The health care spending paradox

Michael Sloan

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Amid all the debate concerning the morality, legality, and feasibility of health-care reform, the United States faces a central paradox in its health-care system: we spend more than any other industrialized country on health, yet we rank among the lowest in many dimensions of health. Our health-care spending is more than 17 percent of our gross domestic product, nearly double the spending in many other industrialized countries. But we rank far below most of these same nations in measures of life expectancy, infant mortality, and maternal mortality, among other key statistics. The huge costs and poor outcomes are difficult for Americans to fathom, and we have been eager for decades to reform our extraordinarily expensive system.

Like previous reform efforts, President Obama’s recently passed health-care law pertained to financing, provider payment, and quality measurement. The goal was to provide access to high-quality medical care for most of the 51 million previously uninsured Americans, while keeping a lid on overall health-care spending. Meanwhile both the president and the Republican leadership in Congress are slashing funding for social-service programs as they seek to reduce the federal deficit.

But the question is: is the country targeting the right policy area with these reforms? What really underlies the “spend more, get less” paradox?

We recently published new empirical findings suggesting that US policymakers may have been looking at the issue too narrowly to make effective improvements in the nation’s overall health. We examined ten years’ worth of data (1995–2005) on the 30 countries of the Organisation for Economic Co-operation and Development (OECD)—generally, high- or middle-income nations, including the UK, France, Switzerland, Sweden, Germany, Australia, Japan, and Mexico—in order to understand patterns of health-care spending in relation to other kinds of social-service spending.

An important pattern emerged: the United States spends, as a percentage of GDP, about half of what some of the other industrialized counties spend on social services (such as housing, employment training, unemployment benefits, old-age assistance, and family support services). The ratio of social-service spending to health-care spending in the United States is less than 1:1, while the average among other OECD countries is 2:1. Across the board, OECD countries, including the United States, spend about a third of their GDP on combined health and social services. But the United States has inverted the standard allocation pattern.

Should the way a given country divides its health and social spending matter?

We think so. Because there was adequate variability over different years and across different countries, we were able to examine the statistical link between this ratio (health-care spending to social-service spending) and common measures of health in the population. We found that in countries where health-care spending was high and social-service spending low, the outcomes were significantly worse for infant mortality, life expectancy, and potential years of life lost. These findings did not change when we excluded the outlier—the United States—from the analysis. In fact, in every OECD country that increased its spending on health, that increase was associated with significantly worse health outcomes.

We are often asked to interpret the results through the lens of the current debate in the United States. Our research does not suggest obvious solutions to health-care reform, but it does suggest that the spending outside of health care—in this case, on social services—may have more important ramifications for a population’s health than the spending inside the health-care system. Given these findings, legislators who are eager to save money on government health-care costs may want to think twice before cutting funding for social-service programs. Those cuts may themselves have substantial health consequences in the future.

The results reflect a core principle in public health: the importance of social determinants of health. This is the thinking that a population’s health is largely a result of social and behavioral factors and much less related to medical care or health services. For instance, safe housing, reasonable employment, and proper food supports may be more important for the population’s overall health than specific medical care. Americans often have trouble incorporating this thinking into policies and programs, because it can be so difficult to measure the effects of social determinants. And we do, as a country, excel in some areas related to health. Patients in the United States reap the benefits of our willingness to spend in select areas such as cancer and cardiovascular care, which lend themselves to well-reimbursed medical interventions that are very effective for many patients. Still, on a population-wide basis, these triumphs do not compensate for other threats to health, which lead to our low ranking on key indicators such as life expectancy and infant mortality.

The implication of our findings is that, if improved population health is our goal, then the United States should be looking beyond the health-care system to achieve that goal. Current reforms—targeting medical care and health services only—are unlikely to deliver that result.