According to the Economist magazine, by a fairly wide margin, the United States is the biggest spender on healthcare in the world. This is both in terms of the percentage of healthcare spending of total gross domestic product (GDP), as well as per capita, or per person. Looking at GDP, healthcare accounts for 16% of the total pie. And in terms of per capita spending, the U.S. again leads at just over $7,500 per individual.



SEE: Investing In The Healthcare Sector



Big Spenders
Returning to GDP, the next biggest spenders are in Europe. Both France and Belgium spend around 11% of GDP on healthcare expenditures. This is followed by Switzerland, Canada, Germany and Austria at somewhere between 10 and 11%. The vast majority of other developed countries are in the high single digits, and the average of this group is 10.1%. Laggards, which are a good thing when it comes to total spending, include the U.K., Spain and Japan, all of which are around 7%.

In terms of growth, back in 2000 the average was 9%, meaning that healthcare spending across the globe continues to outpace overall economic growth. Again, the U.S. has experienced among the highest healthcare inflation. Back in 2000, it spent 13.4% of GDP on healthcare spending, which again was the highest in the world. However, other countries with aging populations, including Japan and Italy, have also seen above-average rises in spending.

Trends
The growth trend in health care spending doesn't look to be slowing down. In the U.S., a recent study by the Congressional Budget Office estimated that spending could double in the next decade. By 2022, it expects the U.S. to spend $1.8 trillion on healthcare. Roughly half of this will go to spending on the elderly while another significant percentage is projected to help lower income individuals pay for insurance, which is part of latest round of health care regulations.

Looking at the nearer-term growth trends, the U.S. is surprisingly a laggard. Returning to same Economist data, in 2012 the total U.S. and North American healthcare spending will rise a more modest 4.7%. Asia is expected to lead the way with a growth of 11.7% and will be followed closely by Eastern Europe and Russia at 11.6%. The Middle East and Africa will grow by 10.7% and Latin America a more modest 8.3%. Western Europe will actually see a 1.6% decline in spending, due in good part to sovereign debt issues that are slowing economic growth. (For related reading, see How To Choose A Healthcare Plan.)

Challenges
Digging a bit deeper, spending on the elderly is rising across the world as the population ages. Obesity challenges, especially in the U.S. are accounting for a rising proportion of total healthcare spending. Smoking-related illnesses, including lung cancer and heart disease, are significant but no longer increasing rapidly as anti-smoking campaigns, especially in developed countries such as the U.S., lower the overall number of smokers.

Focusing on preventative medicine, such as increasing health and overall well-being activities, could save trillions in healthcare spending across the globe. One study in the U.S. estimated that better control of hypertension in the elderly or diabetes and heart disease care for the overweight and obese could end up saving hundreds of billions going forward.

Another interesting question is why the excessive spending in the U.S. doesn't lead to world-leading healthcare statistics. The U.S. is the world's leading healthcare spender, but is actually towards the bottom of the list in terms of average life expectancy. Japan leads the way, with an average life expectancy of more than 81 years, to provide one of the best values given its low healthcare spending as a percentage of GDP. The U.S. is right next to Cuba at right around 77 years, with only a few countries at the bottom closer to 76 years of age.

The Bottom Line
A key takeaway, especially by looking at the high spending in the U.S., is that the most spending does not mean the best healthcare. Improved efficiencies are key to improving the cost/benefit tradeoff when it comes to healthcare spending. A McKinsey article from 2010 looked at an initiative in Ireland to reform its healthcare industry, and found that improving efficiency can have the most beneficial impact. It found that coordinating efforts among different providers for the same patient can reduce spending. It also modernized many hospitals and switched some services to larger hospitals with better economies of scale.

In the U.S., a primary criticism is that doctors and other medical professionals are incentivized to increase the number of procedures and tests because more activity means more revenue. A shift to preventative medicine and a focus on quality of care could help reduce spending growth and also make the system more efficient. (For more, check out Where Can Americans Go for Cheaper Healthcare?)

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: First Trust Health Care AlphaDEX

    Learn more about the First Trust Health Care AlphaDEX exchange-traded fund, an indexed fund that uses an advanced stock selection methodology.
  2. Insurance

    Explaining Co-Pays

    A co-pay is a set dollar amount an insured patient pays when visiting a doctor, filling a prescription, having tests performed or receiving other medical treatment.
  3. Investing Basics

    Understanding Brokerage Fees

    Agents charge brokerage fees for facilitating transactions between buyers and sellers.
  4. Mutual Funds & ETFs

    ETF Analysis: ALPS Medical Breakthroughs

    Learn more about a unique and innovative exchange-traded fund (ETF) in the biotechnology industry: the ALPS Medical Breakthroughs Fund.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares US Healthcare

    Learn about the iShares U.S. Healthcare exchange-traded fund, which invests in a wide range of health care providers, hospitals and home care facilities.
  6. Mutual Funds & ETFs

    ETF Analysis: BioShares Biotechnology Clinical Trials

    Learn more about the BioShares Biotechnology Clinical Trials Fund, a new and innovative fund focusing on breakthroughs in the health industry.
  7. Mutual Funds & ETFs

    ETF Analysis: First Trust NYSE Arca Biotech

    Learn more about the First Trust NYSE Arca Biotechnology Fund, a highly rated exchange-traded fund in the biotech space.
  8. Investing News

    Canada in Recession

    On September 1, 2015, Statistics Canada reported that the economy has contracted by 0.5% in Q2 2015, after falling 0.8% in previous quarter.
  9. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily Healthcare Bull 3X

    Learn about the Direxion Daily Healthcare Bull. This is a leveraged ETF that tracks the health care sector, which is a leader in this bull market.
  10. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
RELATED TERMS
  1. Section 1231 Property

    A tax term relating to depreciable business property that has ...
  2. Emergency Banking Act Of 1933

    A bill passed during the administration of former U.S. President ...
  3. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  4. Tenured Capital

    Loans offered by the government to key business sectors.
  5. The New Deal

    A series of domestic programs designed to help the United States ...
  6. Net Collections

    A term used in medical accounting to describe the amount of money ...
RELATED FAQS
  1. Where are the Social Security administration headquarters?

    The U.S. Social Security Administration, or SSA, is headquartered in Woodlawn, Maryland, a suburb just outside of Baltimore. ... Read Full Answer >>
  2. What is the Social Security administration responsible for?

    The main responsibility of the U.S. Social Security Administration, or SSA, is overseeing the country's Social Security program. ... Read Full Answer >>
  3. Is the Social Security administration a government corporation?

    The U.S. Social Security Administration (SSA) is a government agency, not a government corporation. President Franklin Roosevelt ... Read Full Answer >>
  4. What role does the agency problem play in the modern Health Care industry?

    Agency problems vary from health care system to health care system, and not all economists agree on the degree and desirability ... Read Full Answer >>
  5. How does the role of Medicare/Medicaid affect the drugs sector in the U.S.?

    Medicare and Medicaid have enormous influence on the pharmaceutical, or drugs, sector in the United States. For instance, ... Read Full Answer >>
  6. What are the ethical arguments against government subsidies to companies like Tesla?

    The ethical argument behind government subsidies is that they should be put into place to help industries that will, in turn, ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!