Health Care Prices: From the Literature

One of Ezra Klein’s posts today makes the point that the U.S. health care cost issue is largely about prices, as opposed to volume. He writes, “There is a simple explanation for why American health care costs so much more than health care in any other country: because we pay so much more for each unit of care.” That’s not all he writes, so go read the whole post. But before you do, stick around here to learn about the academic literature that is right on this point (from my own blog archives).

The high U.S. spending on health care relative to other OECD nations must be due to relatively higher prices or greater health care consumption or both. The consensus in the academic literature is that price, not quantity, is to blame. In a thorough review of the literature, a 2007 Congressional Research Service report concludes

“[T]he United States has far fewer doctor visits per person compared with the OECD average; for hospitalizations, the United States ranks well below the OECD and is roughly comparable in terms of length of hospital stays…U.S. prices for medical care commodities and services are significantly higher than in other countries…”

Uwe Reinhardt and colleagues simply conclude “it’s the prices, stupid.” In another paper the same authors attribute higher prices to higher provider wages, lower consumer purchasing power (single payer systems in other nations can negotiate lower prices), greater supply constraints, higher administrative costs, and consumer demand for care at any cost.

What do you call a transaction in which you pay more than others for the same product? I call it a rip-off.

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