Why Is U.S. Healthcare So Expensive? Unpacking the Cost Crisis
U.S. citizens pay more for health care than anybody else in the world. Moreover, we have the lowest life expectancy among wealthy and large countries.
This can be explained by considering the unique aspects of our healthcare system. We reward doctors more for medical procedures than for keeping people healthy; the costs are kept hidden from customers, and money is spent on tasks that have nothing to do with making patients feel better.
People spend more in the U.S. on administrative costs rather than on caring for heart disease or cancer, says Harvard University economist David Cutler. He called it “an absurd amount,” as well.
The working-age Americans pay for their life insurance, and the payrolls jumped nearly three times faster than wages over the past two dozen years. The bills in this case are the leading cause of personal bankruptcy. According to the Consumer Financial Protection Bureau, medical bills account for more than half of all debt when it comes to consumer credit records in 2022. son.
We can’t deny the public anger that formed over the high costs and poor results, as the focus is on the health insurance industry.
Health economists say the entire healthcare system deserves scrutiny for runaway medical bills. Companies took in $25 billion in profit last year, and hospitals managed to collect the eye-popping amount of $90 billion.
Vivian Ho, a Rice University economist, says that it’s clear how angry the public is about the costs. She is, however, glad that people can voice their anger against insurers, but she believes that the anger should be equally directed against hospitals, especially since so many are non-profit.
These are some of the reasons why Americans pay the most for healthcare:
1. No price limits
In the US, there are more specialists than in other nations, and having access to 24/7 specialty care, especially in hospitals in major metro areas, drives up the costs, according to healthcare policy specialists.
Patients have more room and privacy in US hospitals, and there are typically one or two patients per room. Unlike facilities abroad, which tend to have open wards or rows of beds, this makes a difference in labor markets and regulatory requirements that can pack on costs as well.
In 2022, $4.5 trillion was spent on US healthcare, and hospitals took 30% of the total health spending, according to the Center for Medicare and Medicaid Services. 20% was ranked to doctors and 9% to prescription drugs and health insurance, both private and governmental. Medicare and Medicaid collected 7% in administrative costs.
As most US hospitals are non-profit, they are expected to provide free or reduced-cost care to low-income patients, plus offer community benefits.
Federal law actually requires hospitals to assess and stabilize every patient who needs care in an emergency room, even if they don’t pay their bills. However, research suggests that many hospitals do not live up to charity or any community benefit obligations.
Johns Hopkins University and Texas Christian University estimated the nation’s nearly 3,000 nonprofit hospitals were spared $37.4 billion in state, federal, and local taxes in 2021.
2. Hospitals and doctors are paid for services, not the outcome.
While doctors and hospitals, plus other providers, are paid based on the number of tests and procedures they order, and not a count of the patient getting better, there is no such thing as control when it comes to this. It’s everything on the doctor’s will if they practice deontology or not, and this is a reflection of the poor results.
The insurer pays the doctor, the lab, and the hospital, and it’s all negotiated in-network rates between the two parties.
Critics of this system talk about the reward on quantity over quality and health providers who order more tests and procedures with the particular reason of getting lucrative payment, whether the patients are healthy or not.
Many people consider that this is not how health care should be delivered in our country, and they are thinking about an alternative health payment called value-based care.
The Affordable Care Act passed in 2010, and the Centers for Medicare and Medical Services funded small programs that encouraged other health providers and hospitals to emphasize value over volume.
3. Specialists are paid a lot, and they want to keep it that way.
Doctors providing specialty care, like cardiologists or cancer doctors, are currently getting higher payments from Medicare and private insurers than primary care doctors.
This can be seen as a system rewarding doctors who specialize in caring for patients with complex medical conditions, and they don’t give the same credit to primary care doctors who try to prevent or limit disease.
Doctors are chosen and approved by the American Medical Association’s 32-member committee, which recommends value for medical services that Medicare considers when deciding how much to pay doctors. This idea is compared to the idea of doctors basically setting their own pay scale to the proverbial “fox guarding the henhouse.”
Medicare payment rates don’t determine how much taxpayers shell out for older Americans, but they set the base for healthcare prices. Private insurers use Medicare rates to decide how much to pay doctors and hospitals.
With an overhaul, there could be more lucrative payments for primary care doctors who emphasize preventive care. This could be a help in making people healthier and reducing costly spending on specialists.
4. Administrative costs
The biggest source of wasted medical spending comes from administrative costs, according to several experts.
Medicare’s official healthcare spending report doesn’t calculate the nation’s spending on administrative tasks, but an estimation from Harvard’s Cutler is 25%.
With required authorizations before performing operations or procedures, with mandates of “step therapy,” making patients try comparable lower-cost prescription drugs before covering for a doctor, these trigger a flurry of communication and tasks for both doctors and health insurers.
Even if medical records are computerized, they don’t communicate with outside organizations like health insurers, resulting in extra administrative tasks when doctors attempt to get authorization from an insurer on behalf of a patient.
It would be a real help if insurers could track patients’ records electronically instead of turning to calls and throwback technology such as fax machines.
5. Healthcare pricing seems to be a mystery
Most of the time, patients don’t know the costs of tests and procedures before they go to a hospital or clinic. Healthcare prices are not transparent to the public. An MRI cost varies from $300 to $3,000, only depending on where you get it, and a colonoscopy, for example, runs from $1,000 to $10,000.
These examples were cited in a request for Congress to pass the Health Care Price Transparency Act 2.0, requiring health providers to disclose their prices.
6. Americans pay astonishing amounts for prescription drugs compared to other wealthy nations
With no price limits on prescriptions, Americans pay most for their life-saving medications than any other nation. The U.S. prescription drug costs are 2.5 more expensive compared to 32 wealthy countries.
Lawmakers have scrutinized prices for medications such as Ozempic and Wegovy as it was noticed that U.S. residents pay so much more for these medications than people in other countries.
Novo Nordisk, an Ozempic manufacturer charged $969 a month, while the same drug can be accessed with $155 in Canada, $122 in Denmark, and $59 in Germany.
Huge names on the healthcare scene openly talk these days about the issues and can just hope they will find better solutions. Andrew Witty, CEO of UnitedHealth Group acknowledges the flaws that many Americans see in their medical care, as he wrote. “We know the health system does not work as well as it should, and we understand people’s frustrations with it”.
This is an audiobook you can find on Amazon if you want to find out more about the costs of our healthcare system:
The Price We Pay: What Broke American Health Care – and How to Fix It, by Marty Makary MD
Read next: 6 Accidental Inventions That Changed The World
