Healthcare And Economic Despair : Planet Money The U.S. spends more on healthcare as a share of its economy than any other wealthy country. In addition to making care less affordable, that also causes indirect damage to the rest of the economy.
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Healthcare And Economic Despair

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Healthcare And Economic Despair

Healthcare And Economic Despair

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Hey, everyone. Stacey and Cardiff here. This is THE INDICATOR FROM PLANET MONEY. Let's think about all of the money that the United States spends on health care, everything from medicines to visits to the doctor to hospitals to medical procedures. Start with the money that people spend directly out of their own pockets, then add the money that insurance companies spend when they cover people. And then finally add the money that the government spends through programs like Medicare.


And when you do add up all that money, it comes out to roughly $3 1/2 trillion a year. Or to put that in perspective, that's roughly 18% of the U.S. economy that goes to health care. In fact, health care costs as a share of the economy are higher in the U.S. than in any other wealthy country. The country with the second most expensive health care is Switzerland at just 12%. Anne Case, an economist at Princeton University, breaks down the numbers.

ANNE CASE: So if we went from 18 to 12%, that's a trillion dollars a year plus. So a trillion dollars goes a long way. That's sort of about $8,300 a family.

GARCIA: That is today's PLANET MONEY indicator - $8,300 per family. That is how much more the U.S. is paying for health care than gets spent in the second-most-expensive country.

VANEK SMITH: Switzerland.

GARCIA: Yeah. Anne Case says it would be one thing if we in the U.S. were getting much better health care as a result of those higher costs.

CASE: But it turns out, those Swiss, they live on average five years longer than the U.S. life expectancy. And they're spending - 6% less of their GDP goes toward health care.

VANEK SMITH: On average, people in the U.S. live shorter lives than people in every other similarly rich country even, though the U.S. pays the most out of all of them for health care. So apparently, we're not really getting a bargain.

GARCIA: No. No, you can't say that.

VANEK SMITH: Or at least not relatively speaking to the rest of Earth.

GARCIA: Correct. And as for why the U.S. has these excessively high costs, well, there's a bunch of possible reasons, Anne says - doctors' salaries, the prices of pharmaceutical drugs and a whole bunch of others. And economists and other scholars, they're going to continue debating just what those reasons are and how to reduce those costs because those costs matter a lot for whether people can afford health care. But what people often don't understand is that these health care costs also inflict a ton of indirect damage on the rest of the U.S. economy.

VANEK SMITH: And that is the subject covered in a new book called "Deaths Of Despair" written by economist Anne Case and her co-author, Angus Deaton. Anne says that when you understand the severity of this indirect economic damage, you will come to see that we - all of us as individuals - absorb these extra costs ourselves, sometimes in ways that we don't see.

GARCIA: Beginning, Anne says, with how those costs hold down wages for workers because those high costs make health insurance expensive for the companies that pay for it, so they end up paying their workers less.

CASE: If I'm an employer and I want to pay you what you're worth, I really don't care if I'm paying it in terms of the health insurance I'm buying you or if I'm paying it to you in wages. But I'm not going to pay more than you're worth. So if I'm paying most of the $20,000 on average a year per family that's spent on health insurance, that doesn't leave me as much money to pay you in terms of wages.

VANEK SMITH: Plus, Anne says, the high cost of health insurance hurts middle class and low-income workers the hardest. Since companies would rather avoid paying for expensive health care for their employees, they have an incentive to outsource those jobs to other companies or to contractors instead of hiring employees directly.

CASE: So what used to be a motor pool or a janitorial service or the food staff, the people who used to be part of the company or, as Nick Bloom, who is an economist, likes to say, who used to be invited to the holiday party no longer belong to those companies.

GARCIA: And this outsourcing can have all kinds of terrible knock-on effects as well, Anne says. Those outsourced jobs are unlikely to have the same benefits like paid sick leave or vacation or retirement savings plans that jobs within a company would offer. And those outsourced jobs are also just not as secure. By the way, we can see the problem with this right now with the coronavirus outbreak because people with these insecure jobs might feel that they have to come to work even if they are sick precisely because those jobs lack security.

VANEK SMITH: Plus, because those workers are contractors instead of employees, they don't have the same formal connection to the companies they're doing work for. So they can't rise up in the ranks.

CASE: There's nowhere to go. So you can work at any old low-skilled job, but it's not going to lead you anywhere. It's not going to allow you to build the kind of life that you had anticipated.

GARCIA: We'll have more from Anne Case right after a quick break.


GARCIA: And here's another way that super-high health care costs can hurt people in surprising ways. Because state governments have to pay for some of those costs, especially through Medicaid programs to help the poor, those state governments end up having less money for other things.

CASE: As states have to pay their share of Medicaid and that share of the budget goes up and up and up, then they have less money to rebuild the roads and rebuild the bridges and pay for education.

VANEK SMITH: Anne says that expensive health care can even make public universities more expensive because when states have less money to fund these universities, the universities make up that gap by raising tuition. So the universities become less affordable for the students that they were designed to accept.

GARCIA: And finally, Anne says that overly expensive health care also creates a bizarre set of incentives for the health care industry itself. That's partly because of the specific way that these costs contribute to rising inequality. Those extra costs represent a transfer of money from the middle class and lower-income workers to people in companies who are already doing pretty well.

CASE: And it's mostly going up the distribution. So it's going to pharma companies. It's going to device manufacturers. It's going to hospitals which merge and merge and merge and raise and raise and raise prices. Or it's going to doctors. So we know a lot of very fine physicians who are not overpaid, but it is the case also that many doctors are getting very wealthy off of this as well.

VANEK SMITH: For example, because companies that run hospitals and pharmaceutical companies are capturing a lot of this extra money, they end up spending some of it to protect their status and cut off competition. So they hire lobbyists and marketing people and sales reps to do that, rather than investing that money in ways that could help people like better drugs or finding a way to make the pricing of medical procedures a little bit more clear, so people don't have to get those massive surprise medical bills.

CASE: And it's also the case that Big Pharma spends more on advertising than it does on research and development.

GARCIA: This is bonkers.

CASE: This is bonkers. And the health care industry as a whole has five lobbyists for every member of Congress.

VANEK SMITH: If that's like...

GARCIA: That's astonishing.

VANEK SMITH: ...House representatives and senators, that's got to be like...

GARCIA: In the thousands - in the low thousands, yeah.

VANEK SMITH: ...In the thousands, right?

GARCIA: That's a lot of people.

VANEK SMITH: That's like a little town of health care lobbyists in Washington.

GARCIA: Yes, it is. Yeah. And these ways that excessive health care costs harm the economy, those are actually just the start, just some of the reasons that Anne refers to these costs themselves as a kind of cancer on the American economy. But there are others and so much more in this new book, "Deaths Of Despair," that Ann wrote along with Angus Deaton. It's actually out next week. I have read most of it. I highly, highly recommend it.

VANEK SMITH: This episode of THE INDICATOR was produced by Darius Rafieyan. Our fact-checker is Brittany Cronin. Paddy Hirsch is our editor. And THE INDICATOR is a production of NPR.


VANEK SMITH: Also, we would love to hear how coronavirus is changing your economic routines. Are there places you stopped going, things you stopped buying? Did you cancel a trip? Are there things you've started buying? If you can, record a voice memo and send it to us -

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