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The cost of health care in Western countries 

The cost of health care in Western countries

The cost of health care in Western countries

Joseph White


May 30, 2013: This chapter has been re-evaluated and remains up-to-date. No changes have been necessary.

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date: 27 March 2017

All advanced industrial countries socialize most health care costs because their citizens view relatively equal access to such care as a mark of a decent society. This makes the costs of health care a policy issue, because governments need to relate costs to revenues, and there are limits to the willingness of citizens, especially wealthier citizens, to pay for others.

Why are health care costs rising?

Discussions about health policy often ascribe higher costs to technology, ageing, or ‘moral hazard’ (meaning the fact that people do not face price constraints when they consume care). None of these explanations gives useful guidance to policy makers. If technology were the dominant issue, then all systems would have the same costs; instead, policies affect both the adoption and price of technology. If ageing were crucial, costs across countries would be correlated with population age profiles; in fact there is little correlation. ‘Moral hazard’ is an inevitable consequence of the socialization of costs and does not prevent wide variation in costs across countries.

How can health care costs be controlled?

Cost control depends on policies that affect the price of care, volume of care, and system overhead costs. The most important direct measures are price regulation and measures to bundle services (meaning paying for a collection of services instead of for each individual service). The most important indirect approach is to limit system capacity. Measures to improve population health can be viewed as efforts indirectly to reduce volume, as can measures to make treatment more appropriate, such as ‘managed care’ (meaning mechanisms to regulate clinical decisions through some mix of guidelines, incentives, or governance arrangements). In practice, there is little evidence of success through such indirect methods. So far, much blunter measures such as price regulation and bundling have been more successful.

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