Wednesday, November 15, 2006

Why does American healthcare cost so much?

According to the NY Times Business (October 18, 2006) A Lesson From Europe on Health Care at and

“The most obvious difference between [European] health care systems and ours — that their governments provide universal insurance — certainly plays a big role in the cost differences. Look behind the receptionist at your doctor’s office, and you will very likely see a staff of people filing claims to different insurance companies. The insurance companies, meanwhile, employ a small army charged with figuring out how to avoid covering the unhealthy. The administrative costs of our patchwork bureaucracy eat up about 25 percent of health spending… Even in Europe’s single-payer systems, administrative costs account for about 15 percent of health spending, once everything is included, according to the Lewin Group, a consulting firm…. Medicare, which has administrative costs roughly as low as those of other countries’ universal plans. Younger Americans, by contrast, have private insurance, with all its inefficiencies. Yet elderly Americans’ share of national health spending is similar to that of the elderly in other countries, as Arnold Kling, an economist, has noted.”

“So something beside administrative costs is at work here, and it involves a basic cultural difference. Americans seem to be less willing to take no for an answer and more willing to try almost anything, no matter how expensive or how slim the odds, to prolong life. … It has made us obsessed with medical advances and turned this country into the world’s research laboratory. …But much of it is simply wasteful. Expensive procedures …are often no more effective than basic ones, according to research. Yet doctors can keep on getting reimbursed for the expensive ones. ‘Basically, anything that doesn’t kill patients is paid for by Medicare and insurance companies,’ said Jonathan Skinner, a health care researcher at Dartmouth College. …’We Americans tend to treat any rejection of a health claim as some conspiracy by insurance companies, the government, doctors and the pharmaceutical industry. In other countries, people have arrived at a better understanding that health care necessarily involves economic triage …’”
The comment section of the economistsview blog (link above) included a discussion of the higher cost of pharmaceuticals.

At the, at, they explain it this way:

“The Bush team argue that ‘fairer’ tax treatment will slow cost rises and enable more people to get basic insurance. The opposite is more likely. Bigger tax subsidies for health care are, if anything, likely to raise overall spending. Worse, since most tax breaks benefit richer people most, more tax incentives are likely to bring more inequality. They will also reduce tax revenue and worsen the budget mess. Mr Bush's health-care philosophy has a certain political appeal. It suggests incremental change rather than a comprehensive solution. It reinforces existing industry trends. And it promises to be pain-free. Unfortunately, it will not work. The Bush agenda may speed the reform of American health care, but only by hastening the day the current system falls apart.”
Others have argued that direct-to-consumer advertising by pharmaceutical companies also drive up costs because more patients demand from their doctors medications they don’t need. In addition, some make the case that by focusing costs are increased because our healthcare system rewards mediocrity through a “fix it and pay for it again when it breaks” process, rather than focusing on wellness/prevention and rewarding cost-effective sick-care.

In summary, the reasons given for the exceptionally expensive cost of healthcare in the US include: Waste, administrative overhead, Americans refusal to accept economic triage (take no for an answer), taking on the role of the world’s research laboratory, our attitude toward end-of-life spending, cost of prescriptions drugs, HSA tax-based incentives, direct-to-consumer advertising, and a system that rewards mediocrity rather than cost-effective care.

What do you think?
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