%, according to an article I skimmed in Forbes while waiting for the dentist. > > If 20 million people get H1N1 and half of them, or 10 million, seek treatment that costs $1000 each – not an unreasonable figure – that’s $10 billion right there. Either way, the executive still gets a beach home because it’s illegal to not pay employees their agreed-upon salaries, but the company itself must have some cash reserves for worst case scenarios. > > Generally speaking, health insurance itself is not a high profit business. > > Perhaps one solution would be to make all the health insurance companies private, taking them off the stock market. Then they don’t have to spend time, money, and effort pleasing shareholders or trying to lure new buyers. I see what you’re saying, but whether or not health insurance is a high profit or a low profit industry is kind of dodging the issue: 100% of zero is still 0, and 1% of a trillion dollars is still 10,000,000,000. Whatever profits are being made via payments for health insurance, is money that I consider better spent on health care. But I could be wrong. ---
**Author:** ![RingsOfPylon](https://avatars.discourse-cdn.com/v4/letter/r/3da27b/32.png) [@RingsOfPylon](https://boards.straightdope.com/u/RingsOfPylon)\ **Post date:** [September 17, 2009, 12:25am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/33 "2009-09-17T00:25:04Z")
> [@Isamu](#): > > I see what you’re saying, but whether or not health insurance is a high profit or a low profit industry is kind of dodging the issue: 100% of zero is still 0, and 1% of a trillion dollars is still 10,000,000,000. > > Whatever profits are being made via payments for health insurance, is money that I consider better spent on health care. But I could be wrong. Well, I understand what you’re saying, but there are quite a few factors to consider. Right now the government does not pay claims itself (it delegates that work to private insurers), it does not have an infrastructure for doing so, and it doesn’t have to underwrite risk and comply with 50 different sets of requirements from 50 different states. Insurers in NYS have to report to 239 separate regulating agencies at both the federal and state level. That takes people, and those folks don’t work for free. Abolishing health insurance companies would also remove a lot of taxes, both corporate and payroll, from the system. Those companies have to pay corporate taxes. They also pay local property taxes where they physically reside. Their employees have to pay federal, state, local, and Medicare taxes. That’s a lot of money to take out of the system. Just trying to be practical here and consider various angles that you don’t often hear about. There certainly are reforms that need to be made. I agree with that. We just have to make sure those reforms don’t come back to bite us. 🙂 ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [September 17, 2009, 6:14am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/34 "2009-09-17T06:14:48Z")
> [@Mr.Duality](#): > > So why did you ask for a cite from me? Because I was ignoring the actual text of any posts that didn’t include a cite. This thread is about discovery of reality, not perceptions nor things “I have heard”. For that to happen, there has to be cited evidence. It was more worth my time to tell people to get citing than argue about a bunch of posts that had nothing of substance in them. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [September 17, 2009, 10:05pm UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/35 "2009-09-17T22:05:52Z")
[Insurance Company Must Pay $10 Million For Revoking Policy Of Teen With HIV | HuffPost Latest News](http://www.huffingtonpost.com/2009/09/17/insurance-company-must-pa_n_289841.html) Here’s where some of the money goes. it goes to law suits for rescinding care on made up pre -existing conditions. The insurance companies are driven by profits only, not trying to provide health care. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [September 17, 2009, 10:32pm UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/36 "2009-09-17T22:32:14Z")
> [@Mr.Duality](#): > > Have insurance company profits been mentioned yet? That’s got to be 10 or 20%. Cite? A friend of mine works for a major UK health insurer. He has told me that they actually run at a slight loss based on pure premiums. They make their money on interest and other investment income from premiums. ---
**Author:** ![Mr.Duality](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mr.duality/32/4098_2.png) [@Mr.Duality](https://boards.straightdope.com/u/Mr.Duality)\ **Post date:** [September 19, 2009, 2:05pm UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/37 "2009-09-19T14:05:20Z")
> [@Quartz](#): > > Cite? > > A friend of mine works for a major UK health insurer. He has told me that they actually run at a slight loss based on pure premiums. They make their money on interest and other investment income from premiums. That’s probably true in the UK. Upthread, US insurance company profits were pegged at 6%. Profits plus overhead is nearly 20%. ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [September 19, 2009, 3:48pm UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/38 "2009-09-19T15:48:46Z")
> [@gonzomax](#): > > [Insurance Company Must Pay $10 Million For Revoking Policy Of Teen With HIV | HuffPost Latest News](http://www.huffingtonpost.com/2009/09/17/insurance-company-must-pa_n_289841.html) Here’s where some of the money goes. it goes to law suits for rescinding care on made up pre -existing conditions. The insurance companies are driven by profits only, not trying to provide health care. I would imagine that this is lumped under “overhead” among insurance companies, which has already been quantified several times in this thread. Unless you’re contending that this explains the missing $2000 PPPY ($700,000,000,000 total), it’s not really relevant to our discussion. I severely doubt that, since it would mean that insurance companies would be paying double to four times the amount on law suits as they pay to employ their entire work force and not noticing that this wasn’t terribly profitable. ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [October 2, 2009, 9:50pm UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/39 "2009-10-02T21:50:21Z")
> [@Sage\_Rat](#): > > - 9 – > The US Tries to Keep Old People Alive Longer > > I can’t find where I saw this. Basically, supposedly the US tries to keep people who are dying on artificial support more often and for longer than other nations. Alright so I finally felt like doing some more research, and this item seemed like the one which could be proven or disproven most easily. Here are spending figures as broken down by age for the US, Japan, Canada, and New Zealand respectively: [http://healthcare.ncpa.org/images/figure10.jpg](http://healthcare.ncpa.org/images/figure10.jpg) [![](https://www.mhlw.go.jp/english/wp/wp-hw/vol1/images/f1-4-1.gif) ](https://www.mhlw.go.jp/english/wp/wp-hw/vol1/images/f1-4-1.gif) [http://secure.cihi.ca/cihiweb/products/nhex\_2008\_en.pdf](http://secure.cihi.ca/cihiweb/products/nhex_2008_en.pdf) (PDF) [http://www.treasury.govt.nz/publications/research-policy/ppp/2006/06-01/tpp06-01-037.gif](http://www.treasury.govt.nz/publications/research-policy/ppp/2006/06-01/tpp06-01-037.gif) America spends about $2000 PPPY for this age group. I’m sorry I couldn’t find a better graph or data set than this. (There’s [this one from 1995](http://www.healthierus.gov/STEPS/summit/prevportfolio/power/images/figure3.gif) and [this more official data](http://www.cms.hhs.gov/NationalHealthExpendData/04_NationalHealthAccountsAgePHC.asp#TopOfPage) which separates things into age groups so wide as to be meaningless.) The Japanese graph appears to break things down into 5 year groups and states the total spending for that five year period. The 25-29 age group takes Y500,000 or about $5000US. Per year, that’s $1000US PPPY for people aged 25-29 on average. Canada appears to spend about $3,800CA which is probably for the full 5 years so it’s about $760CA or about $700US. New Zealand appears to spend about $1000NZ or about $700US. Now, if life support was a significant factor of health spending, we would expect to see two things: 1. Health spending in the US for young people with no particular need of health care would cost no or little more than other nations. 2. The quotient of spending between those who would be on life support (i.e. the elderly) and the young would be greater in the US than other nations. Item #1 has already been shown to be false, so it looks like there isn’t too much point in looking at #2. Moreover, I can’t seem to figure out how to convert between one graph and another. But either way my estimation would be that this is a myth as well. I doubt that life support is playing any significant factor in our overall spending. ---
**Author:** ![GIGObuster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gigobuster/32/421_2.png) [@GIGObuster](https://boards.straightdope.com/u/GIGObuster)\ **Post date:** [October 3, 2009, 12:33am UTC](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952/40 "2009-10-03T00:33:48Z")
[http://content.healthaffairs.org/cgi/content/full/22/3/89](http://content.healthaffairs.org/cgi/content/full/22/3/89) So, where does the money go? > [@](#): > > It’s The Prices, Stupid: Why The United States Is So Different From Other Countries [http://content.healthaffairs.org/cgi/content/full/22/3/89](http://content.healthaffairs.org/cgi/content/full/22/3/89) > [@](#): > > Public versus private health spending. Private spending in the OECD data falls into the broad categories of (1) out-of-pocket spending for deductibles, coinsurance, and services not covered by health insurance; and (2) premiums paid by families and individuals for private health insurance. As shown in Exhibit 1Go, the share of total health spending that is privately financed varies considerably across the OECD countries. The median country finances 26 percent of its health care from private sources. The range is as high as 56 percent in the United States and Korea to as low as 7 percent in Luxembourg and 9 percent in the Czech Republic. As a percentage of GDP, the OECD countries spent 0.4–7.2 percent of GDP on privately financed health care in 2000, with an OECD median of 2.0 percent. The United States was the highest at 7.2 percent. U.S. private spending per capita on health care was $2,580, more than five times the OECD median of $451. > > In most OECD countries the privately financed share of total health spending increased during the 1990s (Exhibit 1Go). The private share tended to increase more rapidly in countries with lower shares of private health spending in 1990. The explanation for the increase varied from country to country. For example, the level of cost sharing increased in Sweden, while private insurance coverage increased in Switzerland.9 Countries with the largest share of private financing in 1990—the United States, Mexico, and Korea—had a decreasing private share of financing during the 1990s (Exhibit 1Go). > > Although the percentage of the health care dollar financed from public sources in the United States is low compared with other OECD countries, the absolute amount is relatively similar to other OECD countries. Public sources in the United States accounted for spending of 5.8 percent of GDP in 2000, very close to the OECD median of 5.9 percent. In fact, on this measure of public spending, the United States is virtually identical to the United Kingdom, Italy, and Japan (5.9 percent each) and not much smaller than neighboring Canada (6.5 percent). Finally, U.S. public sources spent $2,051 per person in 2000; this places the United States among the top four countries listed in Exhibit 1Go, just behind Luxembourg ($2,510), Iceland (2,202), and Germany ($2,063). On that measure, the United States ranks far above the OECD median of $1,502, Japan’s $1,542, and the United Kingdom’s $1,429. > > Furthermore, as Steffie Woolhandler and David Himmelstein pointed out recently in Health Affairs, the OECD data (and the U.S. national health accounts on which the OECD database draws) actually understate the role of the public sector in health care. These researchers measured the public sector’s share of total health spending not by who ultimately paid the providers of health care, but by the fraction of health spending that originated in households in the form of taxes. On that measure, close to 60 percent of total U.S. health spending in 1999—7.7 percent of GDP—was financed through taxes.10 > [@](#): > > In the U.S. health system, for example, money flows from households to the providers of health care through a vast network of relatively uncoordinated pipes and capillaries of various sizes. Although the huge federal Medicare program and the federal-state Medicaid programs do possess some monopsonistic purchasing power, and large private insurers may enjoy some degree of monopsony power as well in some localities, the highly fragmented buy side of the U.S. health system is relatively weak by international standards. It is one factor, among others, that could explain the relatively high prices paid for health care and for health professionals in the United States. > > In comparison, the government-controlled health systems of Canada, Europe, and Japan allocate considerably more market power to the buy side. In each of the Canadian provinces, for example, the health insurance plans operated by the provincial governments constitute pure monopsonies: They purchase (pay for) all of the health services that are covered by the provincial health plan and used by the province’s residents. > > Even a pure monopsonist, of course, is ultimately constrained by market forces on the supply side—that is, by the reservation (minimally acceptable) prices of the providers of health care below which they will not supply their goods or services. But within that limit, monopsonistic buyers enjoy enough market clout to drive down the prices paid for health care and health care inputs fairly close to those reservation prices. It can explain, for example, why Fuchs and Hahn found that "U.S. fees for procedures are more than three times as high as Canadian fees [and] the difference in fees for evaluation and management services is about 80 percent."34 > [@](#): > > In 2000 the United States spent considerably more on health care than any other country, whether measured per capita or as a percentage of GDP. At the same time, most measures of aggregate utilization such as physician visits per capita and hospital days per capita were below the OECD median. **Since spending is a product of both the goods and services used and their prices, this implies that much higher prices are paid in the United States than in other countries. But U.S. policymakers need to reflect on what Americans are getting for their greater health spending. They could conclude: It’s the prices, stupid.** [Previous page](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952.md?page=1) [Next page](https://boards.straightdope.com/t/health-care-where-does-the-money-go/509952.md?page=3)