Health Care in the United States: Getting It Wrong


Dean Baker
The Hankyoreh (South Korea), July 17, 2007

While the United States continues to be a world leader in many areas, in the area of health care it best serves as a model of what not to do. The U.S. health care system is by far the most expensive in the world, costing the country $7,500 per person in 2007. Health care spending accounts for 17 percent of GDP, almost twice the average in the OECD, and close to three times the share in South Korea.

In spite of this lavish spending, the United States does not have much to show by way of outcomes. Life expectancy at birth in the United States is more than three years less than the leaders, Japan, Iceland, and Switzerland, placing it near the bottom among wealthy countries. Its infant mortality rate is the highest in the developed world. A recent study looked at a wide range of other measures, from surgery waiting times to the disease incidence of the population. In almost every category the United States rated at or near the bottom among the countries examined.

With this record, the United States obviously gets many things wrong with health care, but three items top the list: private health insurers, restrictions on the supply of doctors, and unfettered patent monopolies for pharmaceuticals.

The system of private insurers is the factor that both leads to the greatest waste and is the greatest source of agony to people seeking health care. Private insurers make money by not paying for health care for the people they do insure, and by not insuring people who are likely to be sick.

Insurance companies avoid paying for health care by simply denying claims filed by patients. This is done with a simple form letter to patients saying “claim denied.” Such a letter can save an insurer hundreds or even thousands of dollars. A determined patient may appeal their denial (insurers usually must have an appeal process). If the patient is right, and the claim should be paid under the contract, then they will eventually get their money, but the insurer loses nothing by the original denial. And, many patients will be too sick, tired, or intimidated to contest a denial. So a frequent denial of payment policy is a good one for insurers.

Of course some people may get annoyed by frequent denials and seek out another insurer. This gets to the second way that insurance companies make money, not insuring people who are sick. Any insurance company would be delighted if people with frequent claims went to another company – they lose money on these people. But, other insurers will do their best to avoid covering such people. Before getting an insurance policy in most states it is necessary to report “pre-existing” conditions. Anyone with serious health problems will either be charged an exorbitant premium or denied insurance altogether.

It takes a considerable bureaucracy to run these insurance companies. The expense is more than 10 percent of country’s health care bill. In addition, doctors and hospitals must hire extra staff to deal with the huge array of insurance forms passed along by their patients. This additional layer of bureaucracy accounts for another 10-20 percent of U.S. health care costs.

The United States pays it doctors on average approximately twice as much as doctors receive in West Europe. This is due both to doctors within the same fields getting paid more in the U.S. than Europe (our surgeons get paid more than European surgeons), and also a much greater use of highly paid specialists in the United States. The reason that doctors get paid so much more in the U.S. is simple: we have protectionism for doctors. The doctors associations restrict both the number of doctors trained in medical schools in the United States and also the number of foreign doctors entering the country. The excess payments to doctors account for another 5 percent of U.S. health care costs.

The United States also pays far more for pharmaceuticals than any other country in the world. Several studies have found that the United States pays close to twice as much for its drugs as the average for other wealthy countries. This is due to the fact that the United States grants drug companies patent monopolies, but then does not make any effort to negotiate prices with the industry. When companies have a monopoly on drugs that are essential to people’s life or health, they can and do charge exorbitant prices. Some new cancer drugs now cost patients more than $100,000 a year. The excess payments on pharmaceuticals also account for approximately 5 percent of the U.S. health care bill.

There are other serious problems with the U.S. health care system. For example, there is often little coordination of care between doctors, so that a patient may get treatment for arthritis that worsens a heart condition. But if the country could reign in the private insurers, the doctors, and the drug companies, its health care sector would not be so out of line with the rest of the world. Whether the general public has the political power to overcome these powerful interest groups remains to be seen.

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.