Why U.S. Health Care Is Getting More Expensive

Health care spending is rising around the world. As far back as we've been measuring this, health care spending has always risen. Overall, spending on health care has doubled over the past two decades, reaching $8.5 trillion in 2019, which comes out to 9.8 percent of global GDP. The U.S. spends about twice as much on health care than other large and wealthy countries do. The U.S. health care system is not as effective when it comes to controlling costs compared to systems in other countries. The way the system is structured now, it is a cure-driven system, not a prevention-driven system. There is not one access model here in the United States. And so for preventive services or treatment, it really depends on people's insurance status, where they're located and the provider network near them. It is extremely frustrating for not just patients, but physicians also. The way we do it, by definition, makes things much more expensive. So why are U.S. health care costs rising more than anywhere else? And can it be stopped? Health care spending made up 5 percent of total U.S. GDP in 1960. In 2020, spending hit almost 20 percent of total GDP. So what that means is that for every dollar that people spend in the U.S., about 20 cents is going towards health care. This rise in spending can't be attributed to inflation alone. Health care almost always outpaces inflation. And so, you know, health care costs grows faster than the economy. That's why it's representing a larger and larger share of the economy. The United States spends more per person on health care than other high-income countries, but still has a lower life expectancy. We have poor outcomes relative to other countries. We pay twice as much as any other country. We pay more and get less. We see that people in the U.S. use a similar amount of health care to people in other wealthy and large countries, but we pay more for each interaction. The money's in hospitals and doctors. That's what makes up the big difference between what we spend on health care in the U.S. and what other countries spend. Hospitals, physicians and clinical care made up more than half of total health care spending in 2019. When we talk about ways to reduce spending, you can either look at ways to reduce the amount of care that people are getting or to reduce the price that people are paying for their care. And in the U.S., it seems that there needs to be more of a focus on the prices of care, because that's where the real difference is between what we spend in the U.S. and what other people spend in other countries. Drivers of the rise in health care spending has focused mostly on the symptoms of the rising health care spending. So when we are talking about hospitals, prices are very high or drug prices is very high. These are not the causes of the high spending. These are the symptoms of high spending. One of the causes of high spending is the fragmented nature of the U.S. system. Some Americans have incredibly comprehensive and affordable health insurance coverage, while others have little to no coverage. For some people, they might spend a very small share of their income on health care, and that's usually because they're healthier. People who are sicker will spend a very large share of their income on health care, especially if they're in private insurance coverage with a high deductible plan. Over 11 percent of the U.S. population was uninsured in 2020, with a large disparity when it comes to race. 51 percent of Americans said they have delayed or skipped medical care due to cost. That number jumps to 63 percent among those living in a household with an income of less than $40,000 per year. Even those covered by insurance say they've experienced financial trouble. About 46 percent of insured adults reported difficulty affording out-of-pocket medical costs. The WHO argues in a 2021 report that universal coverage would limit catastrophic health spending. This lack of universal coverage can make costs rise while also leading to worse health care outcomes, specifically when it comes to preventative care. When costs become prohibitive for patients to seek care is that, number one, preventative care and preventing diseases from getting worse is always going to cost less. And the cost meaning to the overall system is always going to cost less. Let's say somebody has no insurance or very little insurance, and she feels a vague pain on the right side of her abdomen. You know, it would cost her 120 bucks to go to the doctor. She's not going to do that. She's going to work through it. And three months later, she's in the emergency room, the first appendix, costs $60,000. And we'll treat her, we'll treat her. But if she could have gone to the doctor when she felt that first pain, the doc could have treated the infection. It would have cost a hundred bucks. There is a phenomenon in health care called the cost shifting. Cost shifting happens when health care organizations shift the cost to those who cannot pay the bill to others who are covered by insurance providers by increasing the prices. You also have to take into consideration the concept that, you know, maybe 30 percent of these bills will go unpaid, which can be thousands of dollars. So at some point, if you want to keep your practice afloat, those have to be recouped in a different way. This is a factor of the U.S. health care system where like how much people end up paying is going to depend on your insurance. A lack of universal coverage and a fragmented health care system also mean that people don't have the same insurer for their whole lives, which means that insurers have less of an incentive to provide preventive services or to ensure that you don't get sick later. The majority of Americans don't have much of a choice when it comes to their insurance plan. More than 54 percent get health insurance through their employer. Capitalist view works when the market is free. Health care is never a free market. Instead, we have insurance companies bidding on patients' behalf, which limits patients' ability to bargain with their health care providers. We have what the insurance companies call narrow networks where they dictate which doctors you can go to. Patients also can't bargain because they usually don't know how much care actually costs. One key requirement in a free market is to be informed about the price of the product or goods you are purchasing. But in health care, patients are in the dark about what would the cost be when they seek their care. Insurance makes prices even more opaque, not just for patients, but also for doctors. Sometimes it is difficult to know upfront what a patient's costs are going to be for whatever services that they're getting. At the end of the day, we are actually not the ones controlling the rate for each different company. And even if we have a whole list of every single possible charge, we don't know if people have met their deductibles yet. We don't know where they are with respect to out-of-pocket maximums. We don't know what their copay might exactly be, if it's a percentage. A lot of care is delivered through what's called fee for service. That means for every service that your doctor delivers to you, that doctor is billing for each individual thing. And that can create an incentive called provider-induced demand, which is basically that your doctor has an incentive to do more things to you. But it's more complicated than just greed. America's litigious culture can play a role in excessive testing. I do think that in the United States, we do order more tests simply because, one, there's this fear of missing something. Of course, that comes from a human aspect where you don't ever want to misdiagnose a patient. But then there's also the malpractice side of things, where if you do miss something, what are the consequences? Since there isn't true free market competition, insurance companies will try to rein in the spending by either denying claims or requiring preauthorization. Most physicians are doing the right thing and choosing the right treatments for their patients. But sometimes there are instances where the procedure that's being requested may not always be the most effective treatment for their particular patient. And sometimes the prior auth process also serves as kind of a gatekeeper, so to speak, of whether whether that that physician has tried everything that could potentially help the patient. There are proponents for completely overhauling the heavily commercialized system. You have to make the commitment to provide health care for everybody. That's the destination. It turns out there are many different routes to that destination. One of the more popular policy proposals is Medicare for All, which would replace for-profit insurance companies with government-funded health insurance. I am a strong supporter of Medicare for All because it is our principal goal in this country to give everyone coverage at the lowest possible cost. And Medicare is the best way to do that. President Joe Biden is instead focusing on expanding the Affordable Care Act to enable more people to get insurance. There's also been a bipartisan push for increased price transparency. Congress passed the No Surprises Act, which went into effect in January 2022. The goal of the legislation is to help Americans avoid surprise medical bills. Now, people who inadvertently go to an out-of-network provider, for example, by going to an in-network hospital but being seen by an out-of-network doctor, that patient is held harmless. And then it's up to the insurance company and the doctor to kind of work out how much gets paid to them. Researchers and economists are still debating what exactly is driving these costs in the U.S. It's very hard for people to know how much health care is going to cost them before they get it. Some of that can be addressed through price transparency efforts by basically posting prices on hospital or doctor's offices websites. Research has to be intensified in this area to clearly identify the root causes of the high spending and the interrelationship between the different routes. There's a lot of moving pieces here and there's probably not going to be one single solution to health care costs and accessing quality of care and insurance coverage. But there's a lot of different directions that policy is starting to go in terms of the actually addressing the health care costs in the U.S.