The Tapeworm of American Economic Competitiveness

"Medical costs are the tapeworm of American economic competitiveness."

Warren Buffet made that colorful statement to focus attention on the negative consequences of Americans on average paying far more for healthcare than other developed countries. As of 2022, the total U.S. healthcare expenditure reached nearly 20% of the GDP. This in turn means American companies also pay more, creating a drag on their competitiveness in the global market.

The Rising Cost of Employer-Sponsored Health Plans

We’re not talking about small differences here. Take a look at the chart below that shows the average premiums for family and single coverage across several developed countries. You can see that the healthcare premiums for Americans are astoundingly more than for other countries.

This data was compiled from The Kaiser Family Foundation's 2022 Employer Health Benefits Survey , the OECD's Health at a Glance database, and The World Health Organization's World Health Statistics . The Kaiser Family Foundation summarizes it for Americans this way.

Annual premiums for employer-sponsored family health coverage reached $22,463 this year, with workers on average paying $6,106 toward the cost of their coverage. The average deductible among covered workers in a plan with a general annual deductible is $1,763 for single coverage. Workers at smaller firms, on average, contribute nearly $2,000 more toward the cost of family coverage than workers at larger firms. They also face general annual deductibles that are $1,000 higher on average.

Rising healthcare costs are a chronic problem that has been only getting worse as time passes. The graph below shows how American premiums have risen over the 20+ years.

It is tempting to blame the rising costs on the high inflation in recent years. Probably, there is some truth to that, but, as the graph below shows, premiums have been rising faster than inflation, and frequently faster than wages.

What makes this data especially curious is that at the same time, the United States has the lowest percentage of employees with employer-sponsored health insurance, as shown in the chart below.

Employee Withdrawal from Healthcare

Although some of the decline in coverage is probably related to increasing gig work, Alight Research found that an increasing number of workers , especially lower-paid ones, were opting out of employer-sponsored health programs due to the high cost.

The Kaiser Family Foundation uncovered similar results : ?

The cost of health care often prevents people from getting needed care or filling prescriptions. About a quarter of adults say they or family member in their household have not filled a prescription, cut pills in half, or skipped doses of medicine in the last year because of the cost, with larger shares of those in households with lower incomes, Black and Hispanic adults, and women reporting this.

These results suggest a self-reinforcing loop where lower healthcare participation leads ultimately to higher healthcare costs. The latest report from the Commonwealth Fund delves into this further, noting that while Americans pay the most for healthcare, they have the worst results.

Cost Drivers and Private Sector Solutions

As I discuss more deeply in this article , some of the primary drivers of high healthcare costs are these:

• Administrative overhead, which accounts for about 34% of the expense in the United States and is the highest administrative overhead in the world
• Lack of transparency in pricing
• Expensive doctors

Most other developed countries have lower costs for reasons largely attributed to greater government involvement in providing healthcare insurance and regulating prices. The United States has so far taken a more hands-off approach, leaving solutions to the private sector, with less-than-stellar results. However, there are some emerging companies to watch that might make a positive impact. ?

• @Point of Care is an app that runs on wall-mounted kiosks or mobile devices and enables care staff to document activities of daily living at or near the point of care to help improve the accuracy and timeliness of documentation.
• Arrive Health connects providers to a network of real-time, patient-specific information and delivers it within the clinical workflow. It includes an integrated tool to facilitate the accurate prescription of drugs.
• Clever Health offers an AI-powered virtual care app that intakes patient information and provides diagnosis via a smart questionnaire and asynchronous physician consultation. They also provide up to 80% savings on out-of-pocket Rx costs by considering an individual’s exact insurance coverage, deductibles, copays, location, and pharmacy preference.
• Enlace Health connects payers, providers, and patients with end-to-end program administration, including claims adjudication, reconciliation, and audit-ready reporting.
• Etyon Health combines data integration, machine learning, and advanced analytic automation to help healthcare providers better plan, analyze, and perform.
• GeroHealth offers a Comprehensive Senior Advisor? app that fosters collaboration and an interdisciplinary, comprehensive approach to the management of the well-being of the senior population
• Hindsait applies artificial intelligence to large healthcare datasets, helping payors and providers improve patient health at a much lower cost.
• Inbox Health delivers a personalized patient billing experience by using proprietary algorithms that provide intelligent, bi-directional communication between practices and patients using SMS, email, voice technology, and mail.
• iShare Medical creates AI software that allows patients, providers, and payers to receive, organize, and share a complete medical record organized around the patient. The software learns by monitoring, analyzing, automating, and predicting transactions.
• Maverick Medical AI streamlines medical coding for healthcare organizations by automating the process with its personalized autonomous solution, resulting in decreased operational expenses, reduced denials, and increased direct-to-bill percentage.
• Sift Healthcare applies predictive analytics and machine learning to all reimbursement and patient pay data streams to enable high-power denials management and propensity-to-pay modeling.

As you can see from the list, these solutions do perhaps help reduce administrative costs, the expensive time of physicians, and the price transparency of pharmaceuticals.

Where Government is Needed

Although private-sector solutions to alleviate the rising cost of healthcare will hopefully emerge, the complete solution may not be an app or other technical offering. For example, heavyweights Warren Buffet, JP Morgan, and Amazon combined to create Haven in 2018, which was supposed to offer superior health plans to thousands of employees. But the venture failed spectacularly after only three years, in part due to the inability to partner with the existing healthcare industry.

As Harvard healthcare researcher and economist David Cutler has argued , the dominant players in the healthcare industry do not necessarily want greater price transparency or efficiency. He explains:

Almost all hospitals have electronic medical records, but there is no federal requirement that they interface. Indeed, many providers take active steps to avoid electronic interchange, because keeping records local ensures that fewer patients will switch doctors.

Besides expanding affordable health insurance, governments of other countries have gotten involved in a couple of other useful ways. One is in requiring standardization so that records can be interchanged, and another is setting price controls on some drugs and services. It's one thing to let the price of a luxury car be whatever the market will bear, but another thing for the prices of life-saving drugs and procedures to be beyond the reach of those who need them.

The current system of healthcare is generating rising costs that not only drain the economy but are also contributing to the rising U.S. national debt . This is perpetuating a downward spiral in that Americans are also not getting comparable results to other countries. Further, Americans are at times withdrawing from treatment due to the high costs. Probably through a combination of innovation and regulation, we need to find a solution.

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