US Healthcare Costs

Why Is US Healthcare So Expensive?

Christie Auyeung General Health, US Healthcare Leave a Comment

The US spends more on healthcare per person than any other nation in the world. But the high cost doesn’t amount to higher quality care. In fact, the US healthcare is ranked 37th among global systems, with the lowest life expectancy and some of the worst health outcomes compared to other high income countries. The steep price of healthcare places a large financial burden on every household in the US due lost wages, higher premiums, taxes, and out of pocket expenses.

Why is US healthcare so expensive and yet not at the top of the rankings? Below are 5 reasons why costs are so high.

  1. Significant Administrative Costs

About 25% of healthcare cost is associated with administration – much higher than in any other country. That’s because the US runs on a multi-payer system of many different insurance companies and government programs like Medicare and Medicaid. A lot of money is spent on billing specialists who determine how to bill in order to meet their varying requirements. Countries that have a single-payer system do not need as much staffing to handle healthcare billing.

  1. Fewer Cost Regulations for Drugs and Services

Drugs and services cost more in the US compared to other developed nations. Other countries are able to keep costs low because the government negotiates prices with drug makers and providers. But US drug companies can have a monopoly on new drugs, because they can be the sole manufacturer and their prices are not regulated by government. Outside of Medicare and Medicaid, which negotiate prices on behalf of their members, it’s essentially a free-for-all where providers can largely charge high prices, different prices to different insurers and even higher prices for the uninsured.

  1. A Fee-for-Service Payment System

Most US healthcare bills are based on a fee-for-service model, meaning the more services, the bigger the bill. This system rewards doing more instead of taking a more conservative approach and focusing on quality outcomes. Thus, the framework doesn’t incentivize providers to do less and lower costs, and private insurers are less likely to reimburse at lower rates. This kind of system drives things towards the more expensive.

  1. Defaulting to Defensive Medicine

Doctors who are concerned about being sued may practice “defensive medicine”, where they order as many tests and explore as many options as possible so the patient will have a more difficult time suing them for missing a possible solution. A Gallup survey estimated that $650 billion annually could be attributed to defensive medicine.

  1. Americans Want the Best Technology, Now

Technology keeps getting better and better, and Americans want the newest and latest technology available. The American healthcare system can often provide that quickly, but that quality and speed comes at a cost. Newer or more expensive treatments aren’t necessarily better for patients, but the demand for new approaches drive up costs. On top of that, Americans also use more technology in general. The US is the top consumer of sophisticated diagnostic imaging technology, according to a Commonwealth analysis.

These are some of the top reasons why the US has the most expensive healthcare system in the world. For the most part, in other countries, the government plays a stronger role and is able to negotiate healthcare prices and thus keep costs down. So far in the US, there is a lack of political support for the government taking a larger role in controlling healthcare costs. Lowering costs may be easier to do once the vast majority of the population is insured, and likely require Republicans and Democrats alike to step back and identify common goals.

Lowering costs of US healthcare won’t be easy or likely to happen in the near future, which is why many patients choose to travel abroad for medical treatment. For more information on whether this may be a good fit for you, reach out to us today!


Christie is a UChicago grad currently living in the San Francisco Bay Area. In her free time, she enjoys tap dancing, learning to windsurf, and trying new foods.