America’s Healthcare Checkup: Part 2

There is no denying our healthcare system is complicated. In our last article, we described how our system is a web of tangled private and public entities, mixed with employers, patients, and government entities, all at different times, and for different percentages. Boiling these complications down, what does healthcare actually cost Americans? 

You probably already know it’s far too much.

American Healthcare Costs:

US healthcare spending is in the trillions of dollars, making up around 17% of GDP on average in the past few years. That means about $11,000-$13,000 per person per year. 

It’s a big number, but America is a big place with a massive population. It would be easy to get lost in the numbers and lose sight of what they mean. We need to know what this price tag means in contrast. Like the savvy consumers Americans are, let’s comparison-shop the cost of healthcare and see if we can figure out what is driving this cost.

Both before, during, and after the COVID-19 pandemic, the cost of healthcare rose in America — much higher than any other nation in the world. But why?

The labyrinthine insurance system we discussed in last month’s article is to blame. Every other modern, wealthy nation in the world has a form of government-sponsored health insurance.  The 2021 Commonwealth study of the top 11 medical systems in the world ranks the US dead last in almost every category, only ranking #2 in “care process.”

It’s true that wealthy Americans and even foreigners are able to find amazing medical care in the United States. We have high-tech facilities, educational institutions, fantastic doctors and nurses, and generally high standards of care. However, that is not the reason for our high prices. As the below figure illustrates, detailed studies of American healthcare costs point the finger not at our advanced technology or high-earning doctors and nurses, but at our administrative costs, arbitrary price increases, and a massive percentage of increased costs which remain largely unaccounted for.

Source: The Commonwealth Fund

While other nations administer healthcare directly, our system is a hybrid private/public model, where overlapping areas and amounts of coverage require a massive administrative bureaucracy.

If we simply took the position that other nations take, and insured every citizen via the government, much of this cost would be eliminated. We wouldn’t be supporting an industry that essentially acts as a middleman between providers and people, which makes money by denying coverage, not providing it. 

Another cost other nations do not deal with is our high prescription drug prices. While other nations regulate and negotiate the price of prescriptions, the US generally does not. Prescription drugs remain a high out-of-pocket cost for many Americans, and Medicare can, (as of last year), negotiate the price of only 10 drugs, and get a lower price for the people that rely on them.

It’s a massive cost: between 2004 and 2019 the “U.S. spent $1,126 per capita on prescribed medicines, while comparable countries spent $552 on average.” And while much of this cost is absorbed by insurance providers, (which only means increased insurance rates), we also pay the highest amount of out-of-pocket costs of any nation. That’s why it’s no surprise that 1 in 3 Americans admits to not taking their prescription medications due to price.

Other nations don’t have arbitrary restrictions on price negotiation for prescription drugs, resulting in dramatically lower prices, lower insurance rates, out-of-pocket costs, and no annoying drug ads during commercial breaks. 

Americans are getting fleeced, paying an average of triple the cost for the exact same drug than people in other countries. These massively inflated prices are a boon to prescription drug companies, health insurance companies, and medical manufacturers, but an anchor on the wallets and well-being of Americans. 

We like to think private industry is more cost-effective than government programs. In healthcare, the truth could not be more the opposite. Our healthcare policy arguments hinge on the idea that a government program would be “too expensive,” or we are getting better care because we pay more. 

It’s just not true. In fact, the United States spends twice as much per person on healthcare than the average of other nations, and receives a much worse quality of care. 

This price burden is not placed squarely on the federal government and our insurance companies, but on us, with profits flowing into the accounts of massive corporations that become obscenely rich, while medical bills remain by far the number one cause of bankruptcy, (almost 70% of all bankruptcy) in the United States, and tens of thousands of Americans die each year simply because they don’t have health insurance.

Uninsured deaths and medical bankruptcy are not a factor in other wealthy nations that have universal health insurance, and as a result, much lower out-of-pocket medical costs. 

Who Exactly is Picking Up the Tab?

It’s clearly not the private insurers we all use. These for-profit, private health insurance companies make money by denying coverage. It’s insurance, like any other. 

That perverse incentive has been incredibly profitable, resulting in a multi-billion dollar industry, riding on the backs of sick Americans. They skirt profit percentage rules, increasing costs and deductibles to keep their margins and stick Americans with the bill. And it’s not just the insurers, the hospitals and other providers do the same thing.

Instead of private insurers, which the vast majority of Americans have, costs are broken down differently, as shown in the chart below:

Source: Centers for Medicare & Medicaid Services, National Health Expenditures by type of service and source of funds

Broken down further by type of health spending that means that:

Private insurance accounted for:

• 37% of hospital expenditures

• 40% of physician expenditures

• 15% of home health expenditures

• 10% of nursing home expenditures

• 43% of dental expenditures

• 45% of prescription drug expenditures

Medicare accounted for:

• 27% of hospital expenditures

• 25% of physician expenditures

• 39% of home health expenditures

• 22% of nursing home expenditures

• 1.0% of dental expenditures

• 28% of prescription drug expenditures

Medicaid accounted for:

• 17% of hospital expenditures

• 11% of physician expenditures

• 32% of home health expenditures

• 29% of nursing home expenditures

• 10% of dental expenditures

• 9% of prescription drug expenditures

Out-of-pocket payments accounted for:

• 3% of hospital expenditures

• 8% of physician expenditures

• 11% of home health expenditures

• 26% of nursing home expenditures

• 42% of dental expenditures

• 15% of prescription drug expenditures

This breakdown makes a few things clear. First off, this perfectly illustrates how convoluted our system is. The mix of private, public, and personal insurance costs necessitates a massive administration, and inflates costs across the board, for no actual medical benefit. 

Secondly, it reveals how the burden of coverage shifts as we age. Government-sponsored or subsidized care only really kicks in during our senior years, (or during a disability), which explains the larger share of nursing home and at-home coverage for Medicare and Medicaid.

These costs continue to inflate every year as our country ages, and more people require expensive end-of-life care. America is getting older — over 16% of the population is over 65, and it’s a portion of the population that continues to grow as more and more Baby Boomers age into retirement.

This is important because old age is when we have the most contact with the healthcare system and will require the most amount of government aid. This ballooning need will need to be matched by equal public investment, or many seniors will be left with no way to pay for the care they need.

Lastly, though it’s obvious, it should be noted that the services with the highest out-of-pocket spending are services that are not generally covered by traditional healthcare. Those services usually include dental, vision, and prescription costs for most Americans, while nursing homes and other assisted living facilities are massive expenses for those who need them.

Those facilities are some of the most expensive, and therefore unaffordable, options available to many seniors who need round-the-clock care, and usually require large out-of-pocket payments. This is a fast-growing industry, and a profitable one for healthcare providers, who have been found consistently marking up prices for infirm seniors, which can lead to 20% returns, unheard of in other sectors of the healthcare industry. Much of the price inflation here is mirrored in the front line of our healthcare system, the emergency room.

Emergency service prices have skyrocketed in the past few years, almost entirely due to dubious price increases by hospitals. Despite limited change in the actual cost of care, many hospitals have begun charging much more for the exact same services, through a process called “upcoding.”

Upcoding is a process whereby hospitals charge insurance, (usually Medicare/Medicaid), for a more expensive service than they actually performed, getting a bigger payout from the patient’s insurance. This process has been responsible for almost half of the price increase of some emergency rooms around the country. 

This price-gouging is made even worse when we consider the uninsured population. This process of upcoding makes their out-of-pocket costs even higher, and they have no insurance company or government entity to absorb that inflated cost.

The people who rely on ER-only healthcare, namely unhoused people, undocumented immigrants, and the otherwise uninsured, are doubly victimized by this process, which so clearly prioritizes the revenue of hospitals over the financial well-being of patients.

A Damning Conclusion:

America’s entire healthcare system is a layered series of grifts, overcharging the patient at each step of the process, from monthly payment to their insurance company to their ambulance ride to the hospital. Our healthcare costs more, covers less, and has worse health outcomes than almost every other modern country in the world. 

Beyond the unfair costs we shoulder, Americans have a worse relationship with our care providers and insurers. Instead of prioritizing health, American healthcare seems to be geared towards funding a multi-billion dollar industry of middlemen that just doesn't exist in many other countries.

But arguably the worst aspect of our system is one we’ve touched on only briefly — it’s the people who fall between the cracks in our coverage and receive no care at all. Despite all the regulations, webs of coverage, and immense bureaucracy we’ve created, 25,000-45,000 Americans die every year because they don’t have any health insurance. This is the same population most likely to fall into medical debt and bankruptcy, and it’s all due to cost. 

The bottom line is this: our healthcare system is fundamentally broken and needs to be wholly replaced. Every step of our system incentivizes profiteering over patients’ health and well-being and has created a system where Americans end up paying much more for worse outcomes. It’s the worst of both worlds.

In our last installment of this series, we’ll talk about health outcomes across the country, and how Democrats can fix this broken status quo.

Missed Part 1? Check it out here.

Sources:

https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/historical
https://www.commonwealthfund.org/publications/fund-reports/2021/aug/mirror-mirror-2021-reflecting-poorly
https://www.commonwealthfund.org/publications/issue-briefs/2023/oct/high-us-health-care-spending-where-is-it-all-going
https://www.hhs.gov/about/news/2023/08/29/hhs-selects-the-first-drugs-for-medicare-drug-price-negotiation.html
https://www.healthsystemtracker.org/chart-collection/how-do-prescription-drug-costs-in-the-united-states-compare-to-other-countries/
https://www.commonwealthfund.org/publications/2024/jan/how-prices-first-10-drugs-medicare-negotiations-compare-internationally
https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-countries/
https://www.cnbc.com/2019/02/11/this-is-the-real-reason-most-americans-file-for-bankruptcy.html
https://pmc.ncbi.nlm.nih.gov/articles/PMC2323087/
https://penncapital-star.com/uncategorized/americans-suffer-when-health-insurers-place-profits-over-people/
https://www.ahrq.gov/research/findings/nhqrdr/nhqdr23/index.html
https://www.nytimes.com/2023/11/19/health/long-term-care-assisted-living.html
https://www.phillipsandcohen.com/upcoding-unbundling-fragmentation/
https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2022.01287
https://news.harvard.edu/gazette/story/2009/09/new-study-finds-45000-deaths-annually-linked-to-lack-of-health-coverage/
https://pnhp.org/news/lack-of-insurance-to-blame-for-almost-45000-deaths-study/
https://www.kff.org/uninsured/issue-brief/key-facts-about-the-uninsured-population/