The United States spends more money on health care than any other developed country. At the same time, studies find that patients in other countries enjoy better quality and more accessible health care than Americans. Why is American health care so expensive and what are the underlying issues that hold the United States back from necessary reforms? Read on to learn more about the U.S. healthcare system and how it stacks up internationally.
How does the U.S. healthcare system compare internationally?
According to the 2014 Commonwealth Fund analysis of the U.S. healthcare system in comparison to other industrialized countries, the United States ranks last among peer nations. This poor ranking is not a one-time thing, as almost all previous editions of the report from 2004-2010 also ranked the American healthcare system the lowest in terms of both cost and quality. The report compares the United States to some of the most developed and industrialized nations in the world, including Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland, and the United Kingdom. All of these countries spend much less on health care and have higher-quality services.
What are the problems with the American healthcare system?
The United States adheres to a Selective Health Coverage (SHC) system, also called a hybrid healthcare system. Roughly half of healthcare spending comes from private funds, while the government covers the other half through federal, state, and local funds. The majority of healthcare costs are covered through private insurance companies that sell health coverage to employers and private individuals at different rates. The government provides coverage through Medicaid for low-income households, and Medicare for retired Americans.
High Costs
As the United States has no universal health coverage, people mainly receive health insurance from their employers, the government, or purchase it through exchanges. The Affordable Care Act, which entered into force in 2013, made it easier to gain coverage, but 10 percent of Americans still lack health insurance.
As each insurance plan includes deductibles, co-pays, and out-of-pocket costs, even with insurance, it could be quite expensive to seek medical services. In 2014, the average household spent $8,000 in medical costs, including monthly insurance payments, taxes, lost wages, out-of-pocket care, and other costs. These prohibitive costs mean that Americans may skip physician visits, treatments, tests, or follow-up care, even if recommended by their doctor.
The American healthcare system is one of the most expensive in the world. Around 18 percent of the country’s GDP goes toward healthcare costs. The Netherlands ranks next, but spends only 12 percent of its GDP on health care. The government spends by various estimates between $8,500 to $10,000 per capita annually, and still requires high out-of-pocket costs for its citizens. Other industrialized countries spend from $3,000 to $5,500 per capita and manage to cover more people and offer better services. Overall, the U.S. ranks last on the Commonwealth Fund’s rankings for national health expenditures. There are plenty of reasons for that, including but not limited to high costs associated with administrative hassles and duplicate testing. The United States is also the only developed country where medical costs contribute toward, and in some cases directly lead to, personal bankruptcy. Even such business giants as Starbucks and General Motors have acknowledged the disproportionately high costs of providing health care to their employees.
Low Quality
The healthcare system in the United States isn’t very efficient. While most other countries have adopted some kind of unified system of communication with patients and other providers, the U.S. system’s administrative hassles were cited as a problem by the Commonwealth Fund. The overall health of the American population is worse than that of other industrialized countries. The U.S. ranks last on all three measures of healthy living, including mortality amenable to medical care, infant mortality, and healthy life expectancy at age 60.
What types of healthcare systems do other countries have?
National Services
The most popular type of healthcare system in the developed world is a national health services system. In this type of system, necessary medical care is fully paid for by the government. Hospitals and clinics are publicly operated, but private sector institutions also exist. Private medical clinics may have specific regulations they must follow, while the government pays them certain fees. Or, private medical clinics could operate solely like businesses and profit by providing superior, more personal or elective medical care. Many countries employ this mode;, including the United Kingdom, Spain, and New Zealand.
In the United Kingdom, health care is largely supported by tax contributions that are then used by the government to cover the vast majority of its population’s medical costs. Private coverage also exists, often through employers, but these premiums are affordable as to allow competition with public health care, which is free of charge. The U.K. healthcare system ranks first on the Commonwealth Fund’s list among other industrialized countries, particularly when it comes to efficiency and access.
National Health Insurance System
In a national health insurance system, also called a single-payer system, the government pays for all costs, but doesn’t operate healthcare services. Canada, Denmark, Taiwan, and Sweden are among those countries that operate a single-payer healthcare system.
Taiwan has one of the best healthcare systems in Asia. Health providers are employed by the public or private sector, but are paid standardized fees, which eliminates price competition and adds quality competition. In 2010, Taiwan spent three times less (6.5 percent) than the United States (16 percent) in its healthcare expenditures, covering 99 percent of its population. Administrative costs are also extremely low (1.5 percent) in comparison with the U.S., which spends 20-30 percent of overall healthcare funds on administrative costs.
Multi-Payer Health Insurance System
This system of health care is operated by Germany, Japan, and France. According to this model, all physicians are paid from a special fund, which is designated for healthcare services. The rates are the same for all physicians, cutting administrative costs for government, and creating quality competition.
Germany is a great example of a system that provides quality and cost-efficiency. Health services in Germany operate through an alliance of around 240 not-for-profit insurance providers that cover about 90 percent of the total population and are paid from a specifically designated “sickness fund.” The other 10 percent are generally high-income households that prefer private health insurance with superior services and quality. Amazingly, government expenditures for health care in Germany are half those of the United States, and the quality of health care is very high. Insurance companies and medical providers are closely regulated by the government, while employers and employees assume shared responsibility to pay taxes towards the “sickness fund.” Such a system helps to decrease the government’s costs and and provide more people with health coverage.
Watch the video below to learn more about Germany’s healthcare system.
Why is health care in the U.S. so expensive?
The complexity and for-profit nature of the American healthcare system is the primary reason for its high cost. As insurance companies are concerned with profit, they are always looking for ways to minimize their expenses and make money.
Expensive Mix of Services
The United States’ healthcare system provides a very expensive mix of services:
- The U.S. sees more specialist visits than in other countries, which are two-to-three times more expensive than general physician visits.
- Specialists often order more diagnostic tests and medical procedures that rack up the total costs. In comparison, other industrialized countries offer considerably fewer MRI scans, C-sections, and other procedures that could be avoided and are not always medically necessary.
- Duplicate testing is another issue that plagues American health care. As physicians and specialists make money from procedures, they often order duplicate testing. For example, dermatologists can order biopsies from several affected skin areas, even if only one such procedure is required for diagnosis.
- American hospitals also contribute toward the country’s expensive mix of services. They admit fewer people and, therefore, charge higher prices for hospitalization. They treat elderly people in the intensive care units (ICUs), while other countries subscribe to more specialized, palliative care, which is less costly.
Administrative Costs
There are thousands of health insurance plans available in the market, leading to variations in coverage, deductibles, co-pays, premiums, and other features. Not only is this system confusing, but such a system increases administrative costs as all doctor’s offices, laboratories, and hospitals have to bill insurance companies and patients for each rendered procedure and each doctor’s visit. As insurance plans vary greatly, medical facilities and patients have to constantly phone insurance companies to clarify details of premiums to find out what procedures are covered by the insurance company. Such a system creates unnecessary administrative hassles and drives up overall costs. It’s estimated that the United States “wastes” half of the $361 billion spent on administrative costs by spending it on expenses that could be avoided and are not necessary.
Pharmaceutical Spending
Medical facilities and insurance companies are not the only players in the healthcare market. Drug manufacturing companies charge higher prices in the U.S. than in other industrialized countries. For example, branded prescription drugs are twice as expensive in the U.S. than in the rest of the developed world. In 2011, the United States paid $985 per capita for prescription drugs and other medications. That’s almost double what most other high-income countries spent on pharmaceuticals. This difference is due to the fact that other industrialized countries are often able to negotiate lower prices as they purchase pharmaceuticals in large quantities to provide medications for the whole population.
Interestingly, innovations and new medical technologies also drive up the cost of health care. The United States has more high-tech medical equipment than other industrialized countries. On top of it, it also has more stand-by equipment than other countries. The need to pay for the maintenance of these state-of-the-art technologies results in higher prices for tests, scans, and analysis for patients.
More Chronic Diseases
People in the United States are less healthy than in the majority of developed countries. Obesity and other chronic diseases are more common in the U.S. than in its peer countries. That means that insurance companies and the government will spend a lot of money on managing chronic conditions that often require constant treatment, high-tech tests, and frequent hospitalizations.
Will the American healthcare system change?
If the United States ranks so poorly in health care, why doesn’t it do something to fix the problems? The answer to that question lies in the intersection between money and politics.
Interest-Group Lobbying
Many profit from the current healthcare system, including drug manufacturers, medical equipment providers, specialist physicians, insurance companies, and others who have considerable influence on public policy. The interests of those who make a profit from the current healthcare system are well represented through lobbying. In 2009, around 4,525 healthcare lobbyists were hired by more than 1,750 companies, including 207 hospitals, 105 insurance companies, and 85 manufacturing companies. For example, Big Pharma spent $22 million on healthcare lobbying in 2011; Blue Cross Blue Shield and biotech companyAmgen spent $21 million each on healthcare lobbyingthat year. None of the players involved in the healthcare business wants to lose profits, so lobbyists are trying to block any efforts that can damage their clients, even if those efforts could bring better health care to millions of Americans.
What are the possible solutions?
Even after the implementation of the Patient Protection and Affordable Care Act in January 2013, roughly 10 percent of Americans are still uninsured. In order to fix that problem, the United States could work toward implementing another system of health care, but that’s unlikely to gain much ground.
There have also been alternative solutions offered, such as the so-called “managed competition” model proposed by Stanford University Business School professor Alain Enthoven more than two decades ago. According to this model, insurance companies, physicians, hospitals, drug manufacturers, and other actors in the healthcare industry could come together to form an entity that has the responsibility to provide care for specific municipalities based on an annual allowance. This strategy could produce higher quality and lower costs simultaneously.
Another proposed solution is based on the implementation of a universal tax credit, similar to the child tax credit, that provides a $1,000 reduction in income tax to families that have a child. Money for this tax credit could be obtained from existing health insurance subsidies, like Medicaid and Medicare.
Conclusion
The United States’ healthcare system has not served its people well, especially when looked at in comparison to its peer nations. There are many faults to the current system, including high costs, inefficient practices, and an unwillingness by many to change. In order to effectively provide health care to as many people as possible, more changes need to be made. While the Affordable Care Act was a step in the right direction, the United States is still at the bottom of the list when it comes to effective health care.
Resources
Commonwealth Fund: How the U.S. Healthcare System Compares Internationally
CNN Money: Healthcare Lobbying Boom Continues
Forbes: U.S. Health Care Ranked Dead Last Compared to 10 Other Countries
Forbes: Universal Coverage is Not “Single Payer” Healthcare
Forbes: Why We Should Replace Obamacare With a Universal Health Tax Credit
HealthPAC: How Other Countries Do it
Global Post: Eight Places That Do Health Care Better Than the US
Global Post: Special Report: Health Care in Taiwan
Atlantic: Why Do Other Rich Nations Spend So Much Less on Health Care?
Center for Public Integrity: Lobbyists Swarm Capitol to Influence Health Reform
Law Dictionary: How Many Americans Really Do Not Have Health Insurance?
U.S. News & World Report: Obamacare Enrollees, by the Numbers