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When someone is investing in healthcare, they may want to do some helpful research on the American healthcare system and why citizens of the country are paying so much for it lately. Why is it that the American healthcare system is so expensive? Here are the top reasons why Americans pay more for their healthcare and how to make healthcare as affordable as possible!
Americans pay more for healthcare due to the administrative costs of the system, the rising costs of drugs, and the rising pay rates for nurses and doctors. In addition to these factors, American healthcare costs more due to the unpredictability of U.S. prices.
What makes elements of the American healthcare system more costly than other developed countries? What else should American citizens take into consideration when learning about and dealing with the American healthcare system? Let’s go over in depth what to look for and keep in mind when dealing with and thriving in the American healthcare system!
Average Healthcare Costs in the United States
Incredibly, the American healthcare system is one of the most expensive healthcare systems in the world. In 2021, U.S. healthcare spending skyrocketed to a total of roughly $4.3 trillion. This meant that the average cost of medical procedures and healthcare costs Americans an average of around $12,900 per individual. In other wealthy or developed countries, this personal yearly cost is usually cut in half! American spending on healthcare has always been on the rise, even before covid, but the pandemic did serve to worsen the cost of healthcare as well.
Why is American Healthcare so Expensive?
Multiple Systems Create Waste
The American healthcare system is pretty complex and has a lot of “administrative” costs which is frequently the cause of excessive medical spending. For perspective, a JAMA study found that the United States spends roughly 8% of its healthcare dollar on administrative costs. Other countries spend an average of 1% to 3% of their healthcare dollar on their administrative costs. The United States healthcare system is chock full of complicated features, like separate rules, specific funding guidelines, enrollment dates, and varying out-of-pocket costs for employer-based insurance, private insurance from healthcare.gov, Medicaid, and Medicare, along with other further pieces of the system.
In each one of these sectors, a consumer needs to pick among several tiers of available coverage, high deductible plans, managed care plans like HMOs and PPOs, and fee-for-service systems. The aforementioned plans may or may not include pharmaceutical drug insurance with its tiers of coverage, deductibles, copays, or coinsurance. All of these different plans are a lot to keep track of!
For healthcare providers, all of the above layers of information mean that they have to deal with a plethora of countless regulations about usage, coding, and billing. All of the above activities make up the biggest share of administrative costs for the American healthcare system.
Rising Drug Costs
Another reason why Americans have to pay so much for their healthcare is due to the price of drugs constantly going up. According to conducted surveys, Americans will pay on average almost twice as much for pharmaceutical drugs as citizens of other industrialized countries will pay. Indeed, high drug prices are the biggest areas of overspending in the United States. For reference, in other reputable countries like Europe, drug prices are government regulated and they are often based on the clinical benefit of the medication.
The United States has little regulation of drug prices. On average, the United States spends an average of $1,443 per person. Other prosperous countries spend only $749 per person. Within the United States, private insurers can negotiate their drug prices with manufacturers, usually through the services of pharmacy benefit managers for this purpose. On the other hand, Medicare, which pays for a hefty percentage of the national drug costs, is not permitted to negotiate prices with drug and pharmaceutical manufacturers.
Rising Pay Rate for Doctors and Nurses
The next reason why American healthcare is so expensive is due to the inclining pay raises for talented doctors and nurses. On average, a United States family doctor will earn $214,370 per year, according to a study conducted in 2020. Medical specialists make an average of $316,000 per year. American nurses will make roughly $74,000 per year. These pay rates are far higher than the averages of other industrialized and prosperous countries.
Some ways that can help American citizens lower these high costs include using a nurse practitioner instead of going to a family doctor. There are also U.S. managed care plans like HMOs and PPOs that can aid in lowering healthcare costs since they require prior authorization for seeing a high-priced specialist.
The Reality of Hospitals as Profit Centers
Overall, American hospital care is responsible for 31% of the U.S.’s total healthcare costs. According to a study from 2019, from 2007 to 2014, prices for inpatient and outpatient hospital care rose far quicker than physician prices. In 2020, hospital expenditures grew by 6.4% to total a whopping $1.27 trillion.
The United States’ prices for surgical procedures executed in hospitals are far greater than those of other countries. Many medical procedures and surgeries, like angioplasty or a heart bypass operation, are far more affordable in other developed countries as opposed to the United States.
Modernly, lots of hospitals are on the edge of a financial crisis due to these practices. Additionally, due to the ending of elective surgery and the severely declining provider visits due to the quarantining of the covid pandemic, the overall economy of the U.S. declined greatly. These facts can help laymen understand and grasp why American healthcare can be so strapped for money that they need to charge their customers and users higher rates.
The U.S. Healthcare System Practices Defensive Medicine
In the American healthcare system, hospitals and physicians have a shared interest in trying to prevent any lawsuits. This means that doctors and healthcare professionals will likely order and have “just in case” scans and tests for their patients. These “just in case” tests can get expensive quickly!
For reference, a CT scan in Canada costs only $97, costs $500 in Australia, and costs roughly $896 in America! This trend continues, with an MRI scan costing around $1,420 in America but only about $450 when performed in Britain. These huge cost differences show that it is not the specific high number of tests and medical procedures, but their higher price tag that is responsible for why the medical procedures are so expensive for U.S. citizens.
The Unpredictability of U.S. Prices
As briefly touched on above, the United States healthcare system can get pretty complicated pretty quickly. Due to the complexity of the system, paired with the lack of set prices for medical services, medical providers are allowed to charge whatever the current market will put up with and pay. This means that the total amount for the same healthcare service can fluctuate and vary by big margins depending on the payer and whatever insurance they have, what government programs they are a part of like Medicare or Medicaid, and their geographical area.
Final Thoughts
As can be observed from the above sections, most other developed countries control their healthcare costs by having the government play a strong role in negotiating healthcare prices, while the U.S. healthcare systems call for high administrative costs. While customers and consumers may have fewer choices in other developed countries, their costs are controlled and thus kept lower compared to American costs. Thanks to the American lack of political support that stops the government from being a bigger part of controlling U.S. healthcare costs, costs are higher. The Affordable Care Act was made to secure easier access to healthcare but kept up the standard of encouraging competition among healthcare providers and insurers.
Thanks to all of these varying pressures, the healthcare system went into a crisis in 2020 and 2021 that threatened to overtake the system and general government budgets as a whole. Knowing all of this now, it is more than ever important for people to research health insurance companies in depth before buying insurance or medical procedures to purchase the medications and procedures that suit their needs best.
How Much Does the United States Spend on Healthcare?
Every official resource online and elsewhere will prove that the United States spends a huge amount of money on healthcare needs per year. An older survey performed by Brookings found that the U.S. spends roughly $248 billion annually on administrative costs connected with healthcare in 2017. America spent a whopping 17.1% of its GDP on healthcare, while Germany only spent 11.2% and the United Kingdom spent 9.6%. The online Tax Policy Center reports that the American federal government spent nearly $1.2 trillion in fiscal year 2019 and the income tax expenditures for healthcare totaled $234 billion.
Ways to Lower the Cost of American Healthcare
Experts, professionals, and government officials have a lot of varying ideas on how to lessen the strain and costs of the American healthcare system. Some ideas include allowing healthcare consumers and patients to have more access to information, giving patients and healthcare customers more personal power in the system, lowering the number of medical tests required for patients, increasing competition among healthcare providers, and allowing Medicare to negotiate prescription drug costs for customers. Lots of different sources agree that there needs to be a big or a few big shifts in the existing American healthcare system to bring meaningful and positive changes and lower costs.
What Do Increasing Healthcare Costs Mean?
Increasing healthcare costs mean just that, higher costs and more spending for consumers of healthcare services in America! This means that the out-of-pocket costs paid at doctor’s offices will rise, insurance becomes more expensive, and general medical procedures get more costly. Multiple sources debate and discuss what forms increased healthcare costs can take.
To try to avoid the pitfalls of the American healthcare system, try to do as much research as possible and seek out affordable doctors, offices, and medical procedures and medicines. These preventative steps are important since healthcare costs in the United States are projected to keep on rising over time.
Average Healthcare Costs in Other Countries
The American average cost for healthcare is vastly inflated, especially when compared with the healthcare cost averages of other notable countries! Health consumption expenditures per capita for the United States total roughly $12,914. Meanwhile, in Germany, it is only $7,383. In Switzerland, it total $7,179, in the Netherlands it is $6,753, in Austria it is $6,693, in Sweden it is $6,262, in France it is $6,115, in Canada it is $5,905, in Australia it is $5,627, in Belgium it is $5,407, in the United Kingdom it is $5,387, and in Japan, it is the lowest at $4,666. These comparisons can explain why some individuals and families will choose to move out of the United States and into a country with cheaper healthcare costs.
When Investopedia conducted a comparative study of the cost of hip replacements across countries, they also found the United States was the most expensive one to get that particular surgery in. In the United States, a hip replacement can cost around $29,067, in Australia it costs about $19,484, in Switzerland it costs $17,112, in the United Kingdom it costs $16,335, in New Zealand it is $15,465, in South Africa it is only $7,685, and in Spain, it is $6,757. The average healthcare cost per capita for most countries is around $5,829, but in the United States, that amount is a whopping double at $12,318.
Unfortunately, the healthcare costs in America are among the very highest in the world in all categories. However, studies have shown that the fairly high cost of living is not the primary culprit in high U.S. healthcare costs. Healthcare costs can be a lot higher for the same medicine or procedure in America than in similar countries. Some of the factors that lead to the high U.S. healthcare costs include a lack of a national healthcare system, hospital consolidation, and inadequate industry regulation, as mentioned above.
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