The United States healthcare system is often characterized as inefficient. This inefficiency becomes apparent when the U.S. healthcare system is compared to systems of other countries in the Organization for Economic Cooperation and Development (OECD). The U.S. spends a much larger portion of its GDP on healthcare than any other OECD country, but experiences no better health outcomes in most cases. When the concept of efficiency within the healthcare market is understood, it is evident that the inefficiency that occurs within the U.S. healthcare system results largely from the structure of the private health insurance system in addition to the heterogeneity within the U.S. population.
To understand why the U.S. healthcare system is characterized as inefficient, it is first important to understand what is meant by efficiency, and what it means to be characterized as inefficient. When applied to the healthcare market, the concept of efficiency can be separated into two categories: productive and allocative efficiency. Productive efficiency relates the quantity and cost of inputs used in the healthcare market with the health outcomes in the market. For a market to be productively efficient, it means that the output attained is produced with the lowest possible cost (Garber and Skinner 28). This means that productive inefficiency is described as obtaining a certain level of output, but not in the least costly way. When comparing healthcare systems across countries, a system is inefficient compared to another if it obtains the same outcome by using more inputs or at a higher cost, or alternatively by using an equal number of inputs or cost but obtaining a lower output.
Allocative efficiency, on the other hand, is much different...
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...m caused by the private health insurance market is a large contributor to the inefficiency experienced in the U.S. healthcare system. The incentives created by private insurance for patients to overuse health services and for doctors to create extra demand for health services creates allocative inefficiency. The inefficiency also stems from productive inefficiency since the costs of healthcare are much greater in the U.S. than other OECD countries, but the outcomes of health are almost always worse in the U.S, which is a result of the heterogeneity of the U.S. population. Though it is not always easy to measure efficiency, these reasons help to explain why the U.S. healthcare system is inefficient.
Garber, Alan M., and Jonathan Skinner. “Is American Health Care Uniquely Inefficient?” Journal of Economic Perspectives 22.4 (2008): 27-50. Print.