Reasons Healthcare Is So Expensive in the U.S.

1. Administrative Costs:-

The number one reason our healthcare costs are so high, says Harvard economist David Cutler, is “the administrative costs of running our healthcare system are very high. About one-quarter of healthcare cost is associated with administration, which is far higher than in any other country.”

2. Drug Costs:-

Another major difference in health costs between the U.S. and every other developed nation is the cost of drugs. In most countries, the government negotiates drug prices with the drug makers, but when Congress created Medicare Part D, it specifically denied Medicare the right to use its power to negotiate drug prices. The Veteran’s Administration and Medicaid, which can negotiate drug prices, pay the lowest drug prices. The Congressional Budget Office has found that just by giving the low-income beneficiaries of Medicare Part D the same discount Medicaid recipients get, the federal government would save $116 billion over 10 years. Think of what the savings might be if all Medicare recipients could benefit from Medicaid-negotiated drug prices.

3. Defensive Medicine:-

Yet another big driver of the higher U.S. health insurance bill is the practice of defensive medicine. Doctors are afraid they will get sued, so they order multiple tests even when they know what the diagnosis is. 

4. Expensive Mix of Treatments:-

U.S. medical practitioners also tend to use a more expensive mix of treatments. According to a 2018 report by the OECD, when compared with other developed countries, for example, the U.S. uses three times as many mammograms, two-and-a-half times the number of MRIs and does 31% more Cesarean sections. This results in more being spent on technology in more locations. Another key part of the mix is more people in the U.S. are treated by specialists, whose fees are higher than primary-care doctors when the same types of treatments are done at the primary-care level in other countries. Specialists command higher pay, which drives up the costs for everyone.

5. Wages and Work Rules:-

Wages and staffing also drive up costs in healthcare. Specialists are commanding high reimbursements, and the over-utilization of specialists through the current process of referral decision-making drives health costs even higher. The National Commission on Physician Payment Reform was the first step toward fixing the problem; based on its 2018+ report, the commission adopted 12 recommendations for changes to get control over physician pay. The Commission has gone on to work with Congress to find a way to implement some of these recommendations, although tangible policy outcomes have not yet followed.

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