America’s runaway leadership in science & technology is marred by a fiscally unsustainable system of costly health care.
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By Gregg Girvan and Avik Roy
Introduction
The United States ranks 6th in the 2021 World Index of Healthcare Innovation, with an overall score of 54.83, down from 4th in 2020. Thanks to its renowned research universities and robust biotechnology industry, the U.S. dominated the Science & Technology category (74.12). This innovation engine was on full display during the COVID-19 pandemic, as the U.S. government partnered with private companies to deliver coronavirus vaccines far faster than anyone had ever done before.
On the other hand, the U.S. ranked third-to-last in Fiscal Sustainability (#29, 34.35), because it is the country with the highest amount of government health care spending per capita, spending that is growing at an unsustainable rate. In 2020 and 2021, trillions of dollars in COVID-19 related spending have made this problem even worse.
Contrary to its self-image, the U.S. scored only 20th on the dimension of Choice (54.53), due to the poor affordability of health insurance in the U.S. and the limited role for direct consumer spending in the U.S. health care system.
Background
The modern U.S. health care system was created by accident. During World War II, President Roosevelt imposed wage controls on U.S. employers, strictly regulating what they could pay their workers. But because the wage controls did not govern fringe benefits like health insurance, businesses started offering generous health coverage to attract workers. In the 1950s, the Internal Revenue Service enshrined this accident into the tax code, excluding employer-sponsored health insurance from federal, state, and local taxation. Rapid adoption of health insurance — and rapid health care price inflation — soon followed.
In 1965, Congress amended the Social Security Act to create Medicare, a single-payer health care program for the elderly; and Medicaid, a single-payer health care program for the poor. Medicare was built off of the employer-sponsored system, with its benefit package based on the Blue Cross plans of the era. The American Medical Association, which had previously opposed efforts to establish large federal health care programs, assented to Medicare because then-president Johnson agreed to exclude cost controls from the program. Instead, Medicare would pay the “usual, customary, and reasonable rate,” as doctors chose to define it.
This combination of factors made American consumers extremely price-insensitive. In the employer-based market, workers are not only divorced from the cost of the health care services they use, but also from the cost of the insurance their employers purchase for them. While Medicare and Medicaid prices have grown at a slower rate than those of employer-based coverage, they remain unsustainably high. Inclusive of the tax subsidy for employer-sponsored insurance, U.S. public subsidies per capita are the highest in the world.
On the flip side, America leads the world in both medical and scientific innovation, and routinely develops therapies for previously untreated diseases, as the coronavirus pandemic demonstrated. America’s innovative health care sector is by far the largest in the world, and includes biotechnology pioneers Amgen, Genentech, and Moderna, along with medical device leaders Johnson & Johnson, Medtronic, and Boston Scientific.
Quality
The United States ranks 10th in the Index on Quality. A strong performance in patient-centered care, including relatively low wait times for care and good involvement in medical decisions, was balanced out by a lack of primary care physicians per capita (ranking worst in that category, at 0.3 primary care doctors per 1,000 residents). The U.S. ranked 7th in measures of 5-year cancer survival rates, despite having access to every new drug designed to treat cancer.
Choice
The U.S. ranked 20th for Choice, down from first in the 2020 Index, due to a change in methodology that looked more holistically at the concept of choice. Americans enjoy world-leading access to new medical technologies. However, the U.S. ranked dead last on affordability of health insurance, due to its extremely high health care prices. Choices are most meaningful when care is affordable.
American policy experts often talk about consumer-driven health care: the concept that health care markets are most efficient when patients are directly spending on their own care, as opposed to doing so through third-party insurance. It is surprising, then, that the U.S. ranks second-to-last in out-of-pocket spending as a share of national health expenditures, at 11.25%. Even Canada and the U.K. have higher shares of out-of-pocket spending, as do most other single-payer countries.
Science & Technology
The U.S. ranked first, by a wide margin, in Science & Technology. Indeed, the margin between the U.S. and second-place Switzerland was by far the highest recorded in any dimension of the Index, driving America’s high overall ranking despite poor or modest performances elsewhere.
The U.S. ranked first in the number of new drugs & medical devices gaining regulatory approval; first by a wide margin in Nobel prizes in chemistry or medicine per capita; and second in scientific impact as measured by citations (Switzerland ranked first). The U.S. also ranked fourth in R&D expenditures per capita. This leadership in scientific impact directly translates into treatments like Moderna’s COVID-19 vaccine that are developed by nearby pharmaceutical and biotechnology companies, especially around hubs such as Boston and the San Francisco Bay Area.
Fiscal Sustainability
The U.S. ranked third-to-last, ahead of only France and Japan, in fiscal sustainability, owing to America’s extreme level of government health spending ($8,949 per capita, the highest in the world). For context, the second-highest country in public spending is Norway, at $5,288 per capita. This problem will get worse as health care inflation drives subsidies for Medicare, Medicaid, the employer tax exclusion, and the Affordable Care Act’s insurance exchanges.
