We Spend Twice as Much on Health Care as Other Rich Countries -- and What Do We Get for It?

Suppose that people in the United States paid twice as much for our cars as people in Canada, Germany, and every other wealthy country. Economists would no doubt be pointing out the enormous amount of waste in the US auto industry. They would insist that we both take advantage of the lower cost cars available elsewhere and take steps to make our own industry more efficient.

For some reason, economists do not have the same attitude towards health care. Most seem little bothered by the fact that we spend more than twice as much per person as people in other countries, with no obvious benefit in terms of health care outcomes. This lack of concern is especially striking since health care is a far larger share of the US economy than autos, comprising 17 percent of total output, as compared to about 3 percent for autos.

The excess health care spending comes to more than $1.2 trillion a year or the equivalent of more than $16,000 for a family of four. Paying too much for health care has the same economic impact as a health care tax. In effect, we have a health care waste tax that is about 10 percent larger than the projected federal revenue from the personal and corporate income tax combined. In short, this is real money.

However, the enormous waste in the US health care sector does not arouse anywhere near as much concern as items like the "buy America" provision in the stimulus package. This provision, which applies to a small fraction of the recently passed stimulus package, was the topic of a front-page article in The Washington Post. The article warned that this protectionist provision could lead to the unraveling of the world trade system.

While features of health care can make trade in health care services more difficult than trade in autos, it is possible for the barriers to be bridged. If the self-proclaimed "free traders," who dominate the economics profession and policy debates, actually were free traders, they would be pushing hard to allow people in the United States to benefit from international trade in medical services in the same way that US consumers have benefited from low cost imports of cars and clothes.

There are several obvious paths through which the United States could gain by freer trade in health care. First, we could construct trade deals that simplify the process through which foreigners can train to meet US standards for becoming doctors, dentists, and other highly paid medical specialists.

The point would be to set up procedures through which students in countries like Mexico, China, and India could train to meet our standards, and then would have the same ability to practice in the United States as US trained doctors. This could be easily implemented and offer large gains to both countries, especially if the US paid a fee to compensate for the medical training offered to foreigners, so that two to three doctors could be trained for every one that practiced in the United States.

An even simpler route for gaining from trade would be to allow Medicare beneficiaries in the United States to buy into the much cheaper health care systems in other countries. The government could split the savings with the beneficiaries, allowing them to pocket thousands of dollars a year, while saving the government the same amount. The receiving country could even get a premium over its costs in order to give it an incentive to take part in the program.

Finally, the government could try to standardize rules around the rapidly growing industry of medical tourism. Every year, tens of thousands of patients travel to Thailand, India, and other countries to have major medical procedures performed at prices that are often less than one-tenth as much as those in the United States. The savings can easily offset the cost of travel for the patient and several family members. If facilities were regulated and clear rules established for legal liability, then more patients would be able to take advantage of the potential cost saving.