Health Professional Costs and Health Spending

By June 25, 2015 Commentary

The United States undoubtedly has higher health spending than other developed nations and fairly rapid spending growth.  The extent to which this is a bad thing depends on your perspective.  In a private market economy, the level of spending for anything largely reflects what people are willing to spend on.  And sociodemographics and cultural factors can play a large part in variable spending across countries.  While some critics suggest that excess and inappropriate utilization is largely responsible for our higher spending, most research suggests that isn’t true, that unit costs are more responsible.  A study published in Health Affairs finds that higher wages in health care than for similar roles in other industries may be a partial explanation for our higher costs.  (HA Article)   Labor compensation accounts for  about half of all health service expenditures.  The authors tried to tease out whether labor rates, including for health professionals, were higher and rose faster from 1979 to 2013 than did labor rates in other industries.  They used some standard models to identify comparable positions in these non-health care sectors.

Before adjustment for education, experience and demographics, mean wages in health care are almost the same as those in the broader economy.  But adjusting for those factors indicates that overall wages in health care are 3% higher than in other sectors and for the higher paid cohort of health care workers, the difference was 4.7%.  And when non-professional and professionals are compared, non-professional health care workers earn less than the models would predict and professionals earn more.  Nurses earn 40% more and physicians earn 50%.  In general, over the study period, the gap between health professionals and non-health professionals grew.  So it appears that the lower-paid health workers don’t earn more than they would in other sectors, they may actually earn less.  While professionals earn substantially more, their contribution to total health spending is insufficient to be a primary cause of the overall higher level of spending.

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