By Amy Oh
“$250-300?! That’s mad. So if you’re poor, you’re dead.” was the reaction of a Brit when told how much an inhaler costs in the US. This is sadly the norm: a woman in Boston whose leg was stuck under a subway told the bystanders “not to call the ambulance.” When asked why, the woman (with her bone sticking out of her skin) replied: “Do you know how much an ambulance costs?” For people living in countries where an ambulance ride, or the birth of a baby costs nothing on their medical bills, it’s impossible to fathom the lofty costs of healthcare in the US. So why are the costs so high, and what can be done about it?
US healthcare system- the model of inefficiency
The United States spends significantly more money on healthcare than other developed countries including the UK, which may come as a surprise considering the NHS is publicly funded. Healthcare spending is influenced by 2 factors: utilisation (the number of services used) and price (the cost of the service). The utilisation rates in the US are very much similar to other countries, so it must be the price driving the healthcare costs through the roof.
Why are the prices so high?
There are many factors increasing the price of healthcare, but the 3 most significant factors are:
1. Administrative costs
The US spends over $800 per person on administrative costs, compared to $70 spent by the UK. Since most of the US health insurance is private, there’s always a mountain of paperwork such as billing and record-keeping which requires many accountants and clerks. Billions of dollars are poured into time-consuming, inefficient administrative tasks, instead of into long-term healthcare.
2. “Fee for Service” model
The American healthcare system relies on a “Fee for Service” model which means health providers are paid for the quantity of the services performed, rather than the quality or the outcome. This means physicians have an incentive to perform more diagnostic tests and unnecessary surgeries. Moreover, the prices are not set by the government like in the UK or Canada, so hospitals, pharmaceutical industries and medical device industries can charge as much as they would like for their services.
Another reason why healthcare providers can charge whatever they want for their services is that there is very little price competition in the health industry compared to others, such as the electronics industry. Due to insurance, patients usually pay a set fee or co-pay, so they don’t “price shop” for doctors, tests and treatments like they would for a new TV or computer. Moreover, patients don’t usually (or physically can’t) leave the hospital to search for a less expensive service like they would compare prices when buying new furniture for example.
3. Rising medical malpractice lawsuits
Since doctors in the US are constantly under the threat of being served with a medical malpractice suit, they order many unnecessary tests and procedures, such as a $1000 MRI to protect themselves from being sued for malpractice. Although being careful and thorough can be perceived at first as good practice, this drives the prices even higher, which leads to people waiting until their condition gets worse before seeking medical help, and therefore many preventable deaths.
What about insurance?
Most people have an employer-sponsored insurance plan where you and your employer share the cost of a premium (monthly fee). Those 65 and older are covered by a government plan called “Medicare”, and those with an income below a certain amount are covered by “Medicaid”, which is also a public insurance. However, even with insurance, there are deductibles which you pay before your insurance pays for anything, and this could be up to $10,000. Some without an employer-sponsored plan buy individual health insurance which is very expensive, and insurance companies used to deny coverage for those with pre-existing conditions, before it was banned by the Affordable Care Act. This leaves people who are not “poor” enough to be supported by “Medicaid”, but not wealthy enough to buy individual insurance. According to the United States Census Bureau, 8.5% of people (27.5 million) were uninsured in 2018.
What are the potential solutions?
There is ongoing debate on how to improve the inefficient healthcare business. A popular suggestion is to eliminate the “fee for service” system completely and replace it with a “pay for value” model, where providers are compensated based on effectiveness and quality, rather than the quantity. Furthermore, using technology to improve the efficiency of administrative tasks can bring down the unnecessarily high costs. Patients can also benefit from price transparency and more information, so that they can choose where to receive care. Price transparency, paired with increased competition amongst providers can be powerful in lowering costs and giving patients the authority over their own healthcare. Finally, if Medicare -the largest buyer of prescription drugs- are able to negotiate prices for those 65 and older, the price of prescription drugs will be brought down to a reasonable one.
So, considering the reasons above, it is no surprise that the leading cause of bankruptcy among Americans is medical bills, or that the United States has one of the most uneconomical health care systems out of the OECD countries. Millions die a preventable death, just because the price of healthcare trumps the price of people’s lives. Healthcare should be a human right, not a privilege. Therefore, change to this inhumane, profit-driven system is imperative.
References:
[1] PoliticsJOE (Dec 2019) Youtube- “True cost of US healthcare shocks the British Public”- https://www.youtube.com/watch?v=Kll-yYQwmuM
[2] The Infographics Show (Sep 2018) Youtube- “US Healthcare system explained” - https://www.youtube.com/watch?v=DublqkOSBBA
[3] Peter G. Peterson Foundation (July 2019) “How does the US healthcare system compare to other countries?” https://www.pgpf.org/blog/2019/07/how-does-the-us-healthcare-system-compare-to-other-countries
[4] Kimberly Amadeo (August 2019) The Balance- “Why Reform Health care” https://www.thebalance.com/why-reform-health-care-3305749
[5] 13.4 Problems of Health Care in the Untied States https://saylordotorg.github.io/text_social-problems-continuity-and-change/s16-04-problems-of-health-care-in-the.html
[6] Ezra Klein (Mar 2012) The Washington Post- “High Health Care costs: It’s all in the pricing” https://www.washingtonpost.com/business/high-health-care-costs-its-all-in-the-pricing/2012/02/28/gIQAtbhimR_story.html
[7] Robert Pearl (June 2015) Insights by Stanford Business- “Three Ways to Transform American Health Care” https://www.gsb.stanford.edu/insights/three-ways-transform-american-healthcare
[8] Holly Lawrence (Feb 2018) “How to Lower Health Care Costs in America” - 5 recommendations from experts at West Health Summit https://www.nextavenue.org/lower-health-care-costs-america/
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