Why is US healthcare so expensive?

Factual Questions
1

To illustrate: my late mother was on hemodialysis. In India, she paid about $20 for a 4-hour session, including the consumables. We could get a new dialyser tube for an additional $5 (in Indian equivalent). I enquired about the cost in the US mid-west where I lived: about $5000 for the same thing. I was so shocked I quietly nixed her plan to vacation with me in the US.

Why is healthcare in general so freaking expensive in the US? I have been to a hospital twice (including to an ER once) and it was mind-boggling. I would have become destitute were it not for insurance picking up the tab, mostly.

Of course, the quality of healthcare is good too, and the doctors are amongst the most professional and caring I have ever met. But you can get no-frills care in India that matches the best major US hospitals have to offer. There are excellent facilities and doctors in India that operate for a fraction of the cost.

2

There are entire books written on this where they will get into the details, but the short answer is that healthcare in the US is a big business, and the prices we pay are what the collective market will bear. That’s not to say that the costs aren’t a problem for us, or that there aren’t plenty of ways to trim the costs, but there generally hasn’t been a concerted effort to do so. That said, you need to realize that direct cost comparisons for a particular medical procedure are not particularly enlightening given that cost (in the US) has little to do with the price paid.

3

A good answer can be found here, although I’m not sure what percentage of the cost difference is explained by it.

Basically, in the USA each private health care provider gets its own materials and drugs. So, when health care company A has to buy hip implants, it goes to the company that makes them and buys 1,000 at a set price. Health care providers B, C, D and so on go through the same process.

In countries with universal health care, the state is the ultimate provider and therefore has to cover millions, rather than thousands, of people. This means that they can go to the company that makes hip implants, and say “we’ll buy one million of those at half the price, or else we’ll take our business to your competitor”. It’s all about having leverage in price negotiations.

Although of course brickbacon’s point also stands.

4

There’s a feww factors at work:

  1. The monopsony power of a single (or dominant) purchaser of healthcare products and services, as Batistuta points out. Monopolies drive prices up; monopsonies drive them down.

  2. Structural inefficiencies in the US insurance-based model of healthcare funding. US health insurers spend considerable amounts in arguing about whether they are liable to pay for particular procedures for particular people in particular circumstances, as opposed to using the money to pay for healthcare. Plus, since healthcare insurers basically make their profits from a percentage of money spend on healthcare, the more money that is spent on healthcare the more profits they make, so they have no incentive to keep healthcare costs low.

  3. Healthcare professionals in the US are extremely well paid compared to most other countries.

  4. True healthcare costs are deeply obscure. $5,000 may be the quoted price for a particular procedure, but that price is rarely if ever paid, either by individuals or their insurers. The average price actually paid for procedures actually carried out is likely to be much, much lower.

5

Let’s add in cost of malpractice insurance and the potential for a rare but very costly judgment.

Ob/Gyn’s are oft considered one of the most expensive to insure. It is not unheard of for them to have annual malpractice premiums in excess of US$100,000, sometimes much more.

6

Oddly enough, this is one of today’s Cracked articles.

7

Will it bear them? Will it?

8

This (PDF) from Time magazine last year is a good read - A Bitter Pill : Why Medical Bills are Killing Us by Steven Brill.

9

The potential for a “very rare but costly judgment” results in almost zero direct cost to physicians. It’s the guarantee of occasional litigation that results in the high cost.

10

  1. Unlike police or fire services, US healthcare is for profit. Imagine how expensive policing and fire services would be if they too were run for profit.

  2. Persons not covered by insurance are only entitled to care once their condition degrades to life threatening. So lots of people who’s conditions could be managed or outright avoided with early intervention don’t get it. Instead they only get care when their condition is catastrophic and care costs are sky high.

  3. Every Dr, every hospital has differing forms, protocols, etc. Each insurer has teams of panels deciding who gets denied what care, hoards of lawyers, etc. And all these people circulate unlimited amounts of paperwork. So inefficient.

  4. It would be astronomically cheaper to subsidize health insurance premiums for those falling through the cracks, than to pay their actual healthcare costs.

These four things alone are enormous burdens on the cost of healthcare.

11

As I understand it, health care cost growth in the US is currently comparable with that of other western countries. In other words, European countries aren’t currently doing any better than we are at holding costs down.

Moreover, our health care cost levels were only slightly higher than most other advanced economies up until the late '70s. The fact that our cost levels are now much higher traces back to a period in the '80s when cost growth slowed in Europe with the fall in inflation, but failed to do so in the US. This has left us stuck at a significantly higher level ever since.

12

I did back-of-envelope calculations in another thread that showed that US healthcare spending on administration alone exceeds the entire budgets of the UK NHS and UK private supplemental health insurers even on a per-capita basis.

13

Healthcare and healthcare insurance costs in the U.S. are nothing less than extorsion.

14

I think it is basically because of the private insurance model for healthcare. People (with insurance) do not really know what procedures cost and have no real interest. Providers have very little incentive to reign in costs because their customers rarely even read the bill. Now the reality is somewhat more complicated, and I think that regulation and litigation also play a part, but I think this is the basic dynamic that is driving up prices. In order to change this dynamic, you would need to to one of two things, both of them politically unacceptable;

[ol]
[li]Outlaw health insurance. Replace it with Health Spending accounts. You want it, you pay for it. Healthcare costs (and likely general health) would drop like a rock.[/li][li]Institute a single payer system (yup, socialized medicine).[/li][/ol]

In My Humble Opinion (where this question should likely be, IMHO).

15

Here are some numbers.

Looks like the USA tops the bill at spending 17%GDP on healthcare.

Most developed economies are spending between 9 and 11%

Why the difference? The Insurance Business, Big Pharma? The Doctors? Or is it just inefficient?

http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS?order=wbapi_data_value_2012+wbapi_data_value+wbapi_data_value-last&sort=desc

16

All four. We spend a lot more on administration, we pay doctors a lot more, and we spend a lot more on R&D.

17

Btw, the numbers in the OP are way off for what Americans pay for a dialysis session, by an order of magnitude. Medicare pays an average of $73,000 to dialyze a patient for one year, or 156 dialysis sessions. That comes out to less than $500 per session. As for $20 per session, the cost of the necessary consumables far exceeds that - either Fresenius et al sell artificial kidneys and tubing much more cheaply in India, or equipment is reused in a way would be below standard of care in the US, or that $20 is being subsidized somehow.

Then of course the labor costs also far exceed that. You couldn’t hire someone here to mop your floor for 5 hours for $20, let alone pay highly trained nurses and technicians.

There is the separate issue alluded to in this thread of exorbitant prices being charged to private payers compared to Medicare and insurance companies, but the vast majority of dialysis is paid for by Medicare and insurance.

18

Most medical supplies are sold much more cheaply elsewhere. That may be due to (a) government mandates, (b) economies of scale, or © the reduced cost of doing business (or all of the above.)

19

Of course it will. This is the source of the problem.
The medical expenses gravy train is like a river of money flowing by. Everyone dips in and takes what they can - doctors, hospitals, insurance companies, medical supply companies…

The end user 8 times out of 10 is insured, so they don’t do deep cost comparisons. They go to the doctor or hospital their insurance will pay for, and take the service provided, and they often don’t know (and can’t control at all) what the final cost is. if the employer pays most of the bill, they are not too concerned about the cost.

The insurance company pays for the procedure. They could not care less what it costs. In fact the more it costs, the more money flows through their hands, and the more their share of the take. their only concern is to make a profit, so they pass these costs on to the employer.

People can’t easily get by without medical insurance, so they have to have the service; employers pretty much have to offer the service (and now, they legally have to). They have zero control over the level of cost of the service, unless it gets so expensive they cannot afford to pay for it.

People with no insurance simply take the treatment and run. It doesn’t matter if they get a bill for $10,000 or $100,000 - they can’t pay, the rest of the system chips in to pay for them, jacking up costs for all.

The only one that comes close to caring is Medicare. Like the single-payer systems in the civilized world, they have limited funds and ever-increasing demands. They do the same as Canadian systems, Britain, etc. - cut the amount they pay to doctors, hospitals, suppliers, etc. Plus, in Canada, they ration (although they claim they don’t), creating waiting lists to reduce the level of use. Unlike real health care systems, USA Medicare can’t work from a monopoly system to force things. (In Canada, if a doctor wants to work for the public, they pretty much have to accept the provincial fee schedule, for ALL their work.)

So there’s the problem - the people who get the service don’t really see the real cost, and the people who actually pay have no control over the costs or level of use. Nobody has both a strong incentive to keep costs down and the ability to vote with their wallet. The people who don’t fit into that category are the ones getting screwed.

20

Another reason…
Hosp and doc bills are usually the last to be paid when someone is strapped for cash. This means they’re often paid late, many times going to collections agencies or even write offs. This means they charge everyone more up front to compensate for the no payers.

If healthcare and perscriptions were not for profit, there would be no incentive to research and develop new and improved meds and procedures. These discoveries are luxuries not entitlements. We work hard to earn and save money that we can spend on things that are high priorities to us. If that is a prescription for cholesterol meds, and I want it, I buy it and expect to pay the company for the commodity they’re marketing. But it’s not something every person deserves for free or even at cost any more than a Tylenol, bottled water, home, car, or a computer is. Could these things all make a significant difference in everybody’s lives, yes, but they’re not entitled to them. I don’t understand why some feel just being born makes them deserving of something others work hard to get. I have lots of medical costs every month. I don’t get manicures, pay to have my hair done, drive a new car, pay to wash my car, dress nice, go to nice restaurants. I can only afford x amount each month. I pick my priorities and it will always include meds and doc apts because I choose to buy those things.