USA - Countries With The Highest Healthcare Spending

According to the Economist magazine, by a fairly wide margin, the United States is the biggest spender on healthcare in the world.

This is both in terms of the percentage of healthcare spending of total gross domestic product (GDP), as well as per capita, or per person. Looking at GDP, healthcare accounts for 16% of the total pie. And in terms of per capita spending, the U.S. again leads at just over $7,500 per individual.

Big Spenders

Returning to GDP, the next biggest spenders are in Europe. Both France and Belgium spend around 11% of GDP on healthcare expenditures. This is followed by Switzerland, Canada, Germany and Austria at somewhere between 10 and 11%. The vast majority of other developed countries are in the high single digits, and the average of this group is 10.1%. Laggards, which are a good thing when it comes to total spending, include the U.K., Spain and Japan, all of which are around 7%.

In terms of growth, back in 2000 the average was 9%, meaning that healthcare spending across the globe continues to outpace overall economic growth. Again, the U.S. has experienced among the highest healthcare inflation. Back in 2000, it spent 13.4% of GDP on healthcare spending, which again was the highest in the world. However, other countries with aging populations, including Japan and Italy, have also seen above-average rises in spending.

Trends

The growth trend in health care spending doesn't look to be slowing down. In the U.S., a recent study by the Congressional Budget Office estimated that spending could double in the next decade. By 2022, it expects the U.S. to spend $1.8 trillion on healthcare. Roughly half of this will go to spending on the elderly while another significant percentage is projected to help lower income individuals pay for insurance, which is part of latest round of health care regulations.

Looking at the nearer-term growth trends, the U.S. is surprisingly a laggard. Returning to same Economist data, in 2012 the total U.S. and North American healthcare spending will rise a more modest 4.7%. Asia is expected to lead the way with a growth of 11.7% and will be followed closely by Eastern Europe and Russia at 11.6%. The Middle East and Africa will grow by 10.7% and Latin America a more modest 8.3%. Western Europe will actually see a 1.6% decline in spending, due in good part to sovereign debt issues that are slowing economic growth.

Challenges

Digging a bit deeper, spending on the elderly is rising across the world as the population ages. Obesity challenges, especially in the U.S. are accounting for a rising proportion of total healthcare spending. Smoking-related illnesses, including lung cancer and heart disease, are significant but no longer increasing rapidly as anti-smoking campaigns, especially in developed countries such as the U.S., lower the overall number of smokers.

Focusing on preventative medicine, such as increasing health and overall well-being activities, could save trillions in healthcare spending across the globe. One study in the U.S. estimated that better control of hypertension in the elderly or diabetes and heart disease care for the overweight and obese could end up saving hundreds of billions going forward.

Another interesting question is why the excessive spending in the U.S. doesn't lead to world-leading healthcare statistics. The U.S. is the world's leading healthcare spender, but is actually towards the bottom of the list in terms of average life expectancy. Japan leads the way, with an average life expectancy of more than 81 years, to provide one of the best values given its low healthcare spending as a percentage of GDP. The U.S. is right next to Cuba at right around 77 years, with only a few countries at the bottom closer to 76 years of age.

The Bottom Line

A key takeaway, especially by looking at the high spending in the U.S., is that the most spending does not mean the best healthcare. Improved efficiencies are key to improving the cost/benefit tradeoff when it comes to healthcare spending. A McKinsey article from 2010 looked at an initiative in Ireland to reform its healthcare industry, and found that improving efficiency can have the most beneficial impact. It found that coordinating efforts among different providers for the same patient can reduce spending. It also modernized many hospitals and switched some services to larger hospitals with better economies of scale.

In the U.S., a primary criticism is that doctors and other medical professionals are incentivized to increase the number of procedures and tests because more activity means more revenue. A shift to preventative medicine and a focus on quality of care could help reduce spending growth and also make the system more efficient.

Ryan C. Fuhrmann

Investopedia

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