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, Grant Rigney, and Avik Roy
Introduction
The United States ranks 11th in the 2022 World Index of Healthcare Innovation, down from 6th in 2021 and 4th in 2020. Thanks to its renowned research universities and robust biotechnology industry, the United States dominated the Science & Technology category (1st). 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 United States ranks dead last in Fiscal Sustainability (32nd). Simply put, America leads the Index countries with the highest level of government health care spending per capita and that spending, moreover, is growing at an unsustainable rate. In 2020 and 2021, trillions of dollars in COVID-19 related spending have exacerbated this problem.
Contrary to its self-image, the United States scored only 10th on the dimension of Choice. The cost of health insurance in the United States is beyond the reach of too many Americans and the role for direct consumer spending is far too restricted.
Background
The modern U.S. healthcare system was created accidentally. 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 found a way around the wage controls by 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 healthcare programs, assented to Medicare because then-President Lyndon 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 enables American patients to consume health services without regard to its price. This insensitivity to price, moreover, extends to 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. Including 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 19th in the Index on Quality. A strong performance in the element Patient-Centered Care (6th), including relatively low wait times for care and good involvement in medical decisions, was offset 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 United States ranks 6th in measures of five-year cancer survival rates, surprisingly low given that U.S. patients and providers enjoy access to every new drug designed to treat cancer.
Choice
The U.S. ranked 10th for Choice, up from 20th in the 2021 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 (32nd) on the Element “affordability of health insurance,” due to its extremely high health care prices. Choices are only meaningful when care is affordable.
American policy experts often talk about consumer-driven health care: the concept that healthcare 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 United States ranks second-to-last in out-of-pocket spending as a share of national health expenditures. Even Canada and the UK have higher shares of out-of-pocket spending, as do most other single-payer countries.
Science & Technology
The United States ranked 1st, by a wide margin, in Science and Technology. Indeed, the margin between the United States 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 United States ranked 1st in the number of new drugs and medical devices gaining regulatory approval; 1st by a wide margin in Nobel prizes in chemistry or medicine per capita; and 5th in scientific impact as measured by citations (Switzerland ranked first). The United States also ranked 2nd in R&D expenditures per capita. This leadership in scientific impact directly translates into treatments, such as Moderna’s COVID-19 vaccine, that are developed by pharmaceutical and biotechnology companies, especially around hubs such as Boston and the San Francisco Bay Area.
Fiscal Sustainability
The United States ranked last (32nd) in fiscal sustainability, owing to America’s extreme level of government health spending ($10,921 per capita in 2019 and $12,914 in 2021, the highest in the world). For context, the second-highest country in public spending is Switzerland, at $9,666 per capita (2019). 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.
