The sickening cost of health care: Why Americans pay the highest health care costs in the world
March 18, 2013
Health care costs in the United States continue to skyrocket, with dire consequences ranging from personal bankruptcies to the growing national debt. Yet the even more outrageous fact is that these inflated costs—the highest in the world—produce health outcomes that trail countries which spend far less.
In a Time magazine special report titled "Bitter Pill: Why Medical Bills Are Killing Us," published in February, investigative journalist Steven Brill pulls back the curtain to expose the price-gouging and profiteering that explains why health care in the U.S. costs so much.
Brill’s article details the devastating impact that health care costs—which are behind six in 10 personal bankruptcies—have on working-class people. As Time managing editor Richard Stengel pointed out, Brill “inverts the standard question of who should pay for health care and asks instead: Why are we paying so much?”
Barack Obama used the urgency of this crisis to press Congress to pass his health care law. But the Patient Protection and Affordable Care Act does little to address rising health care costs.
On the contrary, it will almost certainly make things worse by requiring the uninsured to get coverage from for-profit companies and providing subsidies from taxpayer revenues to pay the premiums. Rather than challenging industry giants, Brill writes, “Obamacare enriches them. That, of course, is why the bill was able to get through Congress.”
Meanwhile, outsized health care costs—which continue to rise faster than inflation—are a central reason for big government deficits, which the very same politicians then use as a pretext to push for cuts in “entitlement” programs like Social Security and Medicare, by reducing payments for the former and raising the eligibility age for the latter.
However, as Brill points out, Medicare, the government’s universal health care system for the elderly, is one of the few bright spots in the current system. Whatever its flaws, caused by cuts and restrictions over the past few decades, it is still far more efficient than private insurance, it offers universal coverage while even Obama’s health care law will leave tens of millions of people uninsured—and it has mechanisms to keep costs down.
If Medicare, instead of being cut, was expanded to cover everyone and to provide even better care than it does now, it would save about $380 billion per year by cutting down on administrative waste, according to a study published in the New England Journal of Medicine—and on top of that, it would actually improve health care.
Over ten years, that’s just about the same amount—$4 trillion—that Barack Obama’s deficit reduction commission proposes to save, with massive cuts to entitlement programs that dwarf proposed increases in taxes.
It’s true that government spending on Medicare has been rising much faster than inflation and is a major cause of government deficits. Medicare spending, after adjusting for inflation, increased fivefold from $110.2 billion in 1990 to $554.3 billion in 2011,according to the Centers for Medicare & Medicaid Services (CMS). And that was after it nearly tripled in 10 years from $37.4 billion in 1980.
In fact, according to Congressional Budget Office figures, protected increases in health care costs are behind most of the expected growth in government debt.
While a significant part of this increase is the result of a growing and aging population, much of the increase in Medicare spending is being driven by increased health care costs overall. The CMS reports that total per capita health care spending in the U.S., adjusted for inflation, more than tripled from $2,854 in 1990 to $8,680 in 2011. Health care accounts for nearly one-fifth of the GDP in the U.S..
Other advanced industrial countries such as Germany have a significantly higher percentage of their populations over age 65. Yet they spend much less on health care than the U.S.—and achieve better outcomes.
In “Bitter Pill,” Brill examines hospital bills to expose how extreme price inflation generates massive hospital industry profits, while driving health care costs sky-high—a price that is ultimately paid by consumers.
According to Brill, hospitals charge patients different amounts for the same equipment and procedures, depending on what kind of insurance they have. While Medicare and Medicaid pay a set amount for each item, various insurers negotiate the rates they pay. Many insurers negotiate a discount off the “chargemaster”—a hospital’s list of charges for everything from aspirin and gauze to major procedures and cancer drugs that cost tens of thousands of dollars each.
Because hospitals use the chargemaster as a starting point in negotiations, these prices are much higher than the items actually cost. To cite one example, Brill points out a hospital that charges $24 for a niacin pill which costs about 5 cents in an ordinary pharmacy: a markup of 47,900 percent.
Hospitals also gouge patients by charging multiple times for the same procedure. In the article, Brill quotes Patricia Palmer, who is paid to negotiate with hospitals on behalf of patients to lower exorbitant bills:
First, they charge more than $2,000 a day for the ICU, because it’s an ICU and it has all this special equipment and personnel. Then they charge $1,000 for some kit used in the ICU to give someone a transfusion or oxygen…And then they charge $50 or $100 for each tool or bandage or whatever that there is in the kit. That’s triple billing.
For the un- or underinsured, tragic illnesses can be a financial catastrophe. The terminally ill can even be forced into an impossible choice: whether to extend their lives and leave their families with a crippling debt, or give up time with their families to avoid burdening them financially.
This was the choice faced by Steven D., who Brill profiles in his article. After being diagnosed with terminal cancer, Steven’s wife Alice, who earns about $40,000 a year, racked up over $900,000 in debt to pay for treatment to keep her husband alive for an extra 11 months. Although Alice was able to get Medi-Cal (Medicaid) coverage and hired an advocate to negotiate with the hospital, she still ended up owing $142,000, more than three times her yearly salary. Not only did she have to cope with losing her husband, but she was left financially crippled as well.
When pressed by Brill, hospital administrators weren’t able to give a plausible explanation for the chargemaster rates, except to say that they are only a starting point and patients aren’t actually expected to pay them. The grim irony is that it is the uninsured patients—those among the least likely to be able to afford it—who are charged full chargemaster prices. And many don’t know negotiation is an option.