Why Is Healthcare So Expensive?

The pressure on the healthcare system in the U.S. has never been greater. Massive federal cash influxes have sought to shore up hospitals currently falling under the weight of a COVID-19 testing burden and lack of appropriate staff.

Long before this crisis, the U.S. led other industrialized nations in high spending on healthcare. Despite this high spending, consumers in the United States get very little bang for their buck in terms of health outcomes and services. In the following article, we will discuss and answer the question: why is healthcare so expensive?

Why Is Healthcare So Expensive In The United States?

What exactly makes health insurance so expensive in the United States? There are many reasons that may explain high prices.

The high cost of healthcare affects everyone, sick or well and has significantly depressed individual spending power for the past few decades. Salaries for American workers have risen, but net pay has stayed the same because of increasing charges for health insurance.

Here are six underlying reasons that help explain why healthcare costs so much in the United States.

1. Administrative Costs

Administrative costs make up more than 8% of medical spending in the United States, despite most consumers not knowing exactly what they are. The U.S. healthcare system is unnecessarily complex, with separate rules and regulations for private insurance, employer-provided insurance, and Medicaid and Medicare. Within each of these sectors, consumers are also forced to decide between several tiers of coverage, such as high-deductible, fee-for-service plans, and copays.

2. Consumers Pay Per Service

In the United States, patients are charged based on the services they receive. In many other countries, people are paid for volume, and so that fuels an orientation toward utilization of services. In the United States, however, people are disincentivized from using their health care by the high costs of additional services. When hospitals are being paid fee-for service, it is in the hospitals’ economic interest for patients to use as many services as possible.

3. Rising Medication Costs

The average American citizen spends more than double on prescription medications than citizens of any other developed nation. Prescription medication costs are the single largest medical cost in the United States, and they are especially high when compared to other developed nations where drug prices are government regulated.

The minimal regulation in the pharmaceutical industry in the United States causes citizens to spend an average of $1,443/year per person on medications, compared to just $749/year for citizens in other developed nations. While private insurance providers can negotiate medication prices with manufacturers, Medicare, which pays for a large percentage of medication costs, is not permitted to negotiate.

4. Hospital Prices

Hospital care accounts for almost a third of medical costs in the United States. Prices for hospital care in the United States substantially exceed those of other countries. For example, an angioplasty procedure to open a blocked blood vessel costs an average of $6,390 in Switzerland, $7,370 in Switzerland and $3,230 in the United States.

5. Extra Tests And Scans

Both physicians and hospitals are interested in preventing lawsuits, so they order extra tests and scans. And these tests can be costly. A CT scan costs around $100 in Canada and $500 in Australia, can cost more than $900 in the United States. Similarly, a typical MRI scan costs $1,420 in the U.S., but only around $450 in Britain. These statistics have led researchers to conclude that the high prices of tests and lab work explains why it’s so expensive to be sick in the U.S.

6. Prices Vary Widely

The complexity of the healthcare system and the lack of any set prices for medical services allow providers to charge what the market will bear. The amount paid for the same healthcare service can vary significantly depending on the payer, provider, and geographical area.