We Spend More on Health Care Than Other Rich Countries but Have Worse Outcomes?

flying cadeuciiHere it’s argued that we need to retire the health care fallacy, “We spend more on health care than other rich countries but have worse outcomes.” The fallacy implies U.S. health care is deficient in spite of being costly. Indeed our health care costs too much, but there is little evidence that our care is less effective than care in other countries. On the other hand, there’s plenty of evidence that our social determinants of health are worse.

The argument segues off a recent article by Victor Fuchs. The case is presented by using a simple linear model to explore how life expectancy might change when we substitute the numbers of other countries’ determinants of health for U.S. numbers. After making these substitutions and holding health care spending constant the model predicts U.S. life expectancy is right there with the other OECD countries, 81.6 years compared to their average 81.4 years. This what-if modelling makes clear what should be obvious but the fallacy hides, that health care is only one part of population health.

The Fuchs Essay 
Victor Fuchs’s recent essay1 impressed me. He wrote of the lack of a positive relationship between life expectancy and health care expenditures (HCE) in OECD countries. A chart was included for empirical support. I liked the idea behind the chart which demonstrated his point using data from select countries and our 50 states. Professor Fuchs has written on this topic for years (e.g., in his 1974 book “Who Shall Live?”). I posted on the fallacy in March 2013 but was not as nuanced.2

Building a Model

In the JAMA essay Fuchs empirically demonstrates his point. Let’s extend his idea. We’ll keep a measure of HCE, use life expectancy as the outcome, restrict the modelling data to the United States, and represent two other dimensions, an environmental and a socioeconomic dimension. If this simple mathematical model reasonably predicts life expectancy, and it does, then we can substitute OECD values3 for the two dimensions to see how longevity might change while holding expenditures constant. In this way we’d observe the likely effects on longevity due only to epidemiological changes.

Percentage Rural as the Environmental Dimension
As a relevant aside, I was a medic in the army. I took my medical training, circa 1959, at Fort Sam Houston, Texas, before being sent to Germany. I was impressed, especially having been born and raised in New York City, by the size and spaciousness of Texas. While there I heard the following story. During World War II some German prisoners were sent stateside, some of these to Texas. Two or three of the Texas POWs escaped. They were recaptured three days later and were incredulous to learn that after three days on the run they were still in Texas.

Anyone who’s been to Europe surely has been struck by how many more people per unit area there are compared to our country. The numbers bear this out: in 2007 on average the U.S. had 84 persons per square mile, France 289, Germany 609, and the UK 650 persons per square mile.4 There are countries, such as Sweden and Ireland, which are less dense but on average the 24 OECD countries used by Fuchs and used here have more people per unit area than in the United States. And, unsurprisingly, average national density correlates with the percentage of people who live in rural areas.

Noting a Potential Problem
According to OECD estimates, the percentage of people in the U.S. living in primarily rural areas is 37.7%, while the median for the remaining 24 OECD countries is 20.8%.5 However, the U.S. Census Bureau and the OECD measure percentage rural differently which creates a challenge. The U.S. estimate, from the 2010 census, of percentage of persons living in rural areas is 19.3% compared to OECD’s 37.7%, a significant difference. More on this shortly.

Rural Matters 
Earlier this year I posted on estimating county HCE.6 During the model’s variable selection phase I was told by everyone I spoke with “to be sure and include a measure of rural”. It’s widely recognized in the health community and literature that rural living is negatively associated with population health; that as the percentage of people who live in the rural environment increases, population health gets worse. For instance, on country roads there are more fatal accidents per capita, and if you don’t die right off you have less access to emergency facilities, and if you do make it to the ER alive, there may not be an attending physician with the expertise you need. Rural populations tend to be poorer, less educated, older, and generally have fewer opportunities.7 Reading some of their literature, other OECD countries have similar rural health issues as we do; it’s just they’re less rural as a percentage of the population, in itself suggesting their overall average life expectancy would be higher than ours.

Child Poverty as the Socioeconomic Dimension
Child poverty is obviously not directly related to life expectancy in the same year. However, the same milieu that permits child poverty may well also shorten life. I tend to use child poverty as a measure instead of general population poverty because children are obviously not responsible for their situation, and child poverty can more readily stand-in, conceptually, as a metric of societal health. The child poverty plot that follows distinctly shows its associated deleterious health effect, just as the rural environment has a negative effect. Also child poverty in the U.S. is about double what it is in the OECD, roughly 20% versus 10%, so it’s a good candidate for inclusion as a variable in the model.

What the Variables Look Like
The what-if model has life expectancy as the response variable and three explanatory variables: percentage of people living in rural areas as defined by the U.S. Census Bureau;8 Child poverty, again as defined by the Census Bureau;9 and Bureau of Economic Analysis’ per capita state GDP in conjunction with state-level HCE.10 The data points represent the states.

Screen Shot 2014-12-20 at 7.19.28 AM

Just concentrating on the overall trends for the moment, both percentage rural and child poverty have highly significant negative linear trends relative to life expectancy. As the two variables rural and poverty increase, average life is shortened. Though not shown, there’s barely a significant correlation between child poverty and percentage rural. This lack of collinearity helps keep the model simple. Lastly, just as Fuchs demonstrated, there’s no important relationship between HCE and longevity.11

The Model
These three explanatory variables were used to construct a model to predict life expectancy. The initial construction was encouraging, the model was highly significant with an adjusted R² = 0.63.12 However, regression diagnostics (which included the above graph and Cook’s D, a measure of influence) showed there were two decidedly influential outlier states, VT and ME. They are obvious in the percentage rural plot, where both states have above average life expectancy yet are the highest in percentage rural. This is contrary to expectation; what’s going on? Well, according to at least one study VT was ranked number 1 in social capital and ME number 3.13 Talk about the importance of social determinants of health! (NH was number 2.) Furthermore, ME was an outlier on the expenditures dimension, which also makes sense: the states with the three oldest populations in order are ME, WV and lastly FL. Older populations mean higher HCE. While Mississippi is the poorest state in the nation, has the highest poverty rate, and the shortest longevity of all 50 states.

Having the highest Cook’s D values we take VT and ME out, so the final model is based on 48 states. The adjusted R² is 0.69 (i.e., the model explains about 69% of the variance in life expectancy), percentage rural and child poverty are both significant at p < 0.001 while the expenditure variable is not statistically significant. The signs of the coefficients make sense: as rural and poverty increase longevity decreases, and though not significant, HCE is positive, i.e., money spent on health care contributes some to longevity. It appears that we’ve been successful. With coefficients rounded to practical significance here’s the model used for prediction:

LifeEx = – 0.06PctRural – 0.2ChPov + 0.044HceGdp + 83.54.

Using the Model to What-If
Now we run into a measurement snag. The OECD measures poverty and rural differently than we do. The difference in poverty is not bad. We have traditionally carried forward a 1960’s breadbasket approach. It’s in the process of change but for now the official measure uses the old method, which gives the 2010 child poverty rate as 21.6%. On the other hand, the OECD estimates poverty as income below 50% of median family income. They estimate U.S. child poverty at 21.2% compared to our 21.6%. Assuming that small difference is representative for other OECD countries we ignore the discrepancy and simply accept the OECD median, 10.0%, at face value and substitute it into the model.14

On the other hand, there’s a much bigger difference between the respective estimates of percentage of people living in rural areas, the Census Bureau’s 19.3% compared to the OECD calculation of 37.7%. The Census Bureau estimates the percentage of persons living in urban areas and clusters and what’s left over is deemed percentage rural. The OECD defines rural differently, and furthermore they have recently revised their methodology.15 To move past this difference, we proportionally adjust the OECD (other than U.S.) median of percentage rural, 20.8%. Specifically, we let 19.3/37.7 = x/20.8, giving the OECD median rural value of 10.5% as though it were determined by the Census Bureau. This is what we’ll use for substitution.

The Result
Finally the model can give us an idea how U.S. life expectancy would might if we had a similar environment and social milieu. Substituting the OECD median values, 10.5% (rural) and 10.0% (poverty), and the U.S. unweighted average HCE as a percentage of state GDP, into the model:

Life expectancy = – 0.06*10.5 – 0.2*10.0 + 0.044*15.6 + 83.54
= 81.6, which is similar to the OECD average of 81.4 years.

There’s essentially no difference which suggests that our average life expectancy would be comparable to like countries through environmental and socioeconomic changes. This underscores the lack of substance in the health care fallacy.16

Variables Not Included
We picked just two of possible variables and so the model has room for improvement. Another candidate for inclusion, a variable in common with but different in average value between the U.S. and the remaining OECD, is our incarceration rate which is much greater than OECD’s. Spending 4-5 or more years in prison surely is not health inducing. Just consider increased prevalence of HIV and TB.

For example, from his paper, “Incarceration and Population Health in Wealthy Democracies,” Christopher Wildeman writes (from the abstract)17

…point estimates from these models suggest that life expectancy at birth in 2005 in the United States would have been 1.4 years longer had the U.S. incarceration rate remained at the 1981 level.

To make complex information understandable means, among other things, rejecting incoherent accounts of that information. Our overly expensive health care calls for remedy so that we can better invest in America.18 Likewise, improving our population health would reduce unnecessary suffering, early death, and our international health disadvantage. Considering the need for clarity and improvement, carelessly repeating misleading statements about our health care is not helpful. It’s time to put this fallacy to rest.

Frank de Libero is a statistician based in Washington state. In recent years his work has focused on the statistical analysis of the social determinants of health and the quantification of health care policy. 


  1. Victor R. Fuchs, “Critiquing US Health Care,” JAMA, 312 No.20 (November 26, 2014): 2095-2096. Gated access. 
  2. http://www.lettingthedataspeak.com/?p=213 
  3. The U.S. is part of the OECD, the original 20 in fact. But for this essay it’s sometimes rhetorically easier to refer to the “OECD” as shorthand for “OECD countries other than rhe U.S.”. 
  4. http://www.infoplease.com/ipa/A0934666.html 
  5. OECD data taken from “OECD Regions At a Glance 2013″, Table A.4: http://dx.doi.org/10.1787/888932915964 
  6. http://www.lettingthedataspeak.com/?p=259 
  7. See, e.g., http://www.ruralhealthweb.org/go/left/about-rural-health 
  8. http://www.census.gov/geo/reference/ua/urban-rural-2010.html 
  9. US child poverty: http://www.census.gov/prod/2011pubs/acsbr10-05.pdf 
  10. GDP at http://www.bea.gov, while HCE estimates are at http://www.statehealthfacts.org/comparemaptable.jsp?ind=596&cat=5 
  11. The data are available as Excel spreadsheets: https://drive.google.com/file/d/0B8XSmAJ_rKgNOFBQVm9XdGVRUkk/view?usp=sharing and https://drive.google.com/file/d/0B8XSmAJ_rKgNSmpiLWFwRVN2OVE/view?usp=sharing 
  12. R² ranges between 0 and 1, 1 indicating a perfect fit. Adjusted R² controls for the number of cases and variables giving a more reasonable measure of fit. R² in conjunction with other statistics and views of the data (like the above graph) is useful but used alone is potentially misleading. 
  13. Daniel Hawes & Rene Rocha, “Social Capital in the Fifty States: Measuring State-Level Social Capital 1986-2004″, 2010. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1643243 
  14. The median was used to partially compensate for averages not being weighted by population size. 
  15. The OECD has a wealth of information available, e.g., http://www.oecd.org/regional/how-s-life-in-your-region-9789264217416-en.htm 
  16. Environmental changes would include better access to care, socioeconomic would include reducing the sources of child poverty. The fallacy is an instance of the fallacy of equivocation. 
  17. http://www.yale.edu/ciqle/CIQLEPAPERS/Wildeman(Crossnational).pdf 
  18. Professor Fuchs wrote a New York Times Op-Ed on what we might do with a $1T savings in HC, e.g., increase expenditures on infra-structure by 50 percent; increase annual salaries of K-12 teachers by an average of $25,000. Each with annual costs of $100 billion: http://economix.blogs.nytimes.com/2014/03/14/how-to-shave-1-trillion-out-of-health-care/ 

13 replies »

  1. “Diminishing returns does not mean returns rapidly diminish close ”

    Actually that is precisely what happens in end of life/ ICU. Well done. I couldn’t have put it better myself.

    “It means if you allocate your resources properly you should be getting the high (marginal) value first, then lower values, then even lower values”

    It means that as well. For that meaning to have any relevant meaning, as you must know economics is full of abstract mumbo jumbo that only happens on planet Econ, there should be a budget, real opportunity costs and a central decision maker whose budgetary allocative decisions must impact micro decisions at the level of ICU.

    “BUT no one thinks we allocate resources for health to high value things first so you wouldn’t even expect it to apply.”

    Basically, what you are saying is that since we allocate inefficiently and are not spending enough on high value items, we can possibly be on the asymptote.

    There is a logical fallacy here. That is assuming that underinvestment and overinvestment cannot co-exist. But both can be true and in fact are true. Importantly, it gets to my point about a budget and opportunity costs, without which the production frontier is merely a test item for econ grads.

    “more beta blockers? surgical checklists?”

    I see what you mean. But these are not the best two examples. Routine beta blockers now shown to be worse for peri-op patients. Prior study showed it do be good. Checklist study from Toronto in NEJM showed checklists weren’t doing much,

    So you see, throwing money at beta blockers and checklists would also come in the zone of diminishing marginal returns.

  2. It seems to me that using dx and tx of serious diseases (as used by Atlas) to compare is likely a better indicator than is life expectancy/longevity..less subject to wide variations in data collection in different countries.

  3. Diminishing returns does not mean returns rapidly diminish close to 0 at some arbitrary level of spending like 20% of income. It means if you allocate your resources properly you should be getting the high (marginal) value first, then lower values, then even lower values BUT no one thinks we allocate resources for health to high value things first so you wouldn’t even expect it to apply.

    I don’t know any health economists who thinks we really can’t find anything to spend money on that wouldn’t improve our health that we aren’t doing (more beta blockers? surgical checklists? better anti-smoking campaigns in the weaker states?). The production function model is meant to point out that we don’t have productive efficiency and thus it is pointless to think about allocative efficiency, but somehow guys like Jon Skinner got confused about that.

  4. Scptt Atlas’s book In Excellent Health presents
    “the facts, as documented in scientific and medical journals, about the most important role of health care—the diagnosis and treatment of serious diseases—and shows how medical care quality in the United States compares favorably to that of other countries of the developed world. He also exposes the facts on access to medical care—one of the most fundamental requirements of any health care system—revealing that millions of people in other countries wait for appropriate diagnosis and treatment whereas Americans have superior access to timely medical care.”

  5. And how you enter adverse events into the equation? There is a linear relation between adverse effects and “number of interventions”, that is, the more you do the higher number of adverse effects you get, which doesn’t happen with benefits. So, if outcomes = benefits – adverse effects, more is not always better…

  6. When it comes to hospital based care, discharges per 100,000 people are lower in the U.S. than the OECD median and our length of stay is considerably shorter but costs, even at Medicare rates, are higher. When it comes to list prices for hospital based care, we’re off the charts. NJ is the worst state in the country for markups with an average hospital markup of 623% above costs here and some hospitals mark up costs by 13 times on average!

    While I’ve asked about it numerous times, I’ve never seen a good study that compares U.S. hospital costs to those of comparable hospitals in Canada, Western Europe, Japan and Australia. It would be interesting to see some data showing the number of employees per licensed bed and per occupied bed as well as average occupancy rates.

    Drug prices for most brand name drugs are also significantly higher in the U.S. than elsewhere as well. I don’t know to what extent American patients get access to newer drugs sooner because we pay what the traffic will bear but it looks to me like other developed countries are effectively free riding on the unfettered U.S. market for drugs. That’s certainly the case with the new drugs to treat Hepatitis C, Sovaldi and Harvoni where the manufacturer is using per capita GDP as its pricing criteria. As Uwe Reinhardt and his co-authors said in their 2003 Health Affairs article, “It’s The Prices, Stupid.”

  7. Law of diminishing marginal returns is basic economics. As close to physics as economics can ever approach, in terms of immutable laws.

    At the some point the incremental benefit is so small (an additional two hours in the ICU) and the costs so high that is really approaching an asymptote.

    Some health economists believe we are now in the zone of negative returns. That is we long left the luxury of the asymptote.

    “The short version is that it’s hard to believe a country can simultaneously spend <20% of its money on "health", have a 30-40% obesity rate, and be over invested in its health."

    This is an interesting point. To which I would suggest the problem is that there is no real opportunity costs in public or quasi-public spending which would force allocators to allocate efficiently.

  8. There is no evidence for the asymptote theory. Cost effective spending for a life year is, depending on your preferences, something in the range of $50,000 to $500,000. Like most Americans I lean toward the higher end up the range. NICE recommends against a ton of treatments that we would consider cost effective (they tend to recommend against anything over $50k). If we cut down on those treatments like the UK our health would be hurt, as everyone admits, and the cost savings wouldn’t be enough to compensate us for the health losses.

    The short version is that it’s hard to believe a country can simultaneously spend <20% of its money on "health", have a 30-40% obesity rate, and be over invested in its health.

  9. The above is why they are adding elementary statistics to the new MCAT. Are you a doctor?

  10. The focus on metrics, such as life expectancy, detracts from the obvious.

    The US spends more than any other developed nation. Period. Yes, you have to stop right there.

    If there is insanity it lies in the structure of cost.

    The amount CMS pays ophthalmologists exceeds the GDP of Burundi. Of course, spending in multiples of an African nation doesn’t mean Americans will outlive the Africans by the same multiple.

    Law of diminishing returns kicks in. We approach an asymptote.

    So, “we are spending twice as much as NHS and not living longer” is fundamentally an incorrect premise to start any logical discussion.

    The question is: why are the costs so high? Structural factors. Cultural factor. Commons factor. Regulatory factors.

    As I’ve always maintained. American NHS-philes wouldn’t be able to stand the NHS for a minute.

  11. Wow, Frank – and the lone other commenter here to date – have gotten into the holiday eggnog a few days early.

    Frank’s fashioned himself a strawman, and then proceeded to destroy it, not by simply lighting it on fire as the rest of us lazy unwashed might, but by removing each straw individually.

    Who’s saying we’re a LOT worse off healthwise than other countries? That’s right – just about nobody (add up the names Frank lists. It’s not a long list) .

    What we ARE, is paying too much for how healthy we ARE. For what we spend one would think we’d be a lot healthier. As Frank notes, with an elephant gun, we’re not.

  12. The hundreds of disorders that man can suffer can be thought to fill a sort of state space depending upon your above variables but also upon the weather, the latitude, water quality, the autocthonous gene pool, the temporal proximity to past or incipient wars, bacterial, viral and other pathogen concentrations, pollen and allergen intensities, social structures like ages of marriages…you get my point. There are hundreds of variables. You have done a fine job of looking at several of the important dimensions. Thank you for this expansion of our thinking.