Connect with us

Global Affairs

Why Healthcare Costs More in the US than Europe

 7 min read / 

Healthcare in the US famously costs more and delivers less – less coverage per person, fewer people covered – with less to show for it than in Europe. The total of all healthcare costs in the US was $3.3trn in 2016 or $10,348 per person. In 10 industrialised nations with lower costs and better healthcare results than the US, it’s $4,386 per person.

In the US, healthcare costs grew at a rate of 4%, adjusted for inflation – from $1.2trn to $2.1trn – while the overall economy grew at just 2.4 %.

Meanwhile, life expectancy is in decline in the US. The opposite is true in the United Kingdom, Germany, France, Australia, among others. (A 2011 Forbes article makes the point that not all deaths are due to poor health. There are deaths from violence and automobile accidents, too. Better healthcare may not completely eliminate the difference, but it would probably help.)

Many reasons for this discrepancy have been suggested, from Americans’ unhealthy eating habits to lack of exercise, to the high cost of pharmaceuticals to mandating coverage for benefits that not everyone needs. The answer may be tied to Americans’ attitude toward universal healthcare and money.

Is Healthcare a Universal Human Right?

Unlike 49 other “very highly developed” countries, the US doesn’t have universal healthcare (UHC) because a substantial part of the political establishment doesn’t consider healthcare a universal human right, only an entitlement. American politicians want to cut entitlements, not expand them.

Most of Europe is probably puzzled by this. After World War II many Europeans considered the right to health as a basic human right, as recognised by the 1948 Universal Declaration of Human Rights and the 1966 International Covenant on Economic, Social and Cultural Rights.

Even before the First World War, Americans on both sides of the political spectrum rejected UHC and more modest reforms time and again. Even when proposed by liberal and conservative presidents such as Theodore Roosevelt, Harry Truman, Lyndon Johnson, John F. Kennedy, Richard Nixon, Jimmy Carter, Ronald Reagan and Bill Clinton, their efforts were rejected, watered down or repealed.

American Opposition to Universal Healthcare

Americans’ antipathy to universal healthcare is partly due to its perceived costs, fear of communism and socialism (“socialised medicine”), and historic opposition from the American Medical Association (which didn’t like any form of UHC until the 2010 Patient Protection and Affordable Care Act – ACA or “Obamacare” – ruled out a public plan to pay for it).

Another reason could be because the US didn’t suffer the aftermath of WWII as much or in the same way as Europe. Our buildings and infrastructure weren’t demolished. The economy was booming. Besides, many Americans returned to find healthcare paid for by their employers (a workaround for wartime salary controls to entice in-demand employees). Healthcare as a human right didn’t seem necessary.

That attitude prevailed into the 21st century. The ACA, though flawed, was the closest President Obama could get to UHC even with majorities in both houses of Congress.

US Essential Health Benefits Not the Problem

In conjunction with the ACA, all (or nearly all) US health care plans were and still are required to offer 10 Essential Health Benefits (EHB), including pregnancy and maternity care (the US also has a piddling-poor infant mortality rate relative to other nations), mental health and substance use disorder (the opioid epidemic), preventive care and chronic disease management (“preexisting conditions”), and emergency services.

Many opponents of the ACA focused their ire on the EHB. Some men (bachelors, presumably) object to being required to pay maternity services since they don’t give birth themselves, and many non-addicts still consider paying for others’ drug addiction help to be rewarding sinners rather than treating the ill. Eliminating those benefits, however, would do little to reduce the costs.

According to an analysis by the actuarial firm Milliman, at least two-thirds of the costs are due to three items that even ACA critics weren’t talking about cutting: ambulatory (services that don’t require hospital admission), hospitalisation (surgery, overnight stays) and prescription drugs. To cut the other seven categories wouldn’t save much.

Physicians and Hospital Fees

A specialist in the US can earn more than $400,000 annually, about twice as much as a GP and 30–40 % as much as doctors in other developed countries. The conservative Washington Examiner blames “physicians associations” such as the AMA, who they accuse of behaving like cartels, limiting the supply of doctors (especially general practitioners) to keep fees high.

According to a study in the Journal of the American Medical Association, the cost of a hospital stay and services is 60 % higher in the US. One reason may be too many hospitals with empty beds, which the staff try to mitigate by charging higher fees, keeping patients longer than is necessary (a busy hospital discharges patients as soon as possible), or running unnecessary tests.

Most US hospitals also are obligated to care for patients who have no insurance, whether or not they can pay. Unpaid fees are passed on to the other, paying and insured patients. (Universal healthcare would eliminate that cost.)

Prescription Drug Prices

In the US patients do use more prescription drugs than in years past. In 2015, prescription drugs were 12 % of US healthcare costs compared to 7 % in the 1990s. Prescription drug prices have risen, as have Big Pharma profits. Between 2006 and 2015, revenue from sales of pharmaceuticals and biotechnology increased almost 50 % from $534bn to $775bn. Most drug companies saw profit margins increase, too, by about 17 %.

Switching to generic drugs may help, but that raises other concerns: quality and safety. Indian drug manufacturers have been caught destroying documents to cover up potential issues. The US Food and Drug Administration has banned 44 facilities from sending their products to the US, but those are only the ones they’ve identified. Inspections dropped by 27 % from 2016 to 2017 due to staffing shortages.

Obstacles to Reform

If belatedly Americans embrace universal healthcare (with a mandate), negotiate with Big Pharma for cheaper drugs and cut physician and hospital fees so they are more in line with Europe, costs per individual might go down, but there may be other negative consequences.

Even if the US has been paying more for the same or inferior services than European nations such as Britain, a sudden correction could have a damaging impact on the healthcare market for 10 or 20 years. Hospitals might shut down, and patients might have to wait three or four times as long for some procedures or to see a specialist. Taxes would probably go up. And while workers who currently get insurance through their employers might see their paychecks go up without the healthcare deductions, they would probably get sticker shock at how much they would pay out of pocket.

If the UHC offered was less generous (and thus more affordable) than the care to which those who already have insurance are accustomed, they might revolt. And the opposition party would take political advantage as they did with Bill Clinton’s proposed healthcare reform and the glitches in ObamaCare.

Like with mass transit, which the US largely eschewed in favour of private automobiles, it may be too late for the US to easily or quickly adopt a European solution to healthcare. The current system cannot continue without some major, bipartisan, and possibly incremental reforms.

1 Comment

1 Comment

  1. Garm

    January 9, 2018 at 10:33 AM

    Compared to healthcare costs in other nations, the US overspends by about 1.6 trillion -1 600 billion- per year. Almost 3 times the US military budget. That is a lot of money (technically, a gazillion, or a bajillion in metric). This much money does not just vanish without some people looking very very seriously at where it goes. Look up a number of publications such as Health Affairs etc.

    About one third of it goes to excess bureaucracy. The US mess of unstandardized systems and large amount of work processing billing leads to a massive bureaucracy doing jobs that don’t exist much in the rest of the world. Another third is sheer inefficiency. Duplication of efforts, overprovision etc. And the last third is everything else. Things like higher salaries for medical workers and higher prescription prices are part of this category. Higher salaries a fairly small part of it.

    As far as the notion that accidents and violence can be a large enough factor to lower US life expectancy, I encourage people to break out their school maths: How many 18-year olds would need to die to lower life expectancy in a population of 320 million by one year?

Leave a Reply

Your email address will not be published. Required fields are marked *

Continue Reading

Send this to a friend