Volume 10, Number 4, April 2012

Key Points:

• Americans control a smaller share of our health spending than do residents of most other developed countries.
• In the late 1980s, the United States allowed patients to control more health spending than any other country, except Switzerland.
• In the twenty years to 2008, the share of U.S. health spending controlled directly by patients dropped by almost half.
• Reforms enacted during those two decades, such as Health Savings Accounts, did not result in reducing dependency on government and health insurers.
• After Obamacare is defeated, reversing his long-term trend must be the top priority of the real health reform that replaces it.

What is unique about American health care? It’s supporters usually cite the excellent outcomes experienced by very sick patients who have access to the best medical technology.¹ Its critics usually note that it wastes a lot of resources, suffers under very high prices, and consumes a significantly larger share of the national economy than health care in other countries does.²

Advocates of these two positions seldom seem to convince each other. There is another measurement of American uniqueness about which there can be no disagreement: Americans control a smaller share of our health spending than do residents of most other developed countries. More importantly, the share of health spending controlled by Americans, rather than government or insurers, has declined much faster than it has in any other developed country (for which we have measurements) in the last couple of decades.

Chart 1 shows the share of health spending controlled directly by patients (also known as “out-of-pocket” spending) in ten developed countries, including the United States, from 1988 through 2008. (Not all countries are represented for the entire period.) Switzerland, a country widely praised for its health care, allows patients to control significantly more of their health dollars than any other country does.³ Out-of-pocket spending in Switzerland has fluctuated around one third of total health spending since 1998 (although it may be in decline, which is a signal that government may be increasingly hostile to individual control of medical spending.)

Chart 1
Out-of-Pocket Spending/Total Health Spending, Ten Developed Countries
(1988–2008)

In all other countries, out-of-pocket spending has clustered around 15 percent of total health spending. However, countries are showing different trends. In the late 1980s, the United States allowed patients to control more health spending than any other country, except Switzerland. By 2003, it had dropped to the bottom of the pack.

Chart 2 shows the change in the share of out-of-pocket spending for all countries for which data is available for the entire two decades. It shows unequivocally that the United States has been moving in the wrong direction: Removing health dollars from patients’ control and giving it to government and insurers to spend. The share of U.S. health spending controlled directly by patients has dropped by almost half in twenty years. No other country comes remotely close to this failure of consumer direction.
 

Chart 2
Change in Out-of-Pocket Spending/Total Health Spending, Nine Developed Countries
(1988–2008)

Indeed, only three of the nine countries have experienced a drop in patient control. The next worst is Switzerland, for which the drop was only twenty percent. As noted above, Switzerland has an extraordinarily high share of direct payment, so a loss of consumer sovereignty, while worrying, is less of a concern than in countries like the United States where the share of health spending controlled by patients was already low in the 1980s. Ireland showed a marginal drop in patient control over the period, with out-of-pocket spending as a share of total health spending dropping by about eight percent.

In every other country, the share increased or remained stable over the period. Tiny Luxembourg experienced a large jump in patient control around the turn of the century, but this was from a very low base. (Out-of-pocket health spending jumped to 11.8 percent of total health spending in 2000 from just 7.4 percent the year before.)

In other countries, the increase in patients’ share of health spending clustered around 15 percent over the period. Even in Canada, where government continues to assert monopoly control over residents’ access to health care, the share of health spending controlled by patients directly remained unchanged. As a result, Canadians now enjoy more direct control over their health dollars than Americans do! (If Canadian politicians would allow more competition in their system, Canadians would get more benefit from those dollars.)

The lesson is clear: The United States continues to experience a long-term trend of loss of patients’ control of health spending. Attempts to reverse this with tools such as Health Reimbursement Arrangements, Flexible Spending Arrangements, Medical Savings Accounts, and Health Savings Accounts have not resulted in systemic change.

As a result, Americans control less of our own health spending than do residents of other developed countries. After Obamacare is defeated, reversing his long-term trend must be the top priority of the real health reform that replaces it.

Endnotes

1     See, e.g., Scott W. Atlas, In Excellent Health: Setting the Record Straight on America’s Health Care (Stanford, CA: Hoover Institution Press, 2012).
2      See, e.g., Karen Davis, et al., Mirror, Mirror, On the Wall: How the Performance of the U.S. Health Care System Compares Internationally, 2010 Update (New York, NY: The Commonwealth Fund, 2010).
3     See, e.g., Avik Roy, “Why Switzerland Has The World’s Best Health Care System,” Forbes.com (April 29, 2011). Available at http://tinyurl.com/6y3555m.

John R. Graham
Director of Health Studies, Pacific Research Institute
San Francisco, CA
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