6 Reasons Healthcare Is So Expensive in the U.S.

As of 2021, life expectancy in the U.S. is 76.1 years and only 91.4% of the population has health insurance, compared to 99% to 100% of the population in other industrialized countries.

The United States healthcare system is complex and most costs are market driven. High, unregulated prescription drug costs and healthcare providers' salaries rank higher than in other western nations, and hospital care accounts for 31% of the nation’s healthcare costs. Administrative regulations regarding billing and coding also add to an individual's cost.

Many factors affect the cost of healthcare in the United States and as salaries for American workers have risen, net pay has remained the same due to the increasing cost of health insurance.

1. Multiple Systems Create Waste

“Administrative” costs are frequently cited as a cause for excess medical spending. The U.S. spends about 8% of its health care dollar on administrative costs, compared to 1% to 3% in the 10 other countries the JAMA study looked at.

The U.S. healthcare system is highly complex, with separate rules, funding, enrollment dates, and out-of-pocket costs for employer-based insurance, private insurance from healthcare.gov, Medicaid, and Medicare, in all its many pieces. In each of these sectors, consumers must choose among several tiers of coverage, high deductible plans, managed care plans (HMOs and PPOs), and fee-for-service systems. These plans may or may not include pharmaceutical drug insurance with its tiers of coverage, deductibles, copays, or coinsurance.

For providers, this means dealing with myriad regulations about usage, coding, and billing. And these activities make up the largest share of administrative costs.

2. Drug Costs Are Rising

On average, Americans shell out almost twice as much for pharmaceutical drugs as citizens of other industrialized countries pay. High drug prices are the single biggest area of overspending in the U.S. compared to Europe, where drug prices are government regulated, often based on the clinical benefit of the medication.

With little regulation of drug prices, the U.S. spends an average of $1,443 per person, compared to $749, on average, spent by the other prosperous countries studied. Drug prices in the U.S. are 256% of those in comparison countries. In the U.S. private insurers can negotiate drug prices with manufacturers, often through the services of pharmacy benefit managers. However, Medicare, which pays for a hefty percentage of the national drug costs, is not permitted to negotiate prices with manufacturers.

3. Doctors (and Nurses) Are Paid More

The average U.S. family doctor earns $214,370 yearly as of 2020, and specialists make $316,000—way above the average in other industrialized countries. American nurses make considerably more than elsewhere, too. The average salary for a U.S. nurse is about $74,250, compared to $58,041 in Switzerland and $60,253 in the Netherlands.

The U.S. managed care plans (HMOs and PPOs) may succeed in lowering healthcare costs by requiring prior authorization for seeing a high-priced specialist. Using a nurse practitioner instead of a family doctor can also save money.

4. Hospitals Are Profit Centers

Hospital care accounts for 31% of the nation’s healthcare costs. Between 2007 and 2014, prices for inpatient and outpatient hospital care rose much faster than physician prices, according to a 2019 study in Health Affairs. Hospital expenditures grew 6.4% in 2020 to $1.27 trillion.

U.S. prices for surgical procedures in hospitals greatly exceed those of other countries. A typical angioplasty to open a blocked blood vessel, for example, costs $6,390 in the Netherlands, $7,370 in Switzerland and $32,230 in the U.S. Similarly, a heart bypass operation in the U.S. costs $78,100 compared to $32,010 in Switzerland.

Today, many hospitals are on the brink financially. Moreover, the cessation of elective surgery and severely declining provider visits because of the coronavirus lockdown account for a big part of the decline in the overall economy.

5. U.S. Healthcare Practices Defensive Medicine

Both physicians and hospitals have an interest in preventing lawsuits, so “just in case” tests and scans may be ordered. And these tests can be costly. While a CT scan costs just $97 in Canada and $500 in Australia, the average cost is $896 in the U.S.

A typical MRI scan costs $1,420 in the U.S., but around $450 in Britain. Researchers have concluded that it’s not the sheer number of tests and procedures but their high price that explains why it’s so expensive to be sick in the U.S.

6. U.S. Prices Vary Wildly

Because of the complexity of the system and the lack of any set prices for medical services, providers are free to charge what the market will bear. The amount paid for the same healthcare service can vary significantly depending on the payer (i.e. private insurance or government programs, such as Medicare or Medicaid) and geographical area.

The Bottom Line

In part, most other developed countries control costs by having the government play a stronger role in negotiating healthcare prices. Their healthcare systems don’t require the high administrative costs that drive up pricing in the U.S.

As the global overseers of their country's systems, these governments can negotiate lower drug, medical equipment, and hospital costs. They can influence the treatments used and patients’ ability to go to specialists or seek more expensive treatments. Consumers may have fewer choices, but costs are controlled.

In the U.S., a lack of political support has prevented the government from taking a larger role in controlling healthcare costs. The Affordable Care Act focused on ensuring access to healthcare but maintained the status quo to encourage competition among insurers and healthcare providers.

Costs related to the healthcare crisis of 2020 and 2021 threatened to swamp the healthcare system and government budgets, and individuals need to do their research to find the best health insurance company to suit their needs.