Why is healthcare in the U.S. so expensive ?

These days, all it takes is one surprise medical bill to send a patient into bankruptcy. The United States’ health care system operates differently from many others in the world with high costs for the individual as a distinguishing characteristic. In fact, the higher prices mean the U.S. spends more on health care than other “developed countries,”. According to a February 2020 survey, almost one in three Americans worries about affording health care. So, what exactly makes health care in the U.S. so expensive?

The most important reason is that U.S. health care is based on a “for-profit insurance system,” one of the only ones in the world, according to Carmen Balber, executive director of Consumer Watchdog, who’s advocated for reform in the health-insurance market. In the U.S, most health insurance is administered by private companies and individuals must pay for it themselves, even if their employer subsidizes some of it. The underlying motive to make money has a ripple effect that increases prices.

Similarly, Dr. Georges Benjamin, executive director of the American Public Health Association, pointed to a lack of universal health care, where everyone is guaranteed access without undergoing financial hardship, as a primary reason for high costs.”Part of our system is that everybody is … paying for somebody else’s underpayment, whether they like it or not,” he said. “Everybody is trying to figure out who else can pay for it instead of them.”

Pay per service

U.S. health care exists in a system where patients are charged based on the services they receive. In many parts of the healthcare ecosystem, people are paid for volume, and so that fuels an orientation toward, ‘Might as well get an extra scan.’ It’s in the economic interest of the hospital, the physician, the health care system when they’re being paid fee-for service, and the justification is that more is better.

As a result, there’s lower use of primary care, because the fee-for-service model “encourages overutilization.” Instead of taking people in a room, examining them, taking the history and spending the time talking to patients, doctors are quick to jump to getting a CAT scan or a diagnostic test when a history and physical exam would tell the answer. The fee-for-service creates an incentive to provide more procedures, instead of helping patients get healthier so that the nation as a whole needs fewer procedures.

Lack of government regulation

The companies that provide and charge for health care, like hospital systems and drug makers, have more power to keep costs high when they’re negotiating with multiple potential payers, like various private insurance companies. But when they must negotiate with a single payer, like the federal government, there’s more pressure to meet the demand in order to sell their services.

For example, a study found that private insurance companies paid almost two and a half times what Medicare would’ve paid for the same medical service at the same facility.

To make matters costlier, the U.S. government doesn’t regulate what most companies in the health care space can charge for their services, whether it’s insurance, drugs or care itself.

Consolidation of insurance and hospital systems

While the U.S. healthcare system itself may be fragmented, in many parts of the country, there’s only one or two companies providing health insurance or medical care. This means that, again, there’s little to no incentive for them to lower costs since patients don’t have much of a choice.

What’s more, health care providers are paid, on average, much more in the U.S. than in other countries. “Despite the enormous cost that we have in America for health care, we don’t get the same value of our health care dollar as other nations do,” Benjamin added. “If you get sick, this is the place to be, no doubt about that, but … we don’t have a system with everybody in and nobody out.”

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