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

Healthcare can be complex. But it can also be very expensive, especially for Americans. There are many factors that contribute to the high cost of healthcare in the country. These include wasteful systems, rising drug costs, medical professional salaries, profit-driven healthcare centers, the type of medical practices, and health-related pricing.

Healthcare in the United States

The majority of Americans rely on private health insurance for coverage. Statistics show that 91.4% of the population has coverage. Compare that to 99% to 100% of the population who have healthcare coverage in other industrialized countries.

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

There are many factors that affect the cost of healthcare in the United States. But as salaries for American workers have risen, net pay remains the same due to the increasing cost of health insurance.

1. Multiple Systems

The U.S. healthcare system is highly complex. There are separate rules, funding, enrollment dates, and out-of-pocket costs associated with the various forms of health insurance, whether it's employer-based, private insurance, or government-provided plans like Medicaid and Medicare.

Consumers must choose among several tiers of coverage from these options. They include high deductible plans, managed care plans, 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.

Administrative costs are frequently cited as a cause for excess medical spending. According to statistics, healthcare costs in the United States exceed those in other developed nations. And these costs include those related to the administration of these systems. These expenses translated to $1,055 per person in 2021.

2. Rising Drug Costs

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

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.

Price and usage contribute to the higher cost of medication in the U.S. With little regulation in pricing, the U.S. spends an average of $963 on prescription drugs per person, compared to an average of $466 spent by other prosperous countries. More adults in the U.S.—as many as 58%—reported taking one or more drugs on a consistent basis.

Prescription drug spending reached $378 billion in 2021, which is an increase of 7.8% from the previous year.

3. Higher Salaries for Medical Professionals

The average annual salary for a family doctor in the United States was $235,930 in 2022. Emergency room physicians commanded an average annual salary of $310,640. That's way above the average in other industrialized countries, including Belgium ($202,131), Finland ($192,939), and the Netherlands ($164,155).

American nurses make considerably more than most developed nations. The average salary for a U.S. nurse is about $77,600, second to Switzerland, where they make $87,383. But it's more than Australia, Israel, and Ireland, where nurses make $54,340, $53,042, and $49,504, respectively.

The U.S. managed care plans 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. Profit-Driven Hospitals

Hospital care accounts for 31% of the nation’s healthcare costs. Expenditures in this category grew 4.4% in 2021 to a total of $1.3 trillion. This figure includes COVID-19 relief.

Prices in the United States remain high for inpatient services compared to other countries, according to a report released by the Health Care Cost Institute in July 2022. For instance:

• A hip replacement was $28,167 in the U.S., compared to $16,622 in New Zealand, which was the next most expensive.
• Patients paid $11,326 for a C-section in the U.S. The next highest cost was $7,948 in Switzerland.

5. Defensive Medical Practices

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. Consider:

• The average cost of an MRI in the U.S. was $580, second to New Zealand's $819. But it was higher than the $120 paid for by people in Spain.
• A CT scan in the U.S. cost $553 compared to $78 in Spain. Keep in mind that it is higher in New Zealand and South Africa, where these tests cost $655 and $576, respectively.

Researchers state 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. Varying Healthcare Prices

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, such as private insurance or government programs, such as Medicare or Medicaid. And geographical areas can also have a big impact on the cost. For instance, services may cost more in metropolitan centers like New York compared to rural areas like Salt Lake City.

The Bottom Line

Most developed countries control healthcare costs through government intervention. As such, their systems don't require the high administrative costs that drive up pricing in the U.S. These governments can negotiate lower costs for drugs, medical equipment, and hospital care. They can also control how patients get treatment. But the lack of political support in the U.S. is what keeps the government from controlling healthcare costs and what drives prices up. Having said that, it's always a good idea to your research to find the best health insurance coverage to suit your needs.