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2011.09.20.reinhardt - Costs Competition U.S Health Care...

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U.S. Health Care Spending In An International Context Why is U.S. spending so high, and can we afford it? by Uwe E. Reinhardt, Peter S. Hussey, and Gerard F. Anderson ABSTRACT: Using the most recent data on health spending published by the Organization for Economic Cooperation and Development (OECD), we explore reasons why U.S. health spending towers over that of other countries with much older populations. Prominent among the reasons are higher U.S. per capita gross domestic product (GDP) as well as a highly complex and fragmented payment system that weakens the demand side of the health sector and entails high administrative costs. We examine the economic burden that health spending places on the U.S. economy. We comment on attempts by U.S. policy- makers to increase the prices foreign health systems pay for U.S. prescription drugs. F or a brief moment in the early 1990s it seemed that the combina- tion of “managed care” embedded in “managed competition” would allow the United States to keep its annual growth of health care spending roughly in step with the annual growth of gross domestic product (GDP). It was a short- lived illusion. By the turn of the millennium the annual growth in U.S. health spending once again began to exceed the annual growth in the rest of the GDP by ever-larger margins. In the United States the impact on health spending of managed care and man- aged competition had been controversial from the start. Skeptics argued that these tools might yield a one-time savings, spread over a few years, but that by themselves they would be unlikely to slow the long-term growth in health spend- ing thereafter. 1 It now appears that these analysts were right. In retrospect, and taking a longer-run view, the cost control of the early and mid-1990s merely repre- sents an abnormal period in the history of U.S. health care. Data for 2001, released by the Organization for Economic Cooperation and De- velopment (OECD), show that over the period 1990–2001 the United States suc- ceeded only in matching the median growth in inflation-adjusted health spending per capita in the other twenty-nine countries included in the OECD database (Ex- hibit 1). 2 Viewed in that context, the United States can hardly claim to have found 1 0 M a y / J u n e 2 0 0 4 C o s t s & C o m p e t i t i o n DOI 10.1377/hlthaff.23.3.10 ©2004 Project HOPE–The People-to-People Health Foundation, Inc. Uwe Reinhardt ([email protected]) is the James Madison Professor of Political Economy at the Woodrow Wilson School of Public and International Affairs, Princeton University, in Princeton, New Jersey. Peter Hussey is a doctoral candidate in the Department of Health Policy and Management, Johns Hopkins Bloomberg School of Public Health, in Baltimore, Maryland. Gerard Anderson is a professor in that department.
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