The United States has one of the most expensive healthcare systems in the world, which also increases the cost of insurance, prescriptions, doctor’s appointments, and hospital visits. But why exactly is healthcare so costly in the wealthiest nation on earth?
The American healthcare system
According to the Journal of the American Medical Association, the life expectancy of an average American is 78.8 years, despite other wealthy countries having a range between 80.7 to 83.9 years. In addition, only 90% of Americans have health insurance. This may seem like a lot, but when compared to the fact that in other industrialized countries nearly 100% of citizens have health insurance, it seems that the United States is an outlier.
Why is this the case? Some argue that it is because the American healthcare system is notoriously complex and bureaucratic. For example, there are separate rules, funding restrictions, and out-of-pocket costs for all different types of insurance, including employer-based, private, and public health insurance plans such as Medicaid or Medicare. Most healthcare plans also do not cover life-saving pharmaceutical drugs.
Due to this complex system and a general lack of government regulation, medical providers are able to set their prices at whatever they want, oftentimes forcing Americans to pay high prices even if they do have health insurance.
Why health insurance is so expensive
In 2020, the average American paid $456 per month for health insurance, and this increases to $1512 per month for a family. While this figure varies according to your healthcare needs and geographic location, one similarity for all Americans is that the cost of their healthcare insurance is rising yearly.
For instance, people getting health insurance from their employer saw their annual premiums for a family rise by 37% from 2015 to 2020. Even annual premiums provided by the Affordable Care Act rose 97% during this same time period.
However, higher premiums are only one aspect of the total cost. Healthcare insurance companies have been increasingly switching to high-deductible health plans that can see some people paying up to $14,000 for medical services until their insurance company steps in.
Experts have been studying the rising cost of healthcare in America for years, and while the issue is complex, there are some key reasons that people can point to, which are listed below.
The for-profit model
Perhaps the thing most blamed for the high cost of healthcare in America is the country’s “for-profit insurance system.” Unique among most other countries in the world, health insurance in America is essentially just run by private companies with little government subsidies, which requires people to pay out-of-pocket in many cases.
The lack of universal healthcare, which would ensure that every citizen had access to healthcare without paying into private insurance companies, is one reason for the high cost of healthcare.
High administrative costs
Related to the complexity of the American healthcare system are the high costs associated with running all of the different moving parts. Everything from care to billing requires a strenuous administrative process. In fact, a study found that administrative costs account for around 34.2% of the cost of healthcare in America, which is two times more than the cost of healthcare administration in Canada, which has a publicly funded healthcare system.
Drug prices
Compared to other industrialized countries, Americans pay up to four times more for pharmaceutical drugs. In fact, the high price of drugs is the biggest area where Americans spend more than Europeans due to the lack of government regulation.
On average, Americans spend about $1,443 per person just to pay for pharmaceutical drugs, including life-saving ones. In other industrialized countries, this was just $749. This is because, in America, private insurance companies negotiate the prices of drugs with the manufacturers themselves. On the other hand, government-subsidized Medicare is not legally permitted to negotiate with manufacturers, leaving drug prices even higher.
An aging population
As obvious as it may seem, healthcare costs rise as you get older due to increasing insurance premiums, as well as the fact that you’ll likely require more medical care. As such, when the overall age of a population increases, so does healthcare spending because services are in more demand. This is particularly true for inpatient care at hospitals. Another aging factor that increases the cost of healthcare is large populations booms.
Increases in chronic illness and disease
The number of Americans living with chronic illness or diseases, including diabetes and heart disease to name a few, is rising (especially among an aging population). This, as a result, increases the cost of healthcare as demand rises. In fact, services related to the prevention or treatment of chronic diseases make up around 85% of all healthcare costs, and it’s estimated that up to half of all Americans currently live with a chronic illness.
In particular, diabetes is cited as being responsible for the largest increase in healthcare spending in recent years. Other chronic conditions with hefty cost increases include neck and lower back pain, high blood pressure and cholesterol, and depression.
Government policies
While government policies haven’t been implemented in such a way to effectively decrease the cost of healthcare, some policies can even be blamed for actively contributing to the rise in costs. For example, the partially-subsidized Medicare and Medicaid programs pay hospitals and doctors well below the amount that private insurance companies would pay them. And while the government saves money this way, hospitals and doctors are then forced to charge insurance companies even more to compensate for the loss in funds in wages.
Ways to save money on health insurance
Now that you know why healthcare costs are so expensive in America, you might now be wondering if there are any steps you can take to save money.
In fact, Americans are so desperate to save money on healthcare costs that many avoid seeking out care altogether if they are injured or sick. While this may save you money in the short term, it can be a detriment to both your health and your wallet in the long-run, because delaying medical treatment may require expensive surgery or other services in the future.
Instead, here are a couple of other ways that you can get the medical attention you need at a reduced price.
Figure out the real cost of your treatment
It’s becoming more popular among health insurance companies to disclose the individual costs of certain services. Because of this, it’s never been easier to compare prices among different insurance companies, especially if you have a chronic illness and need specific treatments. In a recent study, participants who were able to find cheaper options for CT scans and MRIs were able to save around $220 per scan.
Find a smaller medical network
Usually, smaller medical networks offer lower prices on insurance premiums. This is because the providers allow the insurance companies a price break because there is generally less competition among smaller medical networks. Before registering for a medical network, just double-check that you’ll still have access to doctors, labs, hospitals, and any other services you need. Also, ensure that such services are within close distance to where you live and that they are actively accepting new patients.