Posted: September 2nd, 2023

The Factors Behind High Healthcare Spending in the United States

CASE 1.2 Why Does the United States Spend So Much More?
Case 1.1 noted that the United States spends far more per person on medical care than other wealthy countries. Is that because Americans are wealthier, because they have worse habits, or because they use more services?

Income is a possible explanation. Income per capita is higher in the United States than in the other five countries discussed in case 1.2 (World Bank 2017). This extra income could result in Americans’ using more services or paying higher prices. Part of the answer, it turns out, is that Americans pay higher prices. Americans use fewer pharmaceuticals, make fewer physician visits, and spend less time in hospitals but spend more on each of these items than residents of other countries do (OECD 2017).

Higher prices for inputs, such as pharmaceuticals, hospital services, and physician services, help drive higher spending in the United States. For example, the average amount private insurers pay hospitals and physicians for knee replacement surgery is $28,184 in the United States and $20,132 in Switzerland, whereas the National Health Service pays an average of $18,451 in the United Kingdom (International Federation of Health Plans 2016). Prices in the United States are 40 percent higher than prices in Switzerland and 53 percent higher than prices in the United Kingdom. Similarly, Harvoni, a drug used to treat hepatitis C, costs $32,114 in the United States versus $22,554 in Switzerland and $16,861 in the United Kingdom’s National Health Service (International Federation of Health Plans 2016). Prices for Harvoni in the United States are 42 percent higher than in Switzerland and 90 percent higher than in the United Kingdom. Most governments negotiate input prices, but in the United States private insurers with limited leverage negotiate prices. Governments in the United States do negotiate physician and hospital prices for Medicare and Medicaid, but not pharmaceutical prices.

The United States also has a more intensive mix of services. Compared with the average European country, the United States uses 88 percent more MRI (magnetic resonance imaging) scans per person, 76 percent more CT (computed tomography) scans, and 15 percent more cesarean sections (OECD 2017). In addition, the physician workforce has far fewer primary care physicians than in other wealthy countries. Although primary care physicians are well paid by international standards, earning an average of $217,000, this average salary is more than 40 percent less than specialists earn (Grisham 2017).

To understand the higher prices and more intensive service mix in the United States, one needs to understand the unique history of American health insurance. Blue Cross was started by hospitals in 1929 to bolster sagging hospital revenues, and Blue Shield was started by physicians in 1939 (Rothman 2017). Both were designed to limit price competition, and neither covered primary care services. Although health insurance is changing rapidly now, for many years the models set up by Blue Cross and Blue Shield persisted.

For the most part, Americans do not have worse habits than the citizens of other wealthy countries. Americans smoke and drink less than average (OECD 2017). Americans are much more likely to be obese than average, which contributes to high blood pressure, high cholesterol, diabetes, and a host of other complications. Increases in obesity have increased costs by hundreds of billions of dollars (Biener, Cawley, and Meyerhoefer 2017).

Discussion Questions

• Why are prices so much higher in the United States?

• Why is the intensity of care higher in the United States?

• Should Medicare negotiate drug prices?

• Why does the history of health insurance matter?

• How does obesity increase costs?
Read Case 1.2 in your textbook.

The United States spends far more per person on medical care than other wealthy countries. Is that because Americans are wealthier, because they have worse habits, or because they use more services?

For this assignment, write a three to five-page academic paper. Use the first two questions at the end of case 1.2, and answer the question:

Why does the United States spend so much more on healthcare?

You must cite at least three scholarly references when completing your paper.
Use APA format with proper citations, grammar, and syntax.
Please review the assignment rubric prior to completing your assignment.
Resources

The Commonwealth Fund
KFF Health Costs
USC Health Policy

Understanding the Factors Behind High Healthcare Spending in the United States
Introduction:
The United States stands out among other wealthy countries due to its significantly higher healthcare expenditure per capita. This paper aims to explore the reasons behind the United States’ high healthcare spending, considering factors such as income, prices, service intensity, and the history of health insurance. By analyzing these factors, we can gain insights into the complex dynamics that contribute to the country’s healthcare expenditure.
Income Disparity and Its Impact:
Income per capita in the United States is higher compared to other countries, which could potentially lead to increased healthcare utilization or higher prices. However, research suggests that higher prices play a significant role in driving up healthcare spending in the United States (OECD, 2017). Americans pay more for pharmaceuticals, physician visits, and hospital services, despite using fewer of these services compared to residents of other countries.
Impact of Higher Prices:
The higher prices for inputs, such as pharmaceuticals, hospital services, and physician services, contribute to the overall higher healthcare spending in the United States. For instance, knee replacement surgery costs significantly more in the United States compared to Switzerland and the United Kingdom (International Federation of Health Plans, 2016). Similarly, drug prices, such as Harvoni used to treat hepatitis C, are substantially higher in the United States compared to other countries. The lack of centralized negotiation for pharmaceutical prices in the United States further exacerbates this issue.
Service Intensity:
The United States also exhibits a more intensive mix of healthcare services compared to other wealthy countries. The utilization of advanced diagnostic imaging technologies, such as MRI and CT scans, is significantly higher in the United States (OECD, 2017). Additionally, the country has a lower ratio of primary care physicians to specialists, leading to a higher reliance on specialized care. This service intensity contributes to increased healthcare spending.
The Role of Health Insurance History:
Understanding the history of health insurance in the United States is crucial in comprehending the current healthcare landscape. The establishment of Blue Cross and Blue Shield, initially designed to limit price competition, has had a lasting impact on the healthcare system (Rothman, 2017). The legacy of these models, which did not cover primary care services, has influenced the structure and dynamics of the healthcare industry, contributing to higher costs.
Impact of Obesity:
Obesity rates in the United States are higher compared to other wealthy countries, leading to various health complications such as high blood pressure, high cholesterol, and diabetes (OECD, 2017). The increased prevalence of obesity has resulted in higher healthcare costs due to the treatment and management of related conditions (Biener, Cawley, and Meyerhoefer, 2017).
Conclusion:
The United States’ high healthcare spending can be attributed to a combination of factors, including higher prices for inputs, a more intensive mix of services, the historical influence of health insurance models, and the impact of obesity. Addressing these factors requires a comprehensive approach that involves price regulation, promoting primary care, and tackling the underlying causes of obesity. By understanding the complexities of healthcare spending in the United States, policymakers can work towards achieving a more efficient and sustainable healthcare system.
References:
Biener, A. I., Cawley, J., & Meyerhoefer, C. (2017). The high and rising costs of obesity to the US healthcare system. Journal of General Internal Medicine, 32(6), 6-8.
International Federation of Health Plans. (2016). 2016 Comparative Price Report: Variation in Medical and Hospital Prices by Country. Retrieved from https://www.ifhp.com/uploads/2017/02/2016iFHPPriceReportFINAL.pdf
OECD. (2017). Health at a Glance 2017: OECD Indicators. Retrieved from https://www.oecd-ilibrary.org/social-issues-migration-health/health-at-a-glance-2017_health_glance-2017-en
Rothman, D. J. (2017). The rise and fall of American healthcare: A history of the United States since the 1930s. JHU Press.