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Here's Why U.S. Health Care is so Expensive
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St. Louis Post-Dispatch
June 30, 2009
EDITORIAL
By any standard, American health care is the world's most expensive.
-We spend twice as much per person as the average of other large developed nations _ $6,714 in 2006, compared to $3,414. In 2008, per-person spending is estimated to have reached about $8,300 _ enough to buy a nice used Ford Taurus for every man, woman and child.
-Health spending consumes 40 percent more of our gross domestic product than the average of other industrialized countries. We devoted 16.2 percent of GDP - the total annual output of goods and services - to health care in 2007. The average in other nations is 9.26 percent.
-U.S. health spending has grown significantly faster than it has in other industrialized countries. And not just recently, either _ the trend goes back to at least 1970. It's grown at twice the rate of inflation in recent years, down from nearly three times the inflation rate in the late 1990s and early 2000s.
This spending binge has important consequences. It is the reason why many Americans are uninsured, and it is why such a large portion of bankruptcy cases involve medical expenses.
It also is a big reason why wages have stagnated in recent years, pinching many American families. When health costs are stable, wages rise more quickly. When health care costs rise, wages stagnate.
High medical costs make American companies less competitive internationally. Businesses in Canada or Japan pay higher taxes, but they don't face insurance premiums that have doubled in the past 10 years.
Money spent on health care isn't available for other social needs, such as education or rebuilding the nation's crumbling infrastructure.
So it is worth asking a deceptively simple question: Why is U.S. health care so expensive?
The answers may surprise you.
It is not because of the aging population. Older people use more health care, but health spending is rising in all age groups. Besides, the population in some European countries is even older than ours.
It also is not because Americans are insulated by insurance from the true cost of care _ a favorite explanation of some people on the right. We pay substantially more out-of-pocket costs than residents of other developed countries, yet their national spending is lower. Americans don't seek care more often than people in France or England.
So what accounts for the difference?
The first reason is that we're rich. Richer countries can afford to spend more on health care, and they do.
But that is only part of the answer. Princeton University's Uwe Reinhardt, one of the nation's leading health care economists, calculated what U.S. health spending would be if the size of the economy were the only factor. Then he compared it to what we actually spent in 2008. The difference? A whopping $650 billion.
That's almost six times what it would cost to reform health care and insure every American.
Some of the extra costs are caused by the legal system, which can encourage doctors to practice defensive medicine. But other factors play a bigger role.
Higher prices are one. The same goods and services _ drugs, for example _ cost much more here than they do in other countries. Why? Because they can. Neither the government nor the free market controls them.
Another big reason is paperwork. We spent about $156 billion on insurance company overhead in 2007. A study in The New England Journal of Medicine estimates that Americans spent $1,059 per person on administrative costs, almost three and a half times more than Canadians.
One final reason is so important that we'll examine it separately in a future editorial: Americans are more likely to receive intensive treatment _ often involving expensive, high-tech equipment and procedures _ than people in other countries. Supply drives demand.
You won't find that in Europe. But in Austria and Germany, average life expectancy is two years longer than it is in the United States. It's three years longer in France, and four years longer in Switzerland.
That raises another deceptively simple question: What are we getting for all that money we spend on health care?
telmagazio
3 months ago
44 comments
The answer for the ultimately question is "Absolutely Nothing". People like the article said go to bankruptcy because health expenses, it's a shame to a "rich" country to make their population more and more poor because they can afford health insurance and when they needed they became completely broke.
PhillyXTech
3 months ago
388 comments
We love this electronic medical records thing in this country, don't we?
In my experience, electronic records have the same problems as written records. Multiple different vendors selling products for record keeping. Seimens, GE, Kodac, Microsoft, none of which will share proprietary code to make the system workable.
So what we end up with is a huge stack of programs on top of one another creating RAM overuse problems that end up crashing the systems, and when that happens we all sit around doing nothing just wishing that we still had the paper files as a backup so we could actually worry about the patients rather than where the data gets stored.
rednam
4 months ago
12 comments
The drug industry in collusion with congress, FDA ratchet the prices high along with the bleesing of unnecssaryly litigating legal sharks. The same brand drug cost less in Canada or Mexico and real low in Asia and Africa. The American retail industry overheads are higher than other countries so the cost of medications are the highest and also because Americans can afford to pay .Americans abuse their bodies with unhealthy life styles. Americans suffer from the disease of prosperity and excess advertisement and easy credit. The health care system is very creative with detours and distractions to ligthen ones wallet. The middleman in the heathcare delivery is insurance industry who makes sure it costs more to you with out your knowledge. They profit by gouging from public in theform of creative premiums and under paying providers with deceptive practices. When caught the insurance industry lawyers cleverly get their clients off the hook for a fraction of the misapproprited money with out taking any liability. Then the business is as ususal more illegal profits. The anti trust laws apply to most to doctors less to hospital and none to behemoth insurane industry monopolies like Blue Cross, United health care, and Aetna.
mrsjack
4 months ago
2 comments
Greed and stupidity. The fraud known as the "annual physical" was promulgated following WWII to enlarge the practices of demobilized military physiucians. Insurance company stock is a good investment because it is highly profitable. Americans are stupid in their health choices as a direct result of our failed education system--not only are American children unable to find countries on the map, they are also incredibly ignorant about the functions of their bodies. The high cost of medications is partly the result of huge advertising expenditures.
David305
4 months ago
2 comments
The article is fairly factual but does not address many of the key issues. First, as long as there are poor diets, lack of exercise and poor lifestyle issues such as smoking, excessive drinking, failure to use seat belts the cost will be difficult to control. Second, the cost of the selling process is high. In most small groups and individual policies, there is a broker commission built in that on average is around 8% even though you do not use a broker. This holds true for online purchase of insurance as well. Third is the cost shifting the government has forced on the system. The government negotiates such low pricing for Medicaid and Medicare that the financial burden gets shifted to the group and self pay market. Forth is the ethical issues of the end of life. It is estimated that 40% of our health care expenditures are spent in the last two months of life. What we do about it is difficult to answer but it is a big cost.
The items listed in the article also are important. Drug expense is key, but if Americans simply took their drugs the health savings would be large. It is estimated that non-adherence to taking prescribed medicines accounts for nearly $100 billion additional costs to the health care system each year. The loss of worker productivity for non-adherence is at least another $100 billion each year.
Electronic medical records would save the system large amounts of administrative expense but just as important is it would make fraud detection easier. Electronic medical records have the confidentiality and security issues to be addressed but it could save the system 3-4%.
Legal and defensive activities are also significant. It has been estimated that 10% of health care costs are attributed to legal activities either due to defensive medicine, actual legal claims and regulatory hoops. It costs $800 million to bring a drug to market. Testing is surely a part but it is the defensive and regulatory issues that drive much of the costs.
The demand for intensive treatment does drive costs. Some of this is due to advertised drugs and procedures, some is due to the physician being defensive, some is due to the high cost of the technology and some is the doctor just wants to keep their patients happy.