Americans pay more for health care than any other people on Earth. In fact, medical debt is the leading cause of personal bankruptcy in the U.S. High healthcare costs hit every level of our economy, from the federal government on down. In addition to fueling the deficit and adding hundreds of billions to our national debt each year, the high cost of healthcare is crowding out other state budget priorities, undermining the competitiveness of American businesses and hurting American families. According to a newly released survey, more than half of all working-age Americans struggle with health care costs. Medical debt is the leading cause of personal bankruptcy in the U.S.
The Commonwealth Fund compares the performance of America’s health system to those of other high-income countries. Its most recent report, released in 2021, ranked the U.S. last among 11 nations in several categories, including access, efficiency, equity and health outcomes. Even worse, adult life expectancy in the U.S. has fallen below that of 56 countries on six continents, according to a 2023 analysis by Dr. Steven Woolf of Virginia Commonwealth University. As noted in a front page story in the October 22 issue of the Washington Post, low-income and minority Americans bear the heaviest burden. However, in 2013, a National Academy of Medicine committee found that even well-off Americans with a college degree and health insurance tend to be sicker and to die sooner than their counterparts in other countries.
Three Drivers Of Healthcare Spending
1. We Short-Change Programs That Promote Health
“Other countries do more to ensure that their citizens have basic food security, a good education, childcare, stable income, housing, transportation, and public safety,” according to Dr. Woolf. “These measures not only improve people’s quality of life; they improve health. This reduces the demand for expensive healthcare services.”
In addition to helping their citizens meet basic needs, other countries invest in primary care and make it readily available to their citizens. The U.S. does not. Finally, America stands alone among high-income countries by failing to provide a basic level of health insurance coverage to its citizens.
2. Inefficiency
According to a 2010 National Academy of Medicine workshop report, the U.S. healthcare system—actually a patchwork of different systems—wastes at least $750 billion per year on “unnecessary or inefficient services, excessive administrative costs, high prices, medical fraud, and missed opportunities for prevention.”
Ordering needless or inappropriate tests and treatments not only wastes money, it harms patients due to misdiagnoses, side effects and complications. Physicians and other health care providers should always strive to only do what’s needed—not more. Reducing wasteful care is good medicine and produces better outcomes for patients.
3. Political Power
Since World War II, American healthcare has grown into powerful industry replete with huge drug and device and health insurance companies, hospital networks and countless brokers, claims processors, advertisers and lobbyists. Last month, The Economist reported that four private health insurers account for half of enrollments, four pharmacy giants account for 60% of drug-dispensing revenues and more than 90% of all drugs consumed in the U.S. are handled by three wholesalers. According to Equilar, 11 of the 100 highest-paid CEOs in America work in healthcare. The industry has grown so large, it accounts for a bigger share of our nation’s economic activity than manufacturing, financial services, energy or technology. It also consumes a bigger share of the federal budget than social security or defense.
For decades, interest groups darkly warned of an imminent “government takeover” of healthcare. It didn’t happen. Instead, healthcare exerts substantial influence over government.
Here’s one example: The U.S. Food and Drug Administration decides which drugs, biologics and devices are sufficiently safe and effective to be sold in the United States. Although the FDA uses risk-benefit analyses to reach its decisions, it can’t consider a product’s price or the existence of lower-cost alternatives. Many other countries do.
Once the FDA approves a new product, Medicare typically covers its use. When that happens, private insurers usually follow suit. In the end, all of us shoulder the added expense through taxes and higher insurance premiums.
What’s At Stake
According to the Kaiser Family Foundation, in 2023, the average cost of employer-sponsored health insurance rose 7%, to nearly $24,000 per year for family coverage. A June analysis by the Centers for Medicare and Medicaid Services predicted that in 2024, national spending on healthcare will top $4.8 trillion. In 2031, it’s expected to reach $7 trillion. Clearly, something must give. If we simply lowered per capita spending to the level of the world’s second most expensive healthcare system, Germany, we’d save $1.8 trillion dollars per year.
Victor Fuchs, long regarded as the ”dean of American healthcare economics,” died last month. Eleven years ago, he declared, “If we solve our health care spending, practically all of our fiscal problems go away.” And if we don’t? “Then almost anything else we do will not solve our fiscal problems.”
It doesn’t have to be this way. In the second half of this two-part series, I’ll explain how the U.S. can achieve better health at lower cost.
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