How much to people in healthcare make relative to the rest of us?

Dr Aaron Carroll summarizes some three recent bits of medical news in the following video (which runs only about 4 1/2 minutes):


Carroll, a pediatrician, notes that while a recent survey show some reduction in childhood exposure to violence, crime, and abuse, the numbers remain troubling. He also mentions in passing last month’s Supreme Court decision against a politically-motivated lawsuit that would have invalidated part of the Affordable Care Act based on a bit of ambiguous wording from a drafting error that is plainly contradicted elsewhere in the law, not to mention its legislative history.

The first item he addresses touches on a question that has interested me for some time: Why does healthcare in the U.S. cost so much more than in other developed countries with comparable outcomes? Does it have to do with higher pay for U.S. professional? Carroll points to research (published here) showing what healthcare workers in the U.S. make relative to Americans in other sectors of the economy. Briefly, even after taking into account differenced in education and experience, doctors and nurses make a lot more than their counterparts in other sectors, about 50 percent more for doctors and 40 percent for nurses.

(However, most other people working in healthcare make about the same or a little less than their non-healthcare counterparts after making education/experience/demographics adjustments.)

But the relatively high pay of doctors and nurses doesn’t go very far toward explaining very much about why U.S. healthcare costs so much. As Carroll notes, doctors’ incomes account for under 7 percent of healthcare spending, and pay to nurses comes to less than 7 percent. If all the surplus compensation (above what the counterparts make in other sectors) could be eliminated, it would reduce healthcare spending by just 6 percent.

And, I’d personally add, maybe we want to pay doctors and nurses more, nurses especially.

OK, so if high pay doesn’t explain very much of our high healthcare costs, what does? Carroll doesn’t get into that, but the obvious villain that occurs to a lot of people is health insurance companies. But the health insurance industry’s profit margins are actually pretty modest in comparison with other sectors, and nowadays to a fair extent the amount insurance companies can spend on combined profits and overhead is limited by the Affordable Care Act. What about malpractice lawsuits? Not that big a deal, it turns out. It does add something, but states such as Texas that strictly limit malpractice payouts don’t have significantly lower healthcare costs.

On the other hand, drug companies make loads of money, we tend to have a lot more hardware (MRI and CT machines and the like) than other countries do, and our incredibly complicated and bureaucratic non-standardized system for billing and payments adds a huge level of overhead throughout the system.

Stop me if you’ve heard this, but about a year and a half ago I was seen briefly by a team of three doctors over a period of perhaps an hour, a visit that in the end proved entirely useless. Over the following months I received and paid a whole series of bills for this one visit. These bills were impossible to me to interpret despite my having a degree in math and decades of experience as a businessman and investor. I finally contacted the healthcare system in question and asked for an itemized bill explaining just what the dickens I was being billed for and why the bills kept coming months after the single visit. A short while later I received a non-itemized bill that was identical to the immediately previous bill I’d received except for the words “Itemized Bill” added at the top. (I am not making this up.) The bills did stop at that point, however, no doubt a mere coincidence.

(Updated 2015 July 15 to correct typos and improve clarity.)

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