Healthcare is one of the biggest expenses for families in the United States. The rising cost of medical care and prescription drugs has left many people struggling to afford essential healthcare treatments, and this phenomenon is compounding an already severe problem in our society: lack of access to healthcare.
If there's one thing that all Americans can agree on, it's that our healthcare system is seriously broken. Despite spending more on healthcare than any other country in the world, we still have some of the poorest health outcomes. What's even more frustrating is that most of this high cost doesn't seem to be translating into better care. So what's going on? Why is our healthcare so expensive? And what can be done about it?
In the CareTalk episode, "Why is Healthcare So Expensive in the US?", hosts John Driscoll and David Williams broke down some of the biggest contributing factors behind the rising cost of healthcare in the US and how we can solve them.
How Much Does the US Spend on Healthcare?
As of 2020, the US spends an average of $12,318 per person on healthcare each year. That is more than any country in the world by quite a bit. In fact, the country with the 2nd highest healthcare spending is Germany, which spends an average of $7,383 per person per year. That’s 66.8% less than the US.
The United States spends more on healthcare than any other country in the world. In 2021, the US spent $4.3 trillion on healthcare, which was 18.3% of the country's gross domestic product (GDP). This was significantly higher than the average OECD country, which spent 9.5% of GDP on healthcare.
“US healthcare is not only expensive, but on an international comparison, we're spending twice as much as other countries of equivalent development and in most of those countries, if not all of them, they've got much better access to healthcare. So, they've got better access to healthcare that costs less and delivers a better outcome.” – John (CareTalk)
What is Causing US Healthcare Costs to Balloon Out of Control?
There are several factors contributing to the high cost of healthcare in the United States. One significant reason is the high administrative costs associated with running the healthcare system. These costs include activities like processing claims, marketing, and negotiating contracts, which add to the overall expenses. Another contributing factor is the exorbitant prices of prescription drugs in the US. The country has the highest drug prices globally, leading to increased healthcare costs for individuals and the healthcare system as a whole.
Inefficiencies within the healthcare system also play a role in driving up costs. Despite having more hospital beds per capita than any other country, the US has a lower life expectancy compared to many other nations, indicating an inefficient use of healthcare resources.
The aging population in the US is another factor. As the population ages, the demand for healthcare services increases, putting further strain on the system and contributing to higher costs. Moreover, increased demand for healthcare services resulting from factors like the obesity epidemic further escalates healthcare expenditures.
The high cost of healthcare in the US poses significant challenges for many individuals, as some are unable to afford necessary care, leading to potential health disparities. Additionally, the burden of medical bills can push individuals into debt, while the overall cost of healthcare contributes to the national debt, highlighting the complexity of the issue.
Why Are Drug Prices So High?
The high prices of prescription drugs in the United States can be attributed to several factors. Firstly, the absence of price regulation sets the stage for drug manufacturers to establish prices at their discretion, leading to inflated costs. Unlike many other countries, the US lacks a centralized government agency responsible for regulating and controlling drug prices, allowing pharmaceutical companies to wield significant pricing power.
Another major contributor is the protection granted by patents. When drug manufacturers develop new medications, they are granted exclusive rights to sell and profit from those drugs for a certain period of time. This patent protection creates a monopoly for the manufacturer, enabling them to set high prices without competition from generic alternatives. As a result, patients and the healthcare system are burdened with exorbitant costs for essential medications.
Moreover, the high demand for prescription drugs in the US, driven by factors such as an aging population, a rise in chronic diseases, and increased reliance on medication for various conditions, further amplifies the pricing pressure. Additionally, the presence of insurance coverage for many Americans shields them from directly experiencing the full impact of high drug prices. However, this coverage also empowers drug manufacturers to continue charging elevated prices, knowing that insurance companies will bear the financial burden.
These combined factors contribute to the complex and expensive landscape of prescription drug prices in the United States, posing challenges for patients, healthcare providers, and policymakers alike.
“If you look at novel drugs, when they are created, they're introduced at the highest possible price, in you guessed it, the US of A. One third of all people with chronic illness who are prescribed drugs, don't take those drugs because they can't afford it. So, we create the drugs that serve the world, we pay the highest prices that our own citizens can't afford.” - John Driscoll (CareTalk)
Why Are Hospitals So Expensive?
Hospital prices have grown an average of 2.1% per year for the last 10 years. Hospitals are known for their high costs due to various factors. Firstly, hospitals have substantial operating expenses. They require a significant infrastructure to support their operations, including state-of-the-art medical equipment, specialized facilities, and round-the-clock staffing. The costs associated with acquiring, maintaining, and upgrading medical equipment and technologies contribute to the overall expenses.
Additionally, hospitals must adhere to rigorous safety and quality standards, which require continuous investments in training, monitoring, and regulatory compliance. These operating costs, coupled with the need to provide a wide range of medical services and maintain a highly skilled workforce, contribute to the high expenses of running a hospital.
Another significant factor is the complex reimbursement system. Hospitals often provide care to patients covered by a mix of private insurance, government programs (such as Medicare and Medicaid), and uninsured individuals. Negotiating reimbursement rates with different insurance providers and dealing with varying payment structures can be challenging and time-consuming. Additionally, hospitals frequently encounter cases of uncompensated care, where they must provide treatment to individuals who are uninsured or unable to pay.
The financial burden of uncompensated care is often passed on to paying patients or factored into the overall cost of services, further driving up hospital expenses. Moreover, medical malpractice insurance, which hospitals and healthcare providers require, adds to the costs as premiums can be substantial due to the risks associated with providing medical care.
"Consequently, today, hospitals will go to insurance companies and basically threaten: Hey! If you want me to be in your network, you're gonna have to pay me a good rate because if you don't and I'm out of network, then I can charge you a really super high rate!” – David (CareTalk)
High Compensation: Primary Care vs. Specialized Care
One of the most significant drivers behind healthcare costs is the high compensation packages for medical professionals. Doctors, nurses, and other healthcare workers typically enjoy very competitive compensation packages compared to other fields, which can drive up prices for everyone. Additionally, these high paychecks help to attract highly talented professionals who are in high demand across a wide range of industries. Ultimately, therefore, the need to attract and keep top-notch talent is one reason why healthcare remains so expensive in the US.
There is a notable disparity in compensation between primary care physicians and specialized care physicians, which can impact the healthcare system. Specialized care physicians, such as surgeons or radiologists, tend to receive higher compensation compared to primary care physicians, such as family doctors or general practitioners. This compensation difference is primarily driven by the complex and specialized nature of specialized care, requiring extensive training, expertise, and the ability to perform intricate procedures. The limited number of specialized care providers relative to the demand for their services also contributes to their higher compensation.
However, this compensation gap can lead to challenges in the healthcare system, as it may discourage medical students from pursuing primary care careers, exacerbating the shortage of primary care providers and potentially affecting access to comprehensive healthcare services, particularly in underserved areas.
Moreover, the compensation structure within healthcare is influenced by various factors, including reimbursement policies, insurance networks, and market forces. In fee-for-service reimbursement systems, where healthcare providers are paid based on the number of services rendered, specialized care procedures tend to command higher reimbursement rates due to their complexity and associated costs. This can create a financial incentive for physicians to focus on specialized care, where they can earn more, potentially leading to an imbalance in the healthcare workforce.
“The average doctor's salary in the US, which is about $316,000 a year. We also tend to pay specialists very well. Specialists make more like $370,000 a year compared to $250,000 in primary care. And there are a lot of specialists around. The primary care system in the US is pretty weak.” - David (CareTalk)
Why Are Americans Unhealthy?
Poor health is associated with increased healthcare costs. The health status of Americans can be attributed to several factors contributing to the overall unhealthiness observed in the population. Firstly, poor dietary habits and unhealthy eating patterns play a significant role. The prevalence of processed foods high in sugar, unhealthy fats, and sodium has contributed to the rise of obesity, heart disease, and other chronic conditions. Fast food consumption, high intake of sugary beverages, and lack of emphasis on whole, nutritious foods in daily diets have become common trends, leading to poor health outcomes.
Secondly, sedentary lifestyles and lack of physical activity have become increasingly prevalent in American society. Technological advancements and changes in work environments have led to a more sedentary way of life, with many individuals spending extended periods sitting at desks or engaging in leisure activities that involve minimal movement. Insufficient physical activity can lead to weight gain, muscle weakness, and overall poor fitness levels, increasing the risk of chronic diseases such as diabetes, cardiovascular conditions, and certain types of cancer.
Furthermore, societal factors contribute to unhealthy behaviors. Stress, lack of sleep, and inadequate access to healthcare services are additional challenges that impact Americans' health. The demands of modern life, long working hours, and financial pressures can contribute to stress levels, which, when left unmanaged, can negatively affect mental and physical health. Lack of sleep and its detrimental effects on overall well-being are also prevalent issues in modern society.
Additionally, healthcare accessibility and affordability issues can hinder individuals from seeking preventive care, leading to delayed diagnoses and management of health conditions.
“We have the highest obesity rates of any industrialized country, and obesity or metabolic, 40% of all Americans qualify as obese, medically qualify as obese and that's just an unbelievable burden on the system. We have the highest number of people with multiple chronic conditions over the age of 65, chronic conditions like heart disease and asthma, diabetes.” – John (CareTalk)
How To Reduce Healthcare Costs in the USA
Rising healthcare costs are a major concern for both politicians and consumers. In order to tackle this problem, it is essential for both the public sector and the private sector to work together to reduce costs.
There are various proposals to address the high cost of healthcare in the United States. One approach involves expanding access to health insurance, ensuring that everyone has coverage and can receive necessary care. Negotiating lower drug prices is another proposed solution, aiming to secure more affordable prices for prescription medications. Reforming the healthcare payment system is crucial, shifting towards value-based care to align financial incentives with patient outcomes.
Improving efficiency within the healthcare system is essential for cost reduction, utilizing electronic health records (EHRs) and centralizing certain services to streamline processes. Investing in preventive care, such as vaccinations and screenings, can reduce the incidence of costly chronic diseases. By implementing these proposals, progress can be made in lowering healthcare costs while ensuring better accessibility and quality of care for all.
“I am optimistic and I'm optimistic for two reasons. One, I think we're getting at some of the root causes, and they're not just in the healthcare system. And just last week, we had real progress, which was really exciting with insulin to your point and negotiating drug prices. Secondly, we have to solve this problem, it's a tax on every American. Almost 20% of GDP goes towards healthcare costs and that's unsustainable in a country where 10,000 people become Medicare eligible every day.” – John (CareTalk)
CareTalk is the only healthcare podcast that tells it like it is. Join hosts John Driscoll (President U.S. Healthcare and EVP, Walgreens Boots Alliance) and David Williams (President, Health Business Group) as they provide an incisive, no B.S. view of the US healthcare industry.