The Big Q: Why do Americans get less bang for their Bucks
The Big A: The pressure on the huge US healthcare system has never been greater. There is an urgent need to expand testing and treatment for C-19 to all residents who need it, regardless of health insurance status.
Plus: Massive federal cash influxes have sought to shore up hospitals sagging under the weight of the coronavirus burden and the related cessation of elective surgery and regular medical care.
And, long before this crisis, the US led other industrialized nations in high spending on healthcare and getting a very low bang for the Buck in terms of health outcomes and the percentage of the population served.
Life expectancy in the US is 78.8 anni, while it ranges from 80.7 to 83.9 in 10 other high-income countries, according to an influential study in the Journal of the American Medical Association (JAMA). And only 90% of the population in the US has health insurance, compared to 99% to 100% of the population in the other industrialized countries studied.
- C-19 has increased pressure on the US’ highly complex and expensive healthcare system, making it more urgent to lower costs.
- A for high costs is administrative waste. Providers face a huge array of usage and billing requirements from multiple payers, which makes it necessary to hire costly administrative help for billing and reimbursements.
- Americans pay almost 4X as much for Rx drugs as citizens of other developed countries.
- Hospitals, doctors, and nurses all charge more in the US than in other countries, with hospital costs increasing much faster than professional salaries.
- In other countries, prices for Rx drugs and healthcare are at least partially controlled by the government. In the US prices depended on market forces. Until, President Trump stepped to halt the excesses recently.
Below are 6 underlying reasons for the high cost of healthcare in the US, as follows:
1. Multiple Systems Create Waste
Administrative costs are frequently cited as a cause for excess medical spending. The US spends about 8% of its healthcare dollar on administrative costs, compared to 1% to 3% in the 10 other countries the JAMA study looked at.
My work finds that the US healthcare system is extremely complex, with separate rules, funding, enrollment dates, and out-of-pocket costs for employer-based insurance, private insurance from healthcare.gov, Medicaid, and Medicare, in all its many pieces.
In each of these elements consumers must choose among several tiers of coverage, high deductible plans, managed care plans (HMOs and PPOs) and fee-for-service systems. These plans may or may not include Rx drug insurance which has its own tiers of coverage, deductibles, and copays or coinsurance.
For providers, this means dealing with lots regulations about usage, coding, and billing. And, in fact, these activities make up the largest share of administrative costs.
2. Drug Costs Are Rising
On average, Americans payout almost 4X as much for pharmaceutical drugs as citizens of other industrialized countries pay.
High Rx drug prices are the single biggest area of overspending in the US compared to Europe, where prices are government regulated, often based on the clinical benefit of the medication.
With little regulation of drug prices, the US spends an average of $1,443 per person, compared to $749, on average, spent by the other prosperous countries studied. President Trump’s recent apWH mandate will narrow the gap.
In the US private insurers can negotiate drug prices with manufacturers, often through the services of pharmacy benefit managers.
Bute, which pays for a huge percentage of the national drug costs, is not permitted to negotiate prices with manufacturers.
3. Doctors & Nurses Are Paid More
The average US family doctor earns $218,173 a year, and specialists make $316,000 way above the the average in other industrialized countries. American nurses make considerably more than elsewhere, too. The average salary for a US nurse is about $74,250, compared to $58,041 in Switzerland and $60,253 in the Netherlands.
US managed care plans (HMOs and PPOs) may succeed in lowering healthcare costs by requiring prior authorization for seeing a high-priced specialist. Use of a nurse practitioner instead of a family doctor can also save money.
$11,170 is the cost of a hospital birth in the US, which is over $7,000 more than the cost in the Netherlands.
4. Hospitals Are Profit Centers
Hospital care accounts for 33% of the nation’s healthcare costs. Between Ys 2007 and 2014, prices for inpatient and outpatient hospital care rose much faster than physician prices, according to a 2019 study in Health Affairs.
US prices for surgical procedures in hospitals greatly exceed those of other countries. A typical angioplasty to open a blocked blood vessel, for example, costs $6,390 in the Netherlands, $7,370 in Switzerland, and $32,230 in the United States.
Similarly, a heart bypass operation in the US costs $78,100 compared to $32,010 in Switzerland.
Today, many hospitals are on the brink financially. And the cessation of elective surgery and severely declining provider visits because of the coronavirus chaos account for a big part of the decline in the overall economy.
5. US Healthcare Practices Defensive Medicine
Both physicians and hospitals have an interest in preventing lawsuits, so “just in case” tests and scans may be ordered. And these tests can be costly! While a CT scan costs just $97 in Canada and $500 in Australia, the average cost is $896 in the US. A typical MRI scan costs $1,420 in the United States, but around $450 in Britain. Researchers have concluded that it is not the sheer number of tests and procedures but their high price that explains why it is so expensive to be sick in the US.
6. US Prices Vary Wildly
Because of the complexity of the system and the lack of any set prices for medical services, providers are free to charge what the market will bear. The amount paid for the same healthcare service can vary significantly depending on the payer (i.e. private insurance or government programs, such as Medicare or Medicaid) and geographical area.
For C-19, for example, the cost of an urgent care visit and lab tests averages $1,696, but can range from a low of $241 to a high of $4,510 depending on the provider.
The Bottom Line
Most other developed countries control costs, in part, by having the government play a stronger role in negotiating prices for healthcare. Their healthcare systems don’t require the high administrative costs that drive up pricing in the US.
As the global overseers of their country’s systems, these governments have the ability to negotiate lower drug, medical equipment, and hospital costs. They can influence the treatments used and patients’ ability to go to specialists or seek more expensive treatments. Consumers may have fewer choices, but costs are controlled.
In the US a lack of political support has prevented the government from taking a larger role in controlling healthcare costs.
Barack Obamacare aka the Affordable Care Act focused on ensuring access to healthcare but maintained the status quo to encourage competition among insurers and healthcare providers.
Now that the costs related to C-19 threaten to swamp both the healthcare system and government budgets, the time for change is at at hand and it is a Trump White House priority.
Have a healthy holiday weekend, Keep the Faith!
Latest posts by Paul Ebeling (see all)
- Commentary: Paul Ebeling on Wall Street - January 25, 2021
- Sitting on a Cash Pile 10.0? Online Sports Gambling Appears a Good Bet - January 25, 2021
- Wall Street’s Key Stock Analysts Research Report, All Buys - January 25, 2021