Healthcare Costs Increasing Everywhere (Updated)

In a post praising the French healthcare system Kevin Drum helpfully includes the graphic at left. You can click on it for a larger image.

Now what the graphic demonstrates rather effectively is that healthcare costs are increasing everywhere, at least for OECD countries. Interestingly, however, costs aren’t increasing at the same rate everywhere and I think it’s reasonable to wonder why.

One reason that’s frequently given for the increasing costs is the increased use of expensive technology. For example, inventor Dean Kamen makes that argument here. Now, I happen to think that technology as the sole explanation for healthcare cost increases is completely bogus for a whole host of reasons. Among those reasons is that the cost of the technology is dwarfed by salaries but another is that over time healthcare costs, generally, have not risen proportionally to increased use of technology. Although the rate of increase has been high for the last forty years, it’s been higher at some times than at others and I know of no evidence whatever that technology has been more expensive during the times of greatest increase than it was at other times.

Additionally, if you believe that the cost of technology is the singular reason for healthcare cost increases you must necessarily believe that the United Kingdom is adopting expensive technologies at a faster rate than the United States and has been for some time because their costs have been rising faster than ours for some time, as the graphic clearly shows.

There is no possibility whatever that adverse selection by the insurance companies is a major driver of healthcare costs. It might be a marginal driver but you can’t look at the graphic and draw the conclusion that it’s the only driver or even the main driver.

One explanation popular among Right Blogosphere bloggers is excessive utilization. I’m not sure how you’d go about disaggregating necessary utilization from excessive utilization (not to mention that it flies in the face of my understanding of the structure of the healthcare market). I’d be might interested in how proponents of that theory explain the differences among OECD countries. It would explain why the UK’s rate of increase is higher than ours but I don’t see how it explains why Japan’s is lower.

Let’s consider some other possible explanations. One possibility is immigration. Here are the rates of immigration for the countries in the graphic:

Country Migrants/1000 population
United States 2.92
United Kingdom 2.17
France 1.48
Japan 0.0

That’s a tempting explanation and I do think that it goes a long way to explaining Japan’s much lower rate of increase and even France’s somewhat lower rate of increase since Japan has, essentially, no net immigration and France’s is half ours. However, it doesn’t explain why the UK’s rate is higher than ours.

Here’s the GDP growth for 2007 (the same year as the immigration and healthcare cost increases) for the countries in question:

Country Real growth rate
United States 3.40
United Kingdom 2.60
France 2.30
Japan 2.80

Obviously, that doesn’t do it, either. Nor does per capita GDP, FWIW.

I think that Gammon’s Law is a prime candidate. Basically, the increasing bureaucratization of healthcare. BTW, that doesn’t mean just government bureaucracy. Healthcare is enormously bureaucratized here not only in government but in the insurance companies, hospitals, and other large corporate healthcare providers. I’m not certain what surrogate you’d use for measuring the increase in bureaucracy in healthcare. I’m open to suggestions. While deadweight loss due to bureaucratization might explain why costs in the UK are rising faster than they are here, I’m not sure what you do about Japan.

I’m open to other thoughts on why healthcare costs are increasing everywhere but I think that some combination of the explanations I’ve provided above are the most likely candidates. One thing you might want to keep in mind: none of the plans making their way through the Congress do a darned thing about any of the most likely causes of increases in healthcare costs.


I’ve been urged in comments to consider obesity as a cause of the increase in healthcare costs. Here are the comparative figures on obesity rates:

Country Obesity rate
United States 30.6%
United Kingdom 23.0%
France 9.4%
Japan 3.2%

I have a number of problems with using obesity as an explanation for rising healthcare costs. First, its definition is not rigorous or intuitive. Second, it may not be defined identically from country to country. Finally, I think that some component of the change in the obesity rate is actually a proxy for the immigration rate. Note that Mexico’s obesity rate is 24.2%.

Additionally, while the obesity rate could explain why our rate of increase is higher than Japan’s, it doesn’t explain why the UK’s rate of increase is higher than ours.

12 comments… add one
  • Sam Link

    Obesity also correlates well – see Mankiw’s blog August 01. We sure are getting fatter:

  • PD Shaw Link

    I certainly think that the availability of new technology is part of it, but I would be a fool to hang my hat on that as the sole reason. And I’m particularly not sure that the last 15 years would be the time period to make that case.

    But I’ll add these figures:


    United States: $146,000
    Britain: $121,000
    France: $84,000

    Also from the report: “The remuneration of GPs has grown the fastest in the United Kingdom, where the average income of GPs increased by over 4% per year in real terms between 1995 and 2004. In recent years, the remuneration of GPs in the United Kingdom has increased even more rapidly, rising by 21% in real terms between 2003/4 and 2004/5 and by 7% between 2004/5 and 2005/6. The strong rise in the income of GPs in the United Kingdom in recent years can be attributed at least partly to the introduction of pay-for-performance incentives in the new GP contract that was introduced in 2004.”

    Since the chart deals with growth since the early 90s, as opposed to absolute costs, I think this points to where Britain’s place comes from.

  • PD Shaw Link

    From the same report, I’ll add some more figures:

    Number of GPs per 1,000 population:

    United Kingdom: 0.7
    United States: 1.0
    France 1.6

    Number of specialists per 1,000 population:

    United Kingdom: 1.6
    United States: 1.4
    France: 1.7

  • PD Shaw Link

    I’d assume drop Japan from the comparison list. For one thing, they don’t appear to have some of the same classifications used for comparison above. Mainly though, I’ve spent a good part of last year working for an East Asian doctor who exports medical equipment to the United States. He has a strong sense of entitlement, expectation of deference and values respect for authority. I might be treading on cultural stereotypes here, but these stats suggest that there is something different about healthcare outcomes in Japan:

    Percentage of Adults Reporting to be in Good Health (2005):

    United States: 89%
    France: 80%
    United Kingdom: 74%
    Japan: 39%,3343,en_2649_33929_16502667_1_1_1_37407,00.html

  • Japan is culturally the most different. However, if you factor in another country that is culturally quite similar, Canada, it creates even greater problems for the analysis: physicians per 100,000 population is significantly lower there than in most other OECD countries.

    Britain’s system, in which nearly all GP’s are self-employed while nearly all specialists are salaried employees of BNHS is another issue.

  • Brett Link

    Bureaucratization, huh?

    That makes me wonder- all those proposals about paying a capitation and switching over to multi-specialty clinics like the Mayo Clinic. Wouldn’t those exacerbate the effects due to Gammon’s Law?

  • Andy Link


    I’m heading out of town and don’t have time to search for some statistics, but my theory is health-worker salaries.

  • Andy Link

    Doh, I see someone mentioned that already – that’s what I get for not refreshing my browser all day.

  • Drew Link

    Don’t forget demograqphics.

  • Drew Link

    Or even demographics…….

  • chris Link

    I go with the changing demographics.
    People are living longer after retirement and there is a falling birth rate.
    More people at the usage end that generally cost more per person in retirement (therefore not contributing) and fewer people entering the workforce paying into the system.

    The UN did a study and here is the link.
    I suggest to just jump to the conclusions part first.

Leave a Comment