In the United States, medical expenses are one of the heaviest burdens for many families.
A typical hospital stay can cost thousands of dollars, and a single bill can plunge a person into debt. How does the U.S. healthcare system actually work? Why is medical care so expensive? Where does it rank globally? Where will it head in the future?
Why is healthcare so expensive in the United States?
- High Administrative Costs
The U.S. healthcare system is expensive because it involves numerous insurance companies, hospitals, clinics, and government agencies. Each link requires a large number of administrative staff to handle billing, insurance reimbursement, and review processes. The U.S. administrative staff is notoriously slow, and this large number of staff combined with low efficiency leads to enormous administrative costs.
- Expensive Drugs
Unlike other countries, the U.S. healthcare system doesn't have centralized pricing with pharmaceutical companies. Instead, drug prices are market-driven, resulting in high drug prices. For example, some identical drugs in Canada or Europe may cost only one-third or even less than in the United States. The U.S. government does not interfere in drug price negotiations, particularly with private insurance and senior drug insurance.
Thus, the main reasons for the high cost of drugs in the United States are:
- There is no unified pricing system; prices are set by pharmaceutical companies.
- New drug patents last for a long time, resulting in a lack of generic competition.
- When hospitals and doctors prescribe medications, pharmaceutical companies influence drug selection through sales representatives, conference sponsorships, and rebates.
- Medical service pricing is opaque.
There is no uniform standard for medical service fees. The same procedure can cost different prices at different hospitals, and patients generally only learn the costs after receiving treatment, leaving them with little bargaining power. Each hospital and clinic has its own price list, resulting in significant price discrepancies.
- Insurance companies are the gatekeepers of the healthcare system.
Many American workers have private insurance paid for by their employers, while some elderly and low-income groups have public insurance. Insurance companies are responsible for negotiating medical service prices and determining which procedures and medications are covered. Consequently, they effectively control patients' access to healthcare resources, as patients generally choose to see hospitals and doctors covered by their insurance.
Insurance companies also set reimbursement rates and patient out-of-pocket expenses. They then review reimbursement claims, which involves numerous procedures and significant time-consuming processes before ultimately determining the reimbursement amount. Insurance companies are profit-driven. They typically profit by raising premiums (causing many workers to dedicate a significant portion of their monthly salary to premiums), reducing claims, and increasing administrative review.
The "Puzzle" of the US Health Care System
The US lacks a unified universal health care system, but rather a patchwork system constructed by the government, employers, insurance companies, and individuals. Health insurance sources vary depending on the demographic:
- Working Americans: Mainly Commercial Insurance
Approximately 180 million people (55% of the population) receive health insurance through their employers.
Premiums are shared by employers and employees, with individuals paying between tens and hundreds of dollars per month.
Coverage typically includes hospitalization, surgery, medications, and more.
Advantages: Diverse options and high-quality service.
Disadvantages: Insurance may lapse if unemployed; small and medium-sized employees face heavy burdens, and premiums continue to rise.
- Unemployed Americans: Government Insurance Backs the Box
Medicare
Covering approximately 60 million people over 65 and some individuals with disabilities (2023 data), it is funded by the federal government.
Medicaid
is targeted at low-income individuals, covers approximately 80 million people, and is jointly funded by the federal and state governments.
Other programs, such as the Veterans Affairs (VA) and the Children's Health Insurance Program (CHIP), also provide coverage for specific populations.
- Other Pathways: ACA Marketplaces and Self-Purchasing
The insurance marketplace established by the Affordable Care Act (ACA) allows individuals to purchase private insurance, with government subsidies for low-income individuals.
As of 2023, approximately 16 million people will have enrolled through this channel.
Pain Point: Approximately 26 million people (8%) remain uninsured and must pay out-of-pocket for medical care.