Why Health Care Costs So Much
Friday, April 17th, 2009
At The American Prospect, Ezra Klein writes about why American health care costs so much. He cites a 2007 study by The McKinsey Group called “Accounting for the Cost of Health Care in the United States.” The report is available online.
Very simply, McKinsey constructed an “Estimated Spending According to Wealth (ESAW) index, which adjusts cross-national health spending for increases in per capita earnings and creates a clean baseline for comparisons,” writes Ezra Klein. McKinsey determined the U.S. overpays for health care by $477 billion per year, or $1,645 per capita. But why?
Quoting the report, McKinsey found that “input costs—including doctors’ and nurses’ salaries, drugs, devices, and other medical supplies, and the profits of private participants in the system—explain the largest portion of high additional spending, accounting for $281 billion of spending above US ESAW. Inefficiencies and complexity in the system’s operational processes and structure account for the second largest spend above ESAW of $147 billion. Finally, administration, regulation, and intermediation of the system cost another $98 billion in additional spending.” That adds up to more than $477 billion, but we save money on long-term care, Ezra says.
In other words, there are a great many factors that drive up the cost of health care. But what about the cost of medical malpractice insurance? According to many conservatives, that alone is the primary reason health care costs so much.
Well, the cost of malpractice insurance is a factor, but not a major one. On page 48, the report says, “While the US malpractice system is extraordinary, it is only a small contributor to the higher cost of health care in the United States.”
The words tort, litigation, and trial do not show up in the report at all, by the way.
Americans hear over and over again that “tort reform” is essential to health care reform. And while we might certainly look at ways to reduce physicians’ medical malpractice insurance, we know from real-world experience that the tort reform laws promoted by conservatives do not reduce overall health care costs. The real purpose of these bills is simply to protect responsible parties from liability — for example, companies whose workers develop mesothelioma from exposure to asbestos.
In the next few months, President Obama’s health care reform policies will be debated in Congress. Expect Republicans in Congress to demand draconian tort reform measures to be included in any bill before it will get their support.
