Physicians' Incomes and Healthcare Costs
Based on this reading, and in particular on the three hypotheses outlined in their last paragraph, here are some questions for class discussion:
Although the United States now has relatively fewer physicians per 1,000 population than the OECD median, its total national spending on physicians as a percentage of GDP is double the OECD median (2.9 percent in 1999, compared with an OECD median of 1.3 percent). U.S. physician spending peaked in 1991–1992 at 3.0 percent after steadily rising from 1.7 percent in 1980. Since 1992 spending has more or less hovered around 3 percent. OECD median spending has been mostly flat over the entire period, hovering between 1.1 and 1.4 percent of total spending. As a dollar amount, U.S. per capita spending for physician services was the highest in the OECD in 1999: $988, compared with an OECD median of $342. Physician services accounted for 22.7 percent of total U.S. health spending in 1999, compared with 15.2 percent in the median OECD country.
Physicians’ incomes are much higher in the United States than they are in other OECD countries. In 1996, the most recent year for which data are available for multiple countries, the average U.S. physician income was $199,000. The comparable OECD median physician income was $70,324. The ratio of the average income of U.S. physicians to average employee compensation for the United States as a whole was about 5.5. Germany’s was the next highest, at only 3.4; Canada, 3.2; Australia, 2.2; Switzerland, 2.1; France, 1.9; Sweden, 1.5; and the United Kingdom, 1.4.
One can think of several reasons why physician compensation in the United States is relatively more generous than elsewhere. First, physicians in most other nations face a powerful single buyer (monopsony) for health services. As the McKinsey Global Institute and Mark Pauly have shown, market power (or regulation) translates into relatively lower prices for health services, including the services of physicians. Second, U.S. physicians must make a larger financial investment in their education than their counter parts in many other countries do; they must recover the debt they incur as part of the educational process. Third, the incomes of highly skilled health care workers—notably physicians—are determined partly with reference to the incomes that equally able and skilled professionals can earn elsewhere in the economy. Because the U.S. distribution of earned income for all occupations is wider than it is in most other OECD countries, the relatively high incomes offered skil led professionals in the United States may well have served to pull up the incomes of American physicians relative to the incomes of their peers abroad.
On the issue of monopsony power: Explain how a large government healthcare plan (a "single payer" being the extreme case) could potentially reduce the wages of healthcare workers and thereby national healthcare costs. What are the similarities and differences between this solution to high healthcare costs and a targeted income tax surcharge levied only on healthcare providers (the revenue from which is rebated to all taxpayers)? Are the policies you considered above efficient, using the economist's standard definition of efficiency? Are they equitable, as judged by your own notion of fairness? In your opinion, does your analysis argues for or against a government-run healthcare plan?