If you didn’t already know it, Americans spend more per capita on health care than any other nation on the planet. I recently listed the countries with the highest health-care costs, with the U.S. by far coming out on top (or bottom, depending on how you look at it.)
But what about the opposite angle? Maybe we can learn some lessons from examining the nations that don’t spend so much. Here they are — the seven countries spending the least per capita on health care among the 34 member nations of the Organisation for Economic Co-operation and Development, or OECD.
Israel spends 7.5% of its GDP on health care. That equates to a cost of $2,071 per person — less than one-fourth that of the United States.
6. Czech Republic
The Czech Republic also spends 7.5% of GDP on health care. However, its $1,884-per-person spending level edges the country ahead of Israel to take our No. 6 position.
5. South Korea
The Republic of Korea, usually referred to as South Korea, spends 7.1% of GDP on health care. That amounts to $2,035 per person.
Poland comes in at No. 4 with 7% of GDP spent on health care. Per capita spending for the Poles totals $1,389.
Estonia spends 6.3% of GDP on health care. Its medical spending of $1,294 per person ranks the fourth lowest of all OECD member countries.
Mexico comes in second in health-care spending, with 6.2% of GDP. Mexicans’ per capita medical costs total $916.
Turkey stands as the OECD nation with the lowest health-care costs. Turks spend 6.1% of GDP — $913 per person — on health care.
Low cost, low quality?
How effective are these countries’ health-care systems? If we use life expectancy as a barometer, they don’t appear too effective.
Five of the seven nations have life expectancies well below the OECD average. However, South Korea and Israel have above-average life expectancies. Israel’s life expectancy of 81.7 years ranks as the sixth highest among OECD members.
Six of the countries also have fewer citizens reporting good health than the OECD average. Only Israel scores well in this metric, with 82% of people stating that they perceived their health as good.
Many of these nations with low medical costs are seeing those costs grow rapidly. Only Mexico and Israel have health-care growth rates below the OECD average.
At first glance, there appears to be little for investors to glean from this information. However, there is something we can take away.
Israel and South Korea provide better comparisons for the United States. Both nations have relatively high GDPs and more developed economies. Both also have made the transition to universal health-care systems in the past 25 years. As the U.S. transitions to Obamacare, lessons from issues encountered in Israel and South Korea could be helpful for investors.
Israel, for example, has state-provided health care, yet 80% of its citizens purchase supplemental health insurance. Israel Medical Association deputy chairman Dr. Yitzhak Ziv-Ner says that “this shows the lack of faith the Israelis have in the basic system, which is not enough for them.”
South Korea’s health-care system shares several features in common with Obamacare, but the central government is the single payer. Even with the government calling the shots, health-care costs have skyrocketed, with an annual growth rate of 9% between 2000 and 2010 — the second highest among OECD nations. The primary culprit in South Korea’s medical-cost increases appears to be the fee-for-service financial incentives in place.
How do these observations help investors in the United States? First, Israel’s experience highlights the likelihood of the continued importance of health insurers. Second, South Korea’s cost issues emphasize the Accountable Care Organizations, or ACOs, and new reimbursement mechanisms that could help control health-care spending. If we put these two together, we see the possibility that forward-thinking health insurers in the U.S. that are active in ACOs could do well over the long run if the U.S. encounters similar issues to those that Israel and South Korea have faced.
I think UnitedHealth Group Inc. (NYSE:UNH) stands out as the best candidate for investors to consider with the lessons of these two American allies in mind. As the largest managed-care organization in the Western Hemisphere, UnitedHealth Group Inc. (NYSE:UNH) brings considerable economies of scale and significant resources to compete effectively.