McKinsey I: the big picture

I want to go back to the McKinsey report on health care costs. It seems to me like a thorough analysis of our costs, and its conclusions about the source of the growth seem sensible. Still, it's 122 pages, so I'm going try to break it down into small, concise chunks here in the blog.

In the report. MGI (McKinsey Global Institute) looks at US health care costs between 2003 and 2006. They compare them to similar costs in 13 countries that they argue form a valid peer group for comparison. They find the following:

• The US spends a lot more on health care than these peers, both in absolute terms and as a percentage of GDP.
• This effect persists even after you adjust for differences in wealth between the US and its peers.
• In 2006 the US spent about $650 billion more than its peers on health care, adjusted for population and wealth.

The report goes on to look at this cost difference category by category, but before doing so the authors look at some commonly-cited reasons for disparities in health care costs, and conclude that the following do not explain our "extra" spending:

• The wealth effect. Countries with more money will spend more on health care. McKinsey found that our severe disparities persisted even after adjusting for this factor.
• Better outcomes. More money makes us healthier. But no, US life expectancy is mediocre compared with certain peers.
• Higher incidence of disease: we're sicker, so we need more health care. But we're not in fact noticeably sicker than our peers.

So, we spend a lot more, but not because we need it more, or because it helps us more. That's the first thing the MGI report tells us.

You can find the MGI report in the Links section to the right.