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Link between health spending and life expectancy: US is an outlier

This post was originally published on August 3, 2016. It was updated on 26 May 2017.
Our World in Data presents the empirical evidence on global development in entries dedicated to specific topics.
This blog post draws on data and research discussed in our entry on how healthcare is financed.

The graph below shows the relationship between what a country spends on health per person and life expectancy in that country between 1970 and 2015 for a number of rich countries.

The US stands out as an outlier: it spends far more on health than any other country, yet the life expectancy of the American population is not longer, but actually shorter than in other countries that spend far less.

If we look at the time trend for each country, we first notice that all countries have followed an upward trajectory—the population lives increasingly long lives as health expenditure increases. But again, the US stands out by following a much flatter trajectory: gains in life expectancy from additional health spending in the U.S. are much smaller than in the other high-income countries, particularly since the mid-1980s.

This development has led to a large inequality between the US and other rich countries. In the US health spending per capita is often more than three times higher than in other rich countries, yet the populations of countries with much lower health spending than the US enjoy considerably longer lives. In the most extreme case, we see that Americans spend more than 5-times what Chileans spend, yet the population of Chile actually lives longer than Americans.

[This graph and more information can be found in the entry on how healthcare is financed.]

And it is not only life expectancy

There are several aspects that contribute to the US being such an extreme outlier. Studies find, for instance, that administrative costs in the health sector are higher in the US than in other countries; they also point out that price comparisons among countries rely on adjustments which are not ideally suited for comparisons of health costs, and this might make comparisons more difficult. Sometimes, these analyses point out that violence rates in the US are higher than in other rich countries, and this is true). But while this could explain the difference in levels, it is not a likely explanation for the difference in trends. Over the period shown in the chart above, violence and homicides have fallen in the US more than in other rich countries, and this should have led to a narrowing of the difference rather than the growing gap that we see.

One of the reasons for the underachievement of the US is the large inequality in health spending. Growing expenditure without insurance expansion has meant that healthcare expenditure has become highly concentrated—the top 5% of spenders account for almost half of spending, and the top 1% account for almost 20%—above and beyond the expected inequality in need. In our entry on how healthcare is financed we discuss the empirical data on this in more depth.

The higher levels of violence in the US (which kill mostly middle-aged Americans) also fail to explain why the US is not only a huge outlier in total life expectancy, but also in child mortality and maternal mortality. The share of children that die before their fifth birthday is much higher in the US than in other rich countries, even though the US spends much more on healthcare.
Maternal mortality is also much higher in the US than in many other rich countries, and while it is falling in most other countries it is increasing in the US.