Fraser Forum

The reality of U.S. and Canadian health-care spending

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Health-care spending accounts for a high share of Gross Domestic Product in the United States, relative to Canada. In 2013, U.S. health-care spending accounted for 17.1 per cent of GDP, versus just 10.7 per cent in Canada, according to an October 2015 report from the Commonwealth Fund. (All calculations in this blog post are derived from this and previous editions of this report.)

Critics of U.S. health-care spending often conclude this is excessive, imposing a drag on American prosperity. It’s one reason why politicians such as Democratic presidential candidate Bernie Sanders (from the border state of Vermont) endorse Canadian-style, single-payer health care.

The idea that expensive U.S. health care is a burden on the country is a very naïve conclusion. Although U.S. health-care spending is very inefficient, there’s little evidence that it subtracts from spending on other goods and services. In U.S dollars, health-care spending was $9,086 per capita in the U.S. in 2013, versus only $4,569 in Canada. (These prices are reported at purchasing power parity, which adjusts the foreign currency exchange rates for differences in cost of living.)

At almost double the per capita cost of Canadian health care, this level of spending in the U.S. certainly invites us to question whether Americans are getting their money’s worth. However, when considered in the context of significantly higher GDP per capita than Canada, American health-care spending disappears as a fiscal burden.

In 2013, U.S. GDP per capita was $53,135 versus just $42,701 in Canada. When U.S. health-care spending is subtracted from GDP, Americans still had $44,049 per capita to spend on all other goods and services. Canadian GDP per capita after health-care spending was only $38,132. So, even though American health care is significantly more expensive than Canadian health care, the average American enjoyed just under $6,000 more income after health-care spending than his Canadian neighbour.

Looking back over the decades, we can see that this has held true over long periods. In 1990, U.S. health-care spending accounted for 12.6 per cent of GDP, while Canadian health-care spending accounted for 9.2 per cent.

Advantage Canada again, right?

No, not when examining actual dollars. U.S. GDP per capita was $22,214, of which $2,799 was consumed by health care. For Canada, the figures were $18,435 and $1,696. So, even though U.S. health-care spending per capita was much higher than Canada’s was, the average American had a little more than $4,000 more income after health-care spending.

If we go all the way back to 1960, before the Canadian health-care system was fully socialized and the U.S. system was largely socialized, we see an interesting similar result (although the dollar figures appear shockingly low to our 21st century eyes). U.S. health-care spending was $149 per capita, which accounted for 5.2 per cent of GDP per capita. Canadian health-care spending was $104 per capita. However, that accounted for a slightly higher percentage of GDP per capita (5.5 per cent) because Canadian GDP per capita ($1,873) was significantly lower than U.S. GDP per capita ($2,865). The average American had almost $1,000 more income after health-care spending.

American health care has significant problems. However, it has not imposed a burden on the country’s prosperity. Health care is just one facet of a very complex economy. Innovative and fragmented, U.S. health care may even be a factor stimulating American prosperity. Politicians who simply want to complete its socialization along Canadian lines without looking for other ways to improve its efficiency and fairness are inviting significant negative unintended consequences.