Home > Employee Benefits > Why is health care so expensive in the US and will reform make a difference?

Why is health care so expensive in the US and will reform make a difference?

expensive_insuranceSometimes a step back is required in order to evaluate the progress of the Health Care Reform debate. We are getting much, much closer to a bill passing the United States Congress to produce changes to our system of health care delivery that will impact almost everyone in the country. So, what are the challenges? Three big ones: getting access (insurance) for more persons; insurer practices, particularly in the individual market that punish individuals when they most need insurance; and reducing the overall cost of health care. 

The first issue, access, will require more money to supplement insurance premiums for persons with modest incomes who are not covered by insurance now.

The second issue, underwriting reforms, can be accomplished by requiring insurers to guarantee issuance to individuals and small groups without medical underwriting and in return, by requiring all persons to purchase insurance.

The third issue, is truly where all the action is.  We all know that the cost of health care in the United States is much higher than in other wealth countries and yet our medical outcomes often trail those of countries like France, Japan and Germany.  Is the reason for that the poorer health of Americans, over-utilization, medical malpractice abuses, high pharmaceutical prices, profits to health insurers, lack of electronic medical records or some other factors?

So, one place to analyze that question is to study the macro statistics. McKinsey issued a report called “Why Americans pay more for Health Care” last December that outlined the reasons. They compared American health care spending to a basket of major Western countries that get the same or better health care outcomes as America.

McKinsey reported that the leading cause of higher expense was higher Outpatient Care Expense. Our Inpatient Care Expense was actually lower though this may be just because American hospitals push patients out the door more quickly and push more procedures to Outpatient Care.  So they dived deeper and found that the single greatest cause was higher cost in doctor visits – more tests, procedures and expenses arising out of care.  Doctors are paid more in American than anywhere else and by quite a bit.  Americans get more Outpatient care and it costs much more than in other countries.  They also cited a relative lack of government control of supply – in other words, we don’t ration health care as much as in other countries.

The second biggest cause of higher expense in America was the higher cost of pharmaceuticals and nondurable medial products.  But this was only 20% as big an issue as the Outpatient Care disparity.  Third, just below second place, was the higher cost of health administration and insurance.  Our system is less efficient due to a lack of standards and due to profits of health insurers.  Insurer profits and taxes were about 5% of the total expense disparity as compared to other nations.

Do any of the versions of national Health Care Reform really impact the cost of health care?  Some of them try to reduce the profits of insurers indirectly, but the other drivers of higher health care costs are basically untouched.

Meanwhile, in Massachusetts, there is a movement toward capitation payments or global payment systems.  None of the national programs address cost control using this or any other mechanism.  Once again, it seems that Massachusetts is leading the way while the nation tries to catch up.

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