First, the United States relies on company-sponsored private health insurance. The government created programs like Medicare and Medicaid to help those without insurance. These programs caused demand for health care services. That gave providers the ability to raise prices. A study in Health Affairs co-authored by Princeton University health economist Uwe Reinhardt found that Americans use the same amount of health care as residents of other nations. We just pay more for them. For example, U.S. hospital prices are 60% higher than in Europe. Government efforts to reform health care and cut costs raised them instead.
Second, chronic illnesses, such as diabetes and heart disease. As of 2010, the health care costs of people with at least one chronic condition are responsible for 85% of health care spending. More than half of all Americana adults have at least one of them. As a result, the sickest 5% of the population consumes 50% of total health care costs. The healthiest 50% consume 3% of the nation's health care costs. Most of these patients are Medicare patients. The U.S. medical profession does a heroic job of saving lives, but it comes at a cost. Medicare spending for patients in the last year of life is more than six times greater than those that do not die that year. Care for these patients is one-fourth of the Medicare budget.
Between 1960 and 1965, health care spending increased by an average of 8.9% a year, because health insurance expanded. As it covered more people, the demand for health care services rose. By 1965, households paid out-of-pocket for 44% of all medical expenses while insurance paid for 24%. From 1966 to 1973, health care spending rose an average of 11.9% a year. Medicare and Medicaid covered more people and allowed them to use more services. Medicaid allowed seniors citizens to move into expensive nursing home facilities. As demand increased, so did prices. Health care providers put more money into research which created more innovative, but expensive, technologies.
Medicare helped create an overreliance on hospital care. By 2012, there were 131 million emergency room visits. An astonishing one out of five adults used the emergency room that year.
From 1974 to 1982, health care prices rose by an average of 14.1% a year. Prices rebounded after wage-price controls expired in 1974. Second, Congress enacted the Employee Retirement Income Security Act of 1974. It exempted corporations from state regulations and taxes if they self-insured. Companies took advantage of the lower-cost and flexible plans. Also, home health care took off, growing by 32.5% a year.
Between 1983 and 1992, health care costs rose by an average of 9.9% each year. Home health care prices increased by 18.3% per year. In 1986, Congress passed the Emergency Medical Treatment and Labor Act which forced hospitals to accept anyone who showed up at the emergency room. Prescription drug costs rose by 12.1% a year. One reason is that the FDA allowed prescription drug companies to advertise on television (they had to recoup the money for advertising somehow).
Between 1993 and 2013, health care spending grew by an average of 6% a year. In the early 1990s, health insurance companies tried to control costs by spreading the use of HMOs. Congress tried to control costs with the Balanced Budget Act in 1997. Instead, it forced many health care providers out of business. Congress then relented on payment restrictions in the Balanced Budget Refinement Act in 1999 and the Benefits Improvement and Protection Act of 2000. The act also extended coverage to more children through the Children's Health Insurance Program. After 1998, people rebelled and demanded more choice in providers. As demand increased again, so did prices. Between 1997 and 2007, drug prices tripled.
One reason is pharmaceutical companies invented new types of prescription drugs. They then advertised straight to consumers and created additional demand. The U.S. government approved expensive drugs even if they were not better than existing remedies. Other developed countries were more cost-conscious.
In 2003, the Medicare Modernization Act added Medicare Part D to cover prescription drug coverage. It also changed the name of Medicare Part C to the Medicare Advantage program. The number of people using those plans increased to 22 million by 2019. Those costs rose faster than the cost of Medicare itself.
The nation's reliance on the health insurance model increased administration costs. Administration costs made up 31% of U.S. health care costs. It's twice the administrative costs in Canada. Half of that is due to the complexity of billing.
The reliance on corporate private insurance created the health care inequality we have today. Those without insurance couldn't afford visits to a primary care physician and by 2009, roughly half of them (46.3%) who used a hospital said they went because they had no other place for health care. The Emergency Medical Treatment and Active Labor Act required hospitals to treat anyone who showed up in the emergency room. Unpaid care costs hospitals more than $38 billion per year, some of which are passed on to the government.
If airlines billed us after a flight and didn't show us prices, we would have unstable markets, and that would enable price gouging. Every day people are getting fleeced by crazy hospital bills that hospital leaders themselves have trouble justifying or interpreting.
The reason American health care is expensive is because when we go to the doctor, because it costs more than when someone in Canada goes to the doctor. Part of it is the price per unit of health care in the United States. From prescription drugs to scans, nearly everything costs more in America. Take the heartburn medication Nexium: The exact same medication costs $215 here and $23 in the Netherlands.
Most other countries have price controls; the government negotiates with drug companies and device makers for lower prices, and the government has the power to win those negotiations. The United States doesn't do that (which is why universal healthcare or national Medicare/Medicaid would be an enormous cost to the nation). It then leaves the negotiations up to individual insurers (and in some cases, individual patients).
Hospitals see no problem in sending bills to insurance companies for five to ten times the amount that they actually expect, because they are simply playing the game that the insurance companies fashioned. But remember, they only produce one kind of bill, and it's designed to send to someone who holds all the cards (an insurance company), and so they can just refuse to pay anything they didn't already agree to pay. That's their game.
But what happens when you have to play the game with the hospital alone (if you don't have insurance, or if your insurance doesn't cover that stay for some reason). Then you're on the hook for the entire amount. Most hospitals have a policy that allows people to negotiate for a lower amount, but most people don't know this (as many hospitals never seem to mention it to patients, convenient). So even if you can remember to negotiate while you're convalescing from a long hospital stay, good luck trying to get the deal the insurance company gets.
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