Why is health insurance so expensive?
There are many reasons why health insurance is so expensive. All, ill or healthy, are affected by the high cost of healthcare. For the past couple of decades, it has depressed individual purchasing capacity. Wages for American employees have increased, but net compensation has remained the same due to rising health insurance fees. Today, it is imperative to tighten up on overspending to help stretch medical and hospital services to manage COVID-19.
Here are six basic reasons for the high healthcare costs in the U.S.
Redundant Systems can make health insurance expensive
Administrative’ expenditures are cited as a source of excess medical expenditure. The U.S. spends about 8% of its dollar in healthcare on operating costs, compared to 1% to 3% in the other 10 countries that the JAMA study looked at.
With separate legislation, financing, eligibility times, and out-of-pocket costs for employer-based benefits, private insurance from healthcare.gov, Medicaid, and Medicare, in all its many components, the U.S. healthcare system is highly complicated. Consumers must select between various levels of coverage, high deductible policies, managed care plans (HMOs and PPOs), and fee-for-service schemes in each of these industries. Such policies can or may not provide premiums for prescription products that have their own standards of coverage, deductibles, and copays or coinsurance.
For providers, this means coping with various utilization, coding, and billing regulations. And, in practice, these activities account for the greatest proportion of administrative costs.
Costs of medications are growing
Americans fork out about four times as much for prescription drugs on average as people of other developed nations pay. Compared to Europe, where drug prices are government-regulated, mostly focused on the therapeutic value of the product, high drug prices are the single largest area of overspending in the U.S.
The US spends an average of $1,443 per person, compared to $749 on average spent by the other wealthy countries surveyed, with little control of drug prices. In the U.S., private insurers, mostly through the services of pharmacy benefit managers, will negotiate medication rates with suppliers. Medicare, however, which costs a hefty portion of the national cost of medications, is not able to negotiate rates with suppliers.
More is paid to physicians (and nurses)
The average U.S. family practitioner receives $218,173 a year, and in other developed nations, specialists make $316,000, well above the average. American nurses, too, earn slightly more than elsewhere. Compared to $58,041 in Switzerland and $60,253 in the Netherlands, the average salary for a U.S. nurse is about $74,250.
By requiring prior permission to see a high-priced specialist, U.S. managed care plans (HMOs and PPOs) can succeed in reducing healthcare costs. Money can also be saved by using a nurse practitioner instead of a family doctor.
Hospital as Profit Center
33% of the nation’s healthcare expenses are paid for by hospital treatment. According to a 2019 Health Affairs report, costs for inpatient and outpatient hospital treatment rose much faster than physician prices between 2007 and 2014. In hospitals, U.S. costs for surgical procedures far outweigh those of other nations. For eg, a standard angioplasty for opening a blocked blood vessel costs $6,390 in the Netherlands, $7,370 in Switzerland and $32,230 in the U.S. Similarly, compared to $32,010 in Switzerland, a heart bypass operation in the U.S. costs $78,100.
Many hospitals are financially on the verge nowadays. What’s more, because of the coronavirus lockout, the cessation of elective surgery and severely decreasing provider visits account for a significant part of the overall economy’s downturn.
U.S. Healthcare practitioners prescribe more tests on average
Both doctors and hospitals have an interest in avoiding litigation, so tests and scans can be requested “just in case.” And these tests can be expensive! Although a CT scan in Canada costs only $97 and Australia costs $500, the average cost in the United States is $896. In the United States, a standard MRI scan costs $1,420, but in Britain, about $450. Researchers have concluded that it is not the sheer number of tests and treatments, but their high price, which explains why being sick in the U.S. is so costly.
In the U.S. Pricing Vary Wildly
Providers are free to charge what the market can bear, due to the complexities of the environment and the lack of any fixed rates for medical services. Depending on the payer (i.e. private insurance or government services, such as Medicare or Medicaid) and geographic region, the amount charged for the same healthcare service can differ greatly. For example, for COVID-19, the cost of an urgent care visit and lab tests averages $1,696, but depending on the provider, it may range from a low of $241 to a high of $4,510.
In part, by making the government play a stronger role in negotiating rates for healthcare, most other developed countries regulate costs. The high administrative costs pushing up rates in the U.S. are not required by their healthcare systems. These governments have the capacity to negotiate lower medication, medical equipment, and hospital prices as the global overseers of their country’s programs. They can affect the procedures used and the ability of patients to go to specialists or pursue more costly treatments. Consumers may have fewer options, but there is leverage over expenditures.
A lack of political support in the U.S. has stopped the government from taking a bigger role in managing the cost of healthcare. The Affordable Care Act concentrated on providing access to healthcare but preserved the status quo to promote insurance and healthcare provider rivalry.
The time for reform could be at hand now that the costs associated with COVID-19 threaten to swamp both the healthcare system and government budgets.
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