Excess Spending in US Health Care

Why does health care in the United States cost so much? Kevin Drum does us the service of posting this helpful chart from the McKinsey Global Institute. What they do is start with a baseline “expected” level of spending based on our GDP. GDP predicts that we ought to spend a lot on health care, but we spend even more than that, with the excess represented by dark blue and the handful of areas on which we spend less than expected represented by orange:


As you can see, the most wasteful segment of our health care sector is the “health insurance and administration” element. Of the $145 billion we spend on this, fully $91 billion—62 percent of the total—is above expectations. That’s the inefficiency of insisting on a very large role for private health insurance in the system. Still, though waste is a huge element of our insurance spending, insurance-related waste is a relatively small portion of the overall waste—about 14 percent. The biggest chunk of excess spending we’re involved with is spending on “outpatient care.” We pay doctors more than other people do, our doctors order more tests than other doctors do, our tests are more expensive than other people’s tests, and we have many more relatively expensive specialists and relatively few relatively cheap GPs. And we have nothing to show for it.

The prospects for changing this, however, don’t look great to me. People don’t like insurance companies. Taking them on is popular. And nevertheless we see how difficult it is to really hurt their interests. Now imagine taking on the doctor lobby. More money is at stake. And doctors have a much better public image. And doctors and there families are a much bigger voting block than insurance executives and their families. And on top of that, people have a very strong mistaken intuition that getting lots of tests and seeing lots of specialists is in their interests.