Ezra Klein

Why Healthcare in America Is So Expensive

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In his latest post for The Washington Post, Ezra Klein compares the cost of healthcare procedures in the United States to that in France, Britain, Canada, and India. The obvious answer why healthcare is so expensive in America is that the prices are higher.

On Friday, the International Federation of Health Plans — a global insurance trade association that includes more than 100 insurers in 25 countries — released more direct evidence. It surveyed its members on the prices paid for 23 medical services and products in different countries, asking after everything from a routine doctor’s visit to a dose of Lipitor to coronary bypass surgery. And in 22 of 23 cases, Americans are paying higher prices than residents of other developed countries. Usually, we’re paying quite a bit more. The exception is cataract surgery, which appears to be costlier in Switzerland, though cheaper everywhere else.

Prices don’t explain all of the difference between America and other countries. But they do explain a big chunk of it. The question, of course, is why Americans pay such high prices — and why we haven’t done anything about it.

“Other countries negotiate very aggressively with the providers and set rates that are much lower than we do,” Anderson says. They do this in one of two ways. In countries such as Canada and Britain, prices are set by the government. In others, such as Germany and Japan, they’re set by providers and insurers sitting in a room and coming to an agreement, with the government stepping in to set prices if they fail.

In America, Medicare and Medicaid negotiate prices on behalf of their tens of millions of members and, not coincidentally, purchase care at a substantial markdown from the commercial average. But outside that, it’s a free-for-all. Providers largely charge what they can get away with, often offering different prices to different insurers, and an even higher price to the uninsured.

Some specific examples:

In 2009, Americans spent $7,960 per person on health care. Our neighbors in Canada spent $4,808. The Germans spent $4,218. The French, $3,978. If we had the per-person costs of any of those countries, America’s deficits would vanish. Workers would have much more money in their pockets. Our economy would grow more quickly, as our exports would be more competitive.

There is a quote from Tom Sackville, who served in Margaret Thatcher’s administration. He explains that in America, healthcare is much more of a routine business (“very much something people make money out of” than anywhere else, where there may be embarrassment at making so much money from patients.

Something Klein neglects to mention but is picked up in the comments by a user named “blert” is how Americans subsidize the cost of medicine for everyone else by investing so much money in research and development:

[S]ome of the development of MRI technology happened in Britain. Most was performed in the U.S. Who is paying for the cost of development of this and other new technology and drugs? It’s often not the people in places like Canada and France, where government controls hold down prices. Most of the cost of research and development is paid for by Americans. We pay perhaps five times more in the U.S. for some procedures than people in France pay, but the technology might not exist in the first place if we didn’t pay this disproportionate share. Once the technology exists, companies keep charging as much as they can in the U.S. to recoup costs and to fund development of the next big thing in medicine, and meanwhile other countries in the world adopt the technology, gaining benefits from it without actually paying the costs. This is Canada, France, and much of Europe. Plenty of medical research goes on in these countries, but American consumers ultimately bear most of the cost. It’s an unfair system in many respects, but it’s what has kept medical research moving ahead for the last several decades.

Healthcare is such a complex topic that I realize that nothing I (or Klein) can write in the blog post can begin to fully explain the difference in healthcare costs in America vs. that of Europe. But hopefully the quotes I provided are food for thought.

On Harvard and Wall Street

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Why do so many Harvard students end up going into finance upon graduation? It’s a topic I’ve blogged about before, but Ezra Klein chimes in to the discussion and explains that the liberal education at Harvard is failing the students, and this provides a golden opportunity for Wall Street:

What Wall Street figured out is that colleges are producing a large number of very smart, completely confused graduates. Kids who have ample mental horsepower, incredible work ethics and no idea what to do next. So the finance industry takes advantage of that confusion, attracting students who never intended to work in finance but don’t have any better ideas about where to go.

It begins by mimicking the application process Harvard students have already grown comfortable with. “It’s doing a process that you’ve done a billion times before,” explains Dylan Matthews, a Harvard senior.

“Everyone who goes to Harvard went hard on the college application process. Applying to Wall Street is much closer to that than applying anywhere else is. There are a handful of firms you really care about, they all have formal application processes that they walk you through, there’s a season when it all happens, all of them come to you and interview you where you live. Harvard students are really good at formal processes like that, and they’re less good at going on Monster or Craigslist and sorting through thousands of job listings from thousands of companies whose reputations they don’t know. Wall Street and consulting (and Teach for America, too) turn applying to jobs into applying to college, more or less.”

Yet that’s only half of it. A bigger draw, explained a recent Harvard graduate who majored in social science and worked at Goldman Sachs for two years, is how Wall Street sells itself to potential applicants: As a low-risk, high-return opportunity that they can try for a few years and, whether they like it or hate it, use to acquire real skills to build careers.

In other words, Wall Street is promising to give graduates the skills their university education didn’t. It’s providing a practical graduate school that pays students handsomely to attend. Sometimes, the enrollees end up liking their job in finance, or liking the lifestyle that it affords them, so they stick around. Sometimes, they don’t. Either way, Wall Street is filling a need that our educational system should be filling.

So it seems universities have been looking at the problem backward. The issue isn’t that so many of their well-educated students want to go to Wall Street rather than make another sort of contribution. It’s that so many of their students end up feeling so poorly prepared that they go to Wall Street because they’re not sure what other contribution they can make.

Your thoughts?