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Report| McKinsey Global Institute

Accounting for the Cost of Health Care in the United States

January 2007 | byCarlos Angrisano, Diana Farrell, Bob Kocher, Martha Laboissiere, Sara Parker

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The United States spends more of its income on health care than other developed countries and that share is rising. It is an arresting statistic that the US now spends more on health care than it does on food.

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Explore two ways of looking at the cost discrepancies of the US healthcare system.

In this new report MGI finds that the United States spends approximately $480 billion ($1,600 per capita) more on health care than other OECD countries and that additional spending is not explained by a higher disease burden; the research shows that the US population is not significantly sicker than the other countries studied.

Instead, MGI found that the overriding cause of high US health care costs is the failure of the intermediation system—payors, employers, and government—to provide sufficient incentives to patients and consumers to be value–conscious in their demand decisions, and to regulate the necessary incentives to promote rational use by providers and suppliers.

Given the less than optimal access for all US citizens (relative to peer countries), MGI concludes that major opportunities for cost improvement—even if not the full $480 billion—are as possible as they are necessary although no single reform is likely to succeed in achieving the needed rebalancing. To be effective, reform in health care will need to apply sound principles on both the demand and supply side of the system.

McKinsey Global Institute

McKinsey Global Institute

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