US health spending: A closer look

OECD Directorate for Employment, Labour and Social Affairs

The United States spent 16% of its national income (GDP) on health in 2007. This is by far the highest share in the OECD and more than seven percentage points higher than the average of 8.9% in OECD countries. Even France, Switzerland and Germany, the countries which, apart from the United States, spend the greatest proportion of national income on health, spent over 5 percentage points of GDP less: respectively 11.0%, 10.8% and 10.4% of their GDP.

However, almost all OECD countries, with the exception of the US and the middle-income countries, Mexico and Turkey, have full insurance coverage of their population. Americans consumed $7,290 of health services per person in 2007, almost two-and- a-half times more than the OECD average of just under $3,000 (adjusted for the differences in price levels in different countries). Norway and Switzerland spent around $4,500 per person. Americans spend more than twice as much as relatively rich European countries such as France, Germany and the United Kingdom.

One factor which cannot explain why the US spends more than other countries is population aging. Many European countries and Japan have been aging much more rapidly than the United States. Similarly, Americans are not any more likely to be sick than Europeans or Japanese people, though the very high rates of overweight and obesity are already costly and will drive health spending higher in the coming decades. Americans have had much lower rates of smoking than most other OECD countries since 1980, and so this should be contributing to better health outcomes. Health expenditure can be broken down into different categories of spending:

• In-patient spending is higher than in other OECD countries, but not by as much as might be expected, given differences in GDP.

• Out-patient care spending is also highest in the United States, being more than three-times greater than in France, Germany and Japan, and growing very rapidly indeed. The growth rate is high in other countries as well, but from a lower basis.

• Administrative costs are high.

• Pharmaceutical spending is higher in the US than in any other country, but it accounts for a smaller share of total health spending than in other countries.

• Long-term care spending is a little higher than in other countries, but proportionally accounts for less spending than elsewhere.

The stand-out difference in spending in the United States compared with other OECD countries is in elective interventions on a same-day basis. These accounted for a quarter of the growth in US health spending between 2003 and 2006, compared with just 4% of the growth in Canadian spending. Such services are an important innovation in healthcare delivery, often being preferred, when possible, by patients to staying overnight in a hospital.

Remuneration of US GPs exceeds those of doctors in other countries (being $25,000 to $40,000 more than in UK, Germany and Canada, and $60,000 more than in France, though the data is old, coming from 2003- 05). The gap was even larger for specialists. Income levels reflect both fees and activity–physicians are often remunerated on a fee-for service basis, so the high rates of income of US doctors might reflect both higher fees and higher activity than in other countries. On balance, however, it seems likely that at least some part of the high rates of remuneration are due to high prices rather than to high volume of activity.

Another component of out-patient care costs that has grown rapidly in the United States in recent years is the cost related to diagnostic tests, such as medical resonance imaging (MRI) scans and computed tomography (CT) scans. Billions of dollars are now spent each year on such tests in the United States.

Some studies have attempted to assess the medical benefits of the substantial increase in MRI and CT exams in the United States but found no conclusive evidence.

This is an extract from a written statement submitted by Mark Pearson to the US Senate’s Special Committee on Aging in September 2009. The full 2,500 word statement is available online at and at 

©OECD Observer No 276-277 December 2009-January 2010

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