United States: #7 in the World Index of Healthcare Innovation

Introduction

In the 2024 World Index of Healthcare Innovation, the United States has climbed to 7th place, a notable improvement from its 11th-place ranking in 2022. The nation’s leadership in the Science & Technology sector, where it ranks 1st, is bolstered by its world-class research universities and a thriving biotechnology industry. This prowess was clearly evident during the COVID-19 pandemic when the United States government swiftly collaborated with the private sector to develop and distribute vaccines at an unprecedented pace.

However, the United States finds itself in a precarious position regarding Fiscal Sustainability, ranking 32nd, the lowest among indexed countries. The nation leads in per capita government healthcare spending, which continues to grow at an unsustainable rate. The financial burden was further intensified by increased spending during the COVID-19 crisis.

Despite the United States ranking 6th for Choice, the high costs of health insurance limits Americans’ choice by putting health care services financially out of reach. 

Background

The modern U.S. healthcare system has its roots in World War II policy anomalies. To circumvent wartime wage controls implemented by President Franklin D. Roosevelt, employers boosted fringe benefits, notably health insurance. This workaround was later institutionalized by the Internal Revenue Service in the 1950s, which excluded employer-sponsored health insurance from taxable income. This catalyzed the widespread adoption of health insurance, subsequently triggering a significant rise in healthcare prices.

By 1965, significant legislative changes expanded health coverage with the establishment of Medicare and Medicaid under the Social Security Act amendment. Medicare provided healthcare to the elderly, while Medicaid expanded access to the impoverished. These programs, especially Medicare, were modeled on employer-sponsored plans prevalent at the time and lacked stringent cost controls. This led to a system in which healthcare providers were reimbursed based on the “usual, customary, and reasonable rate,” significantly influencing cost structures.

As a result, public healthcare spending has escalated. In 2023, the United States spent approximately 18 percent of its GDP on healthcare, nearly double the OECD average of 9.6 percent. Additionally, U.S. public health subsidies are the highest globally, with per capita expenditures exceeding $10,000.

The United States remains a leader in medical innovation, with both private and public sectors driving advances in treatment and technology. American innovation was highlighted during the COVID-19 pandemic, with U.S. companies leading the development of vaccines and therapies. The biotechnology sector is particularly vibrant, with firms like Amgen, Genentech, and Moderna spearheading numerous breakthroughs. Meanwhile, medical device manufacturers such as Johnson & Johnson, Medtronic, and Boston Scientific continue to set global standards.

The U.S. healthcare system operates through a complex hybrid model. Private insurance, primarily employer-sponsored, is the main access mode for most Americans, complemented by public programs like Medicare and Medicaid. These public programs serve critical demographic segments, with Medicare covering over 60 million elderly and Medicaid providing for over 72 million low-income individuals as of 2023.

Dimension Performance

Quality

In the Quality dimension, the United States holds the 14th position. It does well in patient-centered care, ranked 6th, which highlight relatively low wait times and active patient involvement in medical decisions. However, the country faces challenges in infrastructure and disease prevention, where it ranks 20th and 22nd, respectively. A significant drawback is the shortage of primary care physicians, with the United States ranking at the bottom in this category at 0.3 primary care doctors per 1,000 residents, undermining broader healthcare effectiveness.

Choice

In the 2024 Index, the United States improved its ranking to 6th in Choice, up from 10th in 2022. The improvement was driven by improved access to biosimilars, particularly biosimilars for blockbuster drug Humira. The United States is recognized for its unparalleled access to cutting-edge medical technologies, but it ranked dead last in the affordability of health insurance, largely due to the prohibitively high costs of healthcare. It’s important to note that the significance of choice is greatly diminished when healthcare remains unaffordable.

American policy experts often talk about consumer-driven healthcare: the concept that healthcare markets are most efficient when patients are directly spending on their own care, as opposed to doing so through third-party insurance. It is surprising, then, that the United States ranks second-to-last in out-of-pocket spending as a share of national health expenditures. Even Canada and the UK have higher shares of out-of-pocket spending, as do most other single-payer countries.

Science and Technology

The United States holds the top position in the Science and Technology dimension, outpacing Switzerland by a significant margin for the largest gap noted in any category of the Index. This distinction contributes heavily to America’s robust overall ranking, despite weaker showings in other areas.

In the field of medical advancements, the United States ranked 2nd, excelling particularly in the approval of new drugs and medical devices. It leads globally in securing Nobel prizes in chemistry and medicine on a per capita basis, helping it achieve the 1st place ranking in scientific discoveries. Meanwhile, the country stands 4th in health digitization and maintains 2nd place in R&D expenditures per capita. This pronounced scientific prowess not only enhances the United States’ standing but also fosters groundbreaking treatments, like Moderna’s COVID-19 vaccine, which come from pharmaceutical and biotechnology sectors.

Fiscal Sustainability

The United States is positioned last (32nd) in Fiscal Sustainability, primarily due to its exceptionally high government health spending, which is the highest globally. Per capita spending reached $13,500 for this year’s Index, of which nearly $7,500 is public spending. For comparison, Switzerland, with the second-highest health spending, recorded a per capita expenditure of $9,200 but reached only $1,999 in public spending. The fiscal outlook for the United States is likely to worsen as healthcare inflation continues to escalate the costs associated with subsidies for Medicare, Medicaid, the employer tax exclusion, and the insurance exchanges under the Affordable Care Act.