Why Is Health Care So Expensive?

The U.S. has very expensive health care providers

Health insurance costs are up 9% this year. While insurance companies take a lot of the rap, as they deliver the bad news, and administration costs are much higher in the American system than the health care payment systems of most other countries, the bigger factor driving high health care costs in the United States are much higher provider costs pretty much across the board.

Of doctors, nurses, hospitals, medical equipment makers, and drug companies all charge far more for their comparable services than providers (sometimes for precisely the same products from the same factories) in other developed nations, even controlling for purchasing power parity and relative standards of living in different countries.

The Number of New M.D.'s has stagnated for at least 30 years

One particularly notable point is that despite a growing population and increasing parity of men and women in the medical profession, we are making the same number of new doctors per year (about 16,000) that we did in 1980. The number of new male doctors minted each year has actually declined from about 11,500 to about 8,000 (about 30%) from 1980 to 2010. The U.S. population has increased by 36% over that time period. Thus, roughly 48% of men who would have been admitted to medical school in 1980 wouldn't be admitted to medical school today (since racial diversity has increased due to decreased racial discrimination in higher education and thereby expanded the pool of medical applicants as well, this is probably an underestimate). The number of medical students could probably be doubled without dropping admissions standards for incoming medical students below what they were in 1980.

Only three U.S. medical schools that offer an M.D. outside of Puerto Rico and disclose that information have a median undergraduate GPA of less than 3.54 and some have median undergraduate GPAs as high as 3.89. All three with lower median undergraduate GPAs are Morehouse School of Medicine in Atlanta, (3.46), Howard University College of Medicine (3.37), and Meharry Medical College School of Medicine (3.25) (these three schools account for about 15% of all African-Americans who earn M.D.s in the U.S. in any given year). One one other school (Marshall University which as a median MCAT score of 26 and a median undergraduate GPA of 3.58) has a median MCAT scores which are on a 45 point scale range from 27 (about the 60th percentile of test takers) to 38 (98.5th percentile) at the institutions with a median 3.54 GPA or higher. Canadian medical schools are in the mid-range of U.S. medical schools in undergraduate GPAs and test scores. Acceptance rates to some medical school by combined MCAT and undergraduate GPA can be seen here. For example, a little more than half of medical school applicants with a 3.5 GPA and a MCAT score of 31 manage to get admitted to some medical school. About one in five applicants with a 3.7 undergraduate GPA and a MCAT score of 34 still don't manage to get admitted to any medical school. An MCAT score of 35 is roughly comparable to a Stanford-Binet IQ score of 132 (98th percentile of the general population).

Nationwide 18,665 students started medical school in 2010 and 42,742 people applied to medical school (the average applicant applied to 13.6 schools). At public medical schools, in state applicants were favored over out of state applicants by a more than 2-1 ratio on average, and at many public medical schools the ratio is more than 3-1. In 2010, 16,838 students graduated from medical school, about 90% of the number of students admitted in that year.

Thus, the circumstantial evidence is pretty strong that significantly more medical school applicants could be admitted without a serious impact on medical student quality and that a very large share of marginal students admitted would graduate.

While the medical profession needs minimum standards, there is little doubt that the people who made the cut a few decades ago and would not have made the cut now due to limited availability of medical school slots would be good enough.

Physicians are the highest paid single profession in the United States and have exceedingly low unemployment rates. They typically graduate with significant debt and work long stressful hours, but the 23,000 students who apply to medical school and fail to get in anywhere each year is proof that there is no shortage of people willing to accept those economics, the endemic long hours worked by physicians is a sign that there is no shortage of demand for their services, and the incomes earned by physicians in the U.S. which are roughly double those of physicians in other developed countries is an indication that they would not suffer unduly is an increased supply of physicians caused physician compensation rates, after many years of keeping up with inflation (M.D.s were one of the few educational groups not to see a decline in household income in the last decade) to stagnate or to decline somewhat.

More Medical Schools Would Be A Good Alternative For The Economy

The market has responded by creating layer upon layer of subordinate medical professions, like nurse practioners and physician assistants, to fill the gap caused by a shortage of physicians. But, simply having more doctors would make a world of difference in affordability and access to care.

When it comes to a no brainer plan for greating more good paying jobs that meet the nation's economic needs while also making health care more affordable and available, opening new medical schools has to be close to the top of that list.

Also, while there is real doubt about whether churning out more degrees adds economic value and capacity ot the nation, or simply leads to credential inflation, there is little serious doubt that what a person learns in medical school actually adds economic value relative to what that person knew and was able to contribute to the economy before going to medical school. The marginal medical student may be a smart and hard working person, but will rarely be able to have a career that has the same economic value in lifetime income terms as an identical student who is admitted to medical school and graduates.

And, new medical schools, while they would not address the shortage this quarter, or even this year, because they are at the end of the educational line, could be providing a significant increase in the supply of doctors who have completed their residencies as soon as a decade from now, long term for politicans, but no further in the future than, for example, than typical time frames for the realization of plans to make investments in transportation infrastructure like new light rail lines or major highway improvements. Moreover, whatever shortage of medical doctor capacity we have now, it will almost surely be greater in 2020, when a new medical school would start to impact the economy, first because the population of the United States will have increased, and second, because the percentage of Americans who are older will have increased and they have a greater demand for medical services than younger people.

There are also multiple ways that new medical schools could come to be. States could start them within their public university systems. The federal government could create them or provide grants to assist with start up costs. Or, private charities, such as those created by numerous sales of non-profit medical systems to private companies creating large foundations with the proceeds, could step up to meet this need.