Why Are Healthcare Costs Rising in the US? A Deep Dive

Healthcare spending is a global issue, but the US stands out for its particularly rapid rise. This blog post explores the reasons behind this phenomenon and potential solutions, diving deeper into the complexities of the US healthcare system.

How this relates to the Sri Lankan Context is that there are many local insurers, who are not insuring any costs that take place in the USA or Canada. To bring light to this discussion, I wish to write to you, as to why, as local and international insurance companies, we often do not sponsor, the USA or the Canadian region, in our Health Insurance Policies.?

The Global Landscape of Healthcare Spending

Globally, healthcare spending has been steadily increasing for decades. According to the World Health Organization (WHO), in 2019, it reached a staggering $8.5 trillion, accounting for nearly 10% of global GDP. This rise can be attributed to several factors, including an aging population, the development of new and expensive medical technologies, and a growing awareness of the importance of preventative care.

However, the US presents a unique case. While healthcare spending is rising worldwide, the US outpaces its developed counterparts by a significant margin. The Centers for Medicare & Medicaid Services (CMS) reports that the US spent nearly $4.5 trillion on healthcare in 2020, which translates to roughly $14,000 per person. This stands in stark contrast to other high-income countries like France, Germany, and Japan, which spend considerably less per capita while achieving similar or even better health outcomes.

The US Anomaly: High Costs, Low Outcomes

The US healthcare system spends roughly double what other developed nations do, yet it doesn't translate to better health outcomes. Americans have a lower life expectancy than people in many other wealthy countries, despite paying more for healthcare. According to a 2023 report by the Commonwealth Fund, the US ranks dead last in healthcare system performance among 11 high-income countries. This raises critical questions: Why is the US system so expensive, and what are the underlying factors contributing to this anomaly?

Key Drivers of US Healthcare Costs

Several factors contribute to the high cost of healthcare in the US. Here's a closer look at some of the most significant ones:

• Fragmented System:?Unlike many other countries with universal coverage, the US has a complex and fragmented healthcare system. There are numerous private health insurance companies, each with its own plans, networks of providers, and coverage limitations. This lack of cohesion leads to inefficiencies and higher costs. Patients may face challenges navigating the system, encountering issues like denials of coverage and surprise bills. Additionally, fragmented systems create administrative waste, as insurers and providers dedicate resources to managing paperwork and billing processes.
• Lack of Universal Coverage:?Over 11% of Americans lack health insurance, according to a 2020 report by the Kaiser Family Foundation. This lack of coverage leads to delayed or skipped care, particularly preventative care. When health problems go unaddressed, they can worsen over time, leading to more expensive interventions later. Additionally, uninsured patients often rely on emergency rooms for care, which is a more expensive setting compared to preventive or primary care.
• High Prices:?The US healthcare system is characterized by high prices for services, medications, and medical technology. Unlike some other countries that implement price controls or negotiate with drug companies, the US system allows providers and pharmaceutical companies to set their own prices. This lack of price regulation contributes significantly to the overall cost burden.
• Fee-for-Service Model:?Traditionally, many US healthcare providers operate under a fee-for-service model. This system incentivizes providers to deliver more services, as they are reimbursed per service rendered. While this model can encourage diligence, it can also lead to overutilization of services and potentially inflate costs, especially when unnecessary procedures are performed.
• Defensive Medicine:?The fear of malpractice lawsuits is a significant concern for US healthcare providers. This can lead to "defensive medicine," where doctors order unnecessary tests or procedures to avoid potential liability. While this practice may protect providers legally, it adds to the overall cost of care.

Beyond the Headlines: Additional Considerations

The high cost of healthcare in the US is a complex issue with several contributing factors. Here are some additional aspects to consider:

• Consolidation:?The healthcare industry has seen a trend towards consolidation, with hospitals and physician practices merging or being acquired by larger entities. While proponents argue that consolidation can improve efficiency, it can also lead to reduced competition and potentially higher prices for consumers.
• Biomedical Innovation:?The US is a leader in biomedical research and development, leading to the creation of new and expensive medical technologies and treatments. While these advancements can improve patient outcomes, they also contribute to the rising cost of care.
• Social Determinants of Health:?Factors like poverty, education level, and access to healthy food significantly impact health outcomes. These social determinants can contribute to higher healthcare costs, as individuals with limited resources may struggle to afford preventative care or healthy living expenses.

Controlling healthcare costs in the US is a complex challenge with no easy solutions. Researchers and policymakers continue to analyze the root causes and explore various options. A multi-pronged approach that addresses the fragmented system, promotes preventative care, and tackles high prices may be necessary to achieve affordability, improved access, and better health outcomes for all Americans.

Fortunately, the Sri Lankan medical industry, though not heaviliy reliable from teh government funding, still maintains a decent level of accessibility to the majority of the population.

Still, during the last 2-3 years, the rise of medical inlfation has been in a stagering uprise. Anyone who has a medical insurance, can dodge the shortcomings of any medical related expenses. Despite the fact, that there is a majority that are underinsured, having some form of a Medical Insurance will never be a waste.

If you are interested in getting an Exclusive HSA (Health Savings Account) you can contact me directly via this link.