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The US health economy is big, but is it better?

Health care makes up a sizable portion of U.S. GDP. gpoiintstudio/Shutterstock.com

The US health economy is big, but is it better?

The U.S. health care system is the most expensive in the world. So why does it underperform relative to many peer countries by most measures?

While the Affordable Care Act increased access and coverage, its reforms are years away from full implementation and are now in danger of repeal.

And changes to our health care system could have a powerful and meaningful impact on our economy. In 2015, health care made up US$2.9 trillion of the $18 trillion U.S. GDP and accounted for more than 12 million jobs.

My research, described in my book, “The Essentials of Health Economics,” as well as that of others, shows how the size of the health care economy continues to grow, without corresponding improvements in treatment outcomes. Looking at the evidence on health care costs, it is not surprising that the U.S. falls behind on access, quality and efficiency.

The size of our health economy

In 2014, the U.S. spent 17.1 percent of GDP on health care. Meanwhile, France spent 11.5 percent, Germany spent 11.3 percent and the United Kingdom spent just 9.1 percent.

What’s more, the health economy is quickly becoming the largest employment sector of the U.S. economy. This is largely due to the rapidly expanding health care economy, a result of the Affordable Care Act.

According to the Bureau of Labor Statistics, employment in this industry is expected to grow 21 percent between 2014 and 2024. The areas that have the most opportunities for growth in this sector are home health care services, outpatient care centers, health practitioner offices and ambulatory health care centers. Much of the growth is due to added emphasis on primary and preventive care services for an increasingly sick population with numerous chronic conditions presenting at earlier ages.

Money versus results

The large size of the U.S. health economy might make it seem like Americans are more likely to visit their doctor. However, studies of how consumers use medical services suggest that the opposite is true. Americans make fewer inpatient visits than people in other countries, but their visits are more expensive.

For example, in 2013, the U.S. had only 125 hospital discharges per 1,000 population, compared to 252 in Germany and 166 in France.

A similar profile is seen for physician visits. That year, the average American visited only four doctors. Meanwhile, Canadians saw 7.7 and the Japanese saw more than a dozen.

The comparatively high spending on health care in the U.S., coupled with lower rates of using health care services, can lead us to believe that medical prices in the United States must be significantly higher than in other countries due to more technologically advanced care or higher-quality care.

Although anecdotal evidence suggests that waiting times are lower in the U.S. than in other countries, true quality indicators are difficult to derive due to measurement errors. So it’s difficult to say definitively that U.S. consumers get better-quality care than people in other industrialized countries, but their care is definitely the most expensive.

Is growth good or bad?

The debate continues as to whether the growth of the health economy in the U.S. is beneficial or neutral to the economy as a whole, given that the health outcomes of the nation are not as good as in other countries.

According to the Commonwealth Fund, a private foundation that studies health care, the U.S. needs to improve in a variety of ways, including safety, costs, efficiency and equity.

As of 2014, approximately 13 percent of the U.S. population did not have health insurance coverage throughout the year. In contrast, universal coverage exists in the other industrialized countries. I believe that our country would have similar statistics as other countries if we had universal coverage and greater government involvement.

Though health care spending makes up a larger fraction of our overall GDP, the U.S. ranks last among industrialized countries in terms of mortality, infant mortality and healthy life expectancy at age 60.

The growth of the health economy relative to other sectors of the nation’s economy implies that a greater share of resources is devoted to health care relative to other goods. This can result in the public sector putting more scrutiny on health care spending. That may cause the private sector to cut other business expenses – perhaps by reducing wages and health benefits and requiring employees to provide a greater share of the costs of health care.

Therefore, health costs will be shifted more toward consumers of care with increased co-payments and insurance premiums as the share of business benefits decrease over time. If the ACA is successfully repealed and/or replaced, there will be a cut in government spending, which will also contribute to an increased share of health care expenses paid by consumers.

The ultimate impact may be that rapidly rising health care spending lowers GDP and overall employment, while raising inflation.

The question for the nation is whether we are willing to give up growth in the overall economy in order to continue on our current path of ever ballooning health spending, regardless of health outcomes.