As I pointed out in a previous post: Cost and Quality of Healthcare in the US, we have the highest health care costs in the world, and yet have much worse outcomes than other industrialized countries. In this post I will write about why our costs are so high and what we might do to fix that.
Cost Drivers
Use of imaging
The US uses more sophisticated imaging technologies such as CT scans, MRI scans and PET scans per capita than any other industrialized country. The cost per scan is also much higher. For example an MRI in the US averages $1145, while the average cost in Switzerland is $138. Note that more imaging per person does not translate into better health.
Use of Prescription Drugs
The US is “addicted” to prescription drugs. The average person over 18 in the US is on 2.2 regular prescription drugs. That is the highest among industrialized countries. In the Netherlands, for example that number is 1.2; half as much. Prescription drugs in the US also cost more than twice as much for the same drugs from the same manufacturers as in other industrialized countries.
Costs of procedures
Routine surgical procedures cost much more in the US than in other industrialized countries. The average cost of an appendectomy in the US is $13,910. Contrast that with $4995, which is the average price in the Netherlands. The average cost of coronary bypass surgery in the US is $75,345. The average price in the Netherlands is $15,742 – 80% less!
Administrative costs
Administrative costs represent 30% of the cost of US health care. That is much greater than other western countries. Canada, for example has health care administrative costs of about 16%. Medicare administrative costs are about 2%. That means 98 cents of every dollar Medicare spends actually pays for medical care. Pretty good for an “inefficient” government program.
Specialist to Generalist ratio
Generalist physicians are considered to be in family medicine, general pediatrics or general internal medicine. In the US, the ratio of specialists to these generalist physicians is 2:1 (two specialists for every generalist). In the rest of the developed world, the ratio is exactly the opposite: 1:2 (two generalists for every specialist). Specialists in the US make an average annual salary of $350,300 while generalists make an average salary of $242,400. Those are the highest physician incomes in the world except for the tiny country of Luxembourg. In the Netherlands, average annual specialist income is $200,300 and average generalist income is $137,500. As you can see from these figures, the high specialist to generalist ratio in the US is a major driver of US health care costs. More specialists does not mean better care. In fact, the higher the specialist to generalist ratio, the worse the health outcomes. Here is a link to an article by Barbara Starfield describing how more specialists = worse health outcomes: The Effect of Specialist Supply on Population Health.
Unnecessary Care
The Institute of Health estimates that unnecessary procedures and tests add 210 billion dollars to US health care costs, making it the single largest contributor to waste. Too many specialists who do procedures means more procedures get done. Here is a link to an opinion piece in Time magazine that gives some examples of egregious unnecessary care: One Patient, Too Many Doctors: The Terrible Expense of Overspecialization.
Consequences of the High Costs of Medical Care
The extraordinarily high cost of US healthcare means that the cost of health insurance is also high. Companies who provide health care insurance for their employees have moved toward high deductible plans. Many workers, especially blue collar workers cannot afford to pay several thousand dollars for health care before their insurance starts to pay. As a result, they defer needed care.
Low and middle income people do not have enough access to medical care. Rich people, on the other hand get too much medical care and are much more likely to get unnecessary care. See my recent post: Social Determinants of Health.
Can anything be done to reduce US healthcare costs?
The answer is yes, but it will require the political will to resist the giant money machine of the medical-industrial complex. In 2020 the healthcare sector spent more than 623 million dollars on lobbying. There are a few things that would make a significant difference.
If congress would allow Medicare to negotiate the price of medicines for Medicare recipients, US drug prices would be much closer to the prices paid in other western countries.
The specialist-generalist imbalance could be addressed by forgiving student loans for medical graduates who choose generalist residencies, such as family medicine and general pediatrics. Unfortunately, there are almost no general internal medicine residencies left in the US.
Most difficult of all, but also most important would be universal health insurance not tied to one’s employer. The US is the only western country that does not have universal healthcare. The Affordable Healthcare Act (sometimes called Obamacare) made some progress in this direction, but not nearly enough. Other western countries have found many different ways to provide universal health insurance. They range from a government run system like the UK to a completely private insurance system with subsidies such as Germany or Singapore.
Bottom Line
The US spends twice as much on healthcare as Switzerland, the next highest western country. US health outcomes are worse than any other rich western country. There are multiple factors responsible for our astronomical healthcare costs. Getting our healthcare costs in line with other western countries will require political solutions. The medical-industrial complex spends millions of dollars lobbying to keep things the way they are.