Why is health care so expensive?

By guest blogger Robert Field:

Health care costs more in the United States than anywhere else on earth. It's not even close. We spend almost twice as much as the average of developed countries, and almost forty percent more than the second most costly country, which is France.

This would make sense, if we were healthier as a result. Unfortunately, we are not. We get chronic diseases at least as often as citizens of other countries, we rank 38th in life expectancy, and our infant mortality rate is number 33. The highest life expectancy in the world is in Japan, which spends about half per person what we do on health care. Something is driving up costs in the United States, and it is not an expense that gives us better health.

So, why does American health care cost so much? Experts point to a number of factors but do not always agree on which is most important. Technology is usually assigned most of the blame. Countless new machines, drugs and devices are introduced every year. They often improve care, but the prices tags can be astronomical. However, many European countries use as much technology as we do without spending anywhere near the same amount overall on health care.

There is also a lot of fraud, abuse and waste in the system. Each year, billions of dollars are lost due to lapses, both intentional and unintentional, in accurate billing and reimbursement. However, a few billion dollars is not even a drop in the bucket in a system whose total cost is over $2.5 trillion a year.

Many people point to malpractice liability as the culprit. We are definitely the most litigious country. However, direct costs of medical malpractice amount to only about one percent of total system expenses. The bill is higher if you also consider the cost of defensive medicine, which is the extra tests that some physicians order to try to protect themselves from lawsuits, but no one knows by how much. Even the highest estimates put the cost of defensive medicine at less than three percent of the total – a large number but hardly enough to account for the high system cost alone.

There is one other factor that is distinctive to American health care and that is increasingly thought to add the most costs of all. That is the disjointed nature of the system. There are hundreds of different insurance plans in the United States, each with its own network of providers and terms of coverage. This makes it extremely difficult to coordinate care. Providers often fail to communicate with one another, which can lead to repeated tests and redundant treatments. Lack of coordination is one reason we lag behind many other developed countries in using electronic medical records. Our system contains few, if any, incentives for providers or insurers to try to overcome this inefficiency.

No one knows exactly how much more we pay because of the disjointed nature of the health care system, but it is clearly a large amount. The health reform law contains provisions that encourage greater coordination, but any impact will take time. Whatever the solution, we need it soon, before health care costs place an insurmountable burden on individuals, government programs, and the overall economy. We can't afford to keep paying premium prices and getting health outcomes that are mediocre at best.

Find earlier items by Robert Field here, including this examinaiton of the legal challenges of the Affordable Care Act (Obamacare).

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