Many people have theories about what makes health care cost so much in the US. The truth is that many factors contribute to excessive spending, but experts have identified 4 major reasons why: (1) Per-Unit Price of Health Care; (2) Administrative Waste; (3) Quality; and (4) Population Health.
Understanding the real reasons why health care costs so much is vital, for two reasons: (1) without understanding the cause, we won’t be able to fix the problem; and (2) so-called “solutions” that don’t address the real causes tend to harm consumer access to the right care at the right price. Examples of this are cuts in Medicaid eligibility or benefits, higher deductibles and cost sharing, narrower provider networks and drug formularies, and other policies that hurt consumers.
Extensive research into cost drivers have identified the FOUR major reasons why health care costs so much:
- Per-Unit Price of Health Care: That means the price charged for each unit of care (such as an MRI, a pill, a procedure). NY Times reporter Elizabeth Rosenthal has a long series, “Paying Till It Hurts,” that’s a must-read on unjustifiably high health care costs. Prices that different providers charge for different procedures vary tremendously, both within and among regions, but it’s hard for consumers to comparison-shop, and it’s important to note that numerous studies have found no relationship between higher price and higher quality. Never assume more expensive care means better care.
- Administrative Waste: Hospitals, doctors’ offices, and insurance companies all have large staffs to process all the paper and electronic forms and documents. Each payer has different forms, benefits, and reporting requirements, multiplying bureaucracy. We spend a lot on marketing competing prescription drugs, hospitals, and health plans. It goes on and on.
- Quality: The Institute of Medicine estimates that over 30% of health care spending provides either no value or “negative” value – meaning harm to the patient. In 2013, an article in the Journal of Patient Safety estimated that 400,000 Americans die each year from medical errors, costing $1 trillion per year.. Ten times more suffer complications. In 2002, an estimated 1.7 million Americans died of infections acquired in hospitals (mostly preventable). 18% of Medicare patients who are hospitalized get readmitted to the hospital for potentially preventable reasons.
- Population Health: Chronic health conditions, brought on by poor diet, inadequate exercise, stress, air pollution, and other environmental factors, are the leading cause of death in the US. Heart disease and cancer together account for 47% of deaths. Total costs of treating people with diabetes in 2012 were $245 billion. These diseases are largely preventable with more investment in preventing disease, through population health initiatives that address health behaviors contributing to these diseases: poor nutrition, lack of exercise, tobacco use, and drinking too much alcohol. The CDC list fails to mention other behavioral health conditions, including chronic stress, which is more common in people struggling to survive because of poverty, racial bias, and other pressures. We must improve the quality of life and standard of living for people living in unhealthy communities so that they can live healthier lives.
Those are the four biggest reasons why we spend so much on health care. If you want to know more, go to the Consumers Union Health Care Value Hub and have a field day.