Why Does Health Care Cost so Much in America? Ask Harvard's David Cutler

By David Cutler



The American health care system is structured differently from systems in other countries, making it more expensive. Photo courtesy of Joe
Paul Solman: Harvard's David Cutler is among the country's foremost health economists, famous for -- among other research -- a controversial paper arguing that even our exorbitant health care industry, in terms of increased productivity and life span outcomes, delivers more than what we pay for it.

Cutler, who was profiled by Roger Lowenstein in the New York Times Magazine in 2005, subsequently worked for President Barack Obama on health care issues, and talked to us recently for a story about cost savings. But far more of what he had to say seemed worthwhile than what we have time to air. Here is some of it.

Paul Solman: Why does health care cost so much in America?

David Cutler: Let me give you three reasons why. The first one is because the administrative costs of running our health care system are astronomical. About one quarter of health care cost is associated with administration, which is far higher than in any other country.

Paul Solman: What's the next highest?

David Cutler: About 10, 15 percent. Just to give you one example, Duke University Hospital has 900 hospital beds and 1,300 billing clerks. The typical Canadian hospital has a handful of billing clerks. Single-payer systems have fewer administrative needs. That's not to say they're better, but that's just on one dimension that they clearly cost less. What a lot of those people are doing in America is they are figuring out how to bill different insurers for different systems, figuring out how to collect money from people, all of that sort of stuff.

The second reason health care costs so much in America is that the U.S. spends more than other countries do on many of the same things. Drugs are the most commonly noted item, where a branded drug will cost much more in the U.S. than in other countries. But, for example, doctors also earn more for doing the same thing in the U.S. than they do in other countries, and a lot of suppliers charge more for things like durable medical equipment in the U.S. than in other countries.

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