Everything You Think You Know About Health Care Spending Is Wrong

This is the chart that I think ought to dominate the conversation about public-sector health care spending in the United States, and yet it is curiously ignored. The data show government health care spending per capita in the United States and Canada. The United States spends more. And that’s not more per person who gets government health insurance, it’s more per resident. And yet Canada covers all its citizens, and we don’t. That should be considered shocking stuff, and yet I rarely hear it mentioned.

Even odder is that the most recent time I heard it mentioned was Valerie Ramey talking at the American Economics Association conference in San Diego and her conclusion was that this showed U.S. health care needs free-market reforms. The more straightforward interpretation, I would think, is that the U.S. needs to make its system more like Canada’s. It’s important to note that the example here is Canada. Not some radically different society. Not some far-off distant land. And the gap is actually growing.

And while obviously the details of Canadian health care policy are complicated, there’s nothing particularly mysterious in the secret sauce. Here in the United States, Medicare pays lower prices to health care providers than private insurance does. One result of that is that some health care providers won’t accept Medicare clients. But most do, because the client base is too big to turn down. But Medicare’s ability to avail itself of bulk purchasing power and low prices is limited by the fear that if you squeeze providers too hard, more of them will drop out of the system. Canada’s public-sector health care system—conveniently called “Medicare”—is available to people of all ages, and thus has even more bulk purchasing power than its American analogue. That allows it to obtain services at a much lower price, which reduces spending.

Now, there are, no doubt, downsides to this approach. High levels of health care spending incentivize investment in health care technology. Less spending may equal less innovation and less progress. But that’s a free-floating objection to anything that would reduce health care spending volumes. If we’re going to have a national obsession around reducing government health care spending obligations, then it’s insane to completely ignore the culturally similar neighboring country that spends less while covering more people.