The Unchecked Market Power of the American Health Care System

By: David Ennis (Pro Market)

In May 2003, the late Princeton health economist Ewe Reinhardt and colleagues published a frequently-cited paper titled “It’s the Prices, Stupid: Why the United States is So Different From Other Countries”. This paper evaluated the reasons that the United States had more than double the median per capita health care spending of other OECD countries, at $4,631 compared to $1,983 in 2000. 

The authors found that the United States had higher use of some high-tech diagnostic/treatment services but had proportionately fewer physicians and slightly fewer physician visits per capita, fewer hospital beds for every 1,000 people, and 30 percent lower use of hospital inpatient services. Given the lower use of health care services across most measures, the authors concluded that the higher expenditures in the US can only be explained by high prices. These high prices have led to incredibly expensive health care insurance, with the average premium for family coverage in employer-sponsored plans at $20,576 in 2019. This compares to median household income of $68,703 for that same year.

So, do the higher prices translate to higher quality? A 2018 study by the Commonwealth Fund compared the US to the wealthiest 11 OECD countries. Their findings: among the 11 countries, the US has the lowest life expectancy, the highest chronic disease burden, the highest number of hospitalizations from preventable causes, the highest rate of avoidable deaths—and the highest per capita expenditures…

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