Where Do Our Healthcare Dollars Go?

February 22, 2024 By Glenn Guard, CFA
Health watch. West Financial Services.

The United States spends twice as much per person on health compared to other developed nations.1

Where is this excess money being spent?  Are health care outcomes that much better in the U.S. versus the rest of the world?  

Let’s examine some data:

Chart: Healthcare expenditures per capita, U.S. dollars, 2021 (current prices and PPP adjusted). Comparing health spending in the U.S. to other countries is complicated, as each country has unique political, economic, and social attributes that contribute to its spending. Because health spending is closely associated with a country’s wealth, the remaining charts compare the U.S. to similar OECD countries—those with both above median national incomes and above median income per person (as measured by GDP and median GDP per capita) in at least one of the last ten years. Countries are on the left axis, value is on the horizontal axis ranging from 2,000 through 14,000. Health expenditures per person in 2021 are as follows: Japan 4,666; United Kingdom 5,387; Belgium 5,407; Australia 5,627; Canada 5,905; France 6,115; Comparable country average 6,125; Sweden 6,262; Austria 6,693; Netherlands 6,753; Switzerland 7,179; Germany 7,383; United States 12,914.

Source: KFF analysis of National Health Expenditure (NHE) and OECD data.

All countries in the previous chart, except the U.S., guarantee universal health coverage to all residents. In addition to public coverage, people in some of these countries have the option to purchase additional private coverage.  In France, essentially the entire population has both private and public insurance.

The U.S. is the only developed country where a significant number of people lack any form of health insurance. In 2021, 8.6% of the U.S. population was uninsured.2

Why do Americans pay so much more than other developed nations?  It turns out that there are several factors at play:  insurance and provider administrative costs are the biggest component of excess U.S. spending, followed by higher prices paid for prescription drugs and higher physician pay.

Component Share of excess spending
U.S. pays more in administrative costs of insurance ~15%
U.S. providers spend more on administrative activities ~15%
U.S. pays more for prescription drugs ~10%
U.S. physicians earn more ~10%
U.S. registered nurses earn more ~5%
U.S. invests more in medical machinery and equipment <5%
Sum of components estimated ~60%

Source: Ani Turner, George Miller, and Elise Lowry, High U.S. Health Care Spending: Where Is It All Going? (Commonwealth Fund, Oct. 2023). https://doi.org/10.26099/r6j5-6e66

If the U.S. is spending so much on healthcare, we should be the healthiest nation, right?  Unfortunately this is not the case.

The picture is much different than one would expect.  Americans see doctors less often than most folks in the developed world.  In fact, the U.S. has one of the lowest rates of practicing physicians and hospital beds per 1,000 population in the developed world.  American babies also have the lowest life expectancy at birth, and U.S. infant and maternal death rates are the highest in the developed world.  The U.S. obesity rate is almost twice the OECD average, and our country has the highest death rates for avoidable and/or treatable conditions.  Sadly, the U.S. also has one of the highest suicide rates.3

Cost is the primary reason why many Americans do not sign up for health insurance.  Also, out-of-pocket costs lead almost half of working-age adults to skip or delay getting needed care.4

But wait, it’s not all bad!

The United States spends more on healthcare per person than any other country but comes in dead last in many health outcomes. Not good, indeed.

But… and this is important:  The American healthcare system produces more medical research and pharmaceutical development. These advances have led to groundbreaking discoveries and improved treatments.5 In fact, the United States leads the world in new drug and medical devices, has the highest number of Nobel laureates in chemistry and medicine, and produces the second-highest number of scientific works in the world.6

So where do we go from here?

It’s complicated!  Would we give up leading-edge healthcare innovations and new cures for diseases if we adopted Medicare for All?  Morally, should healthcare be a profitable enterprise at all?  Would it in fact be cheaper if the government ran the healthcare system, as it already does for those over 65? 

Lots of questions, few simple answers…

Since 1965, Americans 65 and older and folks living in poverty have had universal healthcare in the form of Medicare and Medicaid. The global trend has been moving towards universal healthcare for decades.  What the future brings for Americans is anyone’s guess. That said, I suspect that, for better or for worse, universal healthcare will be a reality in the U.S. before I cross the finish line in this world.

In the meantime, proper planning for healthcare costs in retirement is paramount. Drop me a line if you would like to discuss. 

Meet Glenn Guard, CFA »

Read the February 2024 Financial Planning Focus:

1Munira Z. Gunja, Evan D. Gumas, and Reginald D. Williams II, U.S. Health Care from a Global Perspective, 2022: Accelerating Spending, Worsening Outcomes (Commonwealth Fund, Jan. 2023). https://www.commonwealthfund.org/publications/issue-briefs/2023/jan/us-health-care-global-perspective-2022

2Amy E. Cha and Robin A. Cohen, “Demographic Variation in Health Insurance Coverage: United States, 2021,” National Health Statistics Report, no. 177 (Centers for Disease Control and Prevention, U.S. Department of Health and Human Services, Nov  3, 2022).


4Sara R. Collins, Lauren A. Haynes, and Relebohile Masitha, The State of U.S. Health Insurance in 2022: Findings from the Commonwealth Fund Biennial Health Insurance Survey (Commonwealth Fund, Sept. 2022); and Michelle M. Doty et al., “Income-Related Inequality in Affordability and Access to Primary Care in Eleven High-Income Countries,” Health Affairs 40, no. 1 (Jan. 2021): 113–20.

52. US public investment in development of mRNA covid-19 vaccines: retrospective cohort study. Lalani HS, Nagar S, Sarpatwari A, et al. BMJ. 2023;380:0. [PMC free article] [PubMed] [Google Scholar]

63. United States: #6 in the 2021 world index of healthcare innovation. [ May; 2023 ]. 2021. https://freopp.org/united-states-freopp-world-index-of-healthcare-innovation-72256925520f


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