What makes the US healthcare system so expensive?

It’s very important to understand the factors that lead to health insurance being so costly. Having a better understanding of the system can help you find ways to lessen your own health insurance costs for yourself and your employees.

Today, we’re going to dive into the variables that are increasing health insurance costs and offer up some solutions to decrease costs for your company. Hopefully, by the end of reading this blog, your understanding of health insurance costs will be crystal clear.

• Administrative Costs

According to David Cutler—a Harvard health economist—who outlines in an interview with PBS how administrative costs within the U.S. healthcare industry are one of the primary reasons for high health insurance prices.

Compare this to the roughly 10 to 15 percent of the next highest countries and you can see just how excessive the U.S. healthcare industry can be in terms of admin costs.

One of the reasons why the U.S. dedicates so many resources to administration in the healthcare sphere is because, “they are figuring out how to bill different insurers for different systems, figuring out how to collect money from people, all of that sort of stuff,” continues Cutler. In other words, because the system is still fairly complicated, healthcare organizations have to spend a lot of time and money carrying out their administrative duties.

• The United States Spends More on Healthcare

The United States spends a lot more money on healthcare, which ends up driving the cost a substantial amount. That may sound a little confusing and redundant, so let’s break it down to simplify things.

The obvious candidate to talk about is drugs. The cost of pharmaceuticals has been at the forefront of discussions when it comes to healthcare here in the States. In the U.S., branded drugs cost much more than in other countries. Because for-profit companies are so heavily involved in the United States healthcare system, it has a ripple effect down to the patients who need prescription drugs or other medical products.

As David Cutler also notes in that same PBS interview, “… doctors also earn more for doing the same thing in the U.S. than they do in other countries, and a lot of suppliers charge more for things like durable medical equipment in the U.S. than in other countries.” So, when suppliers charge more for their equipment, hospitals have to charge more for their services, and the end consumer (patients) end up paying more.

The price of medical care is the single biggest factor behind U.S. healthcare costs, accounting for 90% of spending. These expenditures reflect the cost of caring for those with chronic or long-term medical conditions, an aging population and the increased cost of new medicines, procedures and technologies.

Also, healthcare reform law has expanded access to insurance to millions of Americans. We’ve transitioned to a healthcare system in which everyone can obtain health insurance regardless of age or health status, and many individuals who are newly insured need ongoing medical attention.

We can all play a part in helping to make America healthier—and curbing healthcare costs. Our healthcare system must focus more on quality care for patients that helps them get healthy faster and stay healthy longer. Meanwhile, everyone can lower their risk of developing many costly chronic diseases by adopting healthier lifestyles.

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