Why is Healthcare in the U.S. So Expensive?

By: Talia Rajasekar and Connor Yew

It’s no secret that Americans are getting a lousy deal on healthcare.

Despite consistently ranking the highest in spending, we regularly place lowest in performance, making us a unique outlier when compared to healthcare systems in other high-income countries. With the exception of some specialized, technologically-advanced treatments, the average citizen in the United States faces higher rates of preventable mortality, less access to primary care, and –depending on various social determinants of health– extreme disparities in care delivery [1]. Convoluted payment systems and extreme political polarization only serve to exacerbate the issue, leaving countless Americans confused or intimidated with the prospect of buying healthcare. To gain a better understanding of how we got to this point, we can start by unraveling our system’s complex history and the various stakeholders and processes that have shaped its evolution.

Origins of Private Insurance

It’s difficult to imagine that a hundred years ago the insurance system was barely in its infancy, much less the powerhouse that it is today, that is responsible for the health of around 91.4% of Americans [2]. Labeled a cog in the agenda of “progressives,” healthcare largely remained a private affair up until the 1920s, with the only exceptions being brief wartime insurance acts meant to buoy soldiers and their families following the former’s service [3]. Dismissive national attitudes towards healthcare were forced to contend with a group of schoolteachers in Dallas, TX, who entered a contracted agreement with Baylor University and an assortment of neighboring schools that ensured healthcare coverage for schoolteachers for the prepaid monthly fee of 50 cents. Such programs grew increasingly popular in the following years, finding homes in private and public institutions across the nation and finally earning the name Blue Cross/Blue Shield, the same federation that provides health insurance coverage to more than 106 million people today [3]. As a result of the rapid growth in group or employer-sponsored plans, privatized access to healthcare via insurance companies began to surge, while the government took a backseat in providing coverage.

Medicare, Medicaid, and The Affordable Act

Although the issue of subsidized healthcare, especially for senior citizens, remained a pertinent topic in several presidential debates, it was not enacted until President Lyndon B. Johnson passed the Medicare and Medicaid Act of 1965 [5]. This amendment to the Social Security Act of 1935 created Medicare, a program that insures citizens 65 or older or anyone with specific, pre-existing disabilities, and Medicaid, a program that insures low-income citizens [6]. Together, these two programs provide insurance to almost 64.5 million Americans in 2022 [7]. Lastly, the

third and final lynchpin of subsidized healthcare in the US fell into place in 2010, when President Barack Obama passed the Affordable Care Act, which expanded Medicare and ensured that everyone that fell between Medicare and Medicaid had access to affordable health insurance [4].

Market Overview

Now that we’ve covered all of the rules and key players, let’s discuss the game:

You, the consumer, want access to high-quality, affordable health care. However, health issues are typically unpredictable and expensive, making insurance a compelling option for avoiding financial catastrophe. Insurance companies want to maximize profits by insuring a high amount of healthy individuals and minimizing the amount they have to pay for the treatment of expensive, sick individuals. This leads to a phenomenon called adverse selection, where the people trying to buy health insurance are often the ones that are most likely to use it, and insurance companies try to mitigate the risk of paying out by screening the individuals they choose to cover. Finally, the government intervenes to regulate this process between consumers and insurance companies through legislation like the ACA, which prevents insurance companies from denying coverage or significantly increasing premiums for patients with preexisting conditions [4].

For more information on why healthcare doesn’t function like a typical free-market commodity and why regulation is an essential component of this consumer-insurance dynamic, check out this excellent video from the Boston University School of Public Health:

https://theincidentaleconomist.com/wordpress/the-us-healthcare-market-debate-explained-throug h-economics/

Closing Thoughts

Hopefully, this brief dive into the history and economics behind the United States’ healthcare system has made one thing clear: this issue is extremely complex, and there has risen no single, simple solution. In its current state, countless Americans are left uninsured or underinsured, forced to choose between preserving their health or their bank account. Countless Americans face greater health risks and worse health outcomes simply because of their income, educational attainment, or various other socioeconomic factors. Countless Americans lose their lives because of their inability to access primary care or other essential health services.

It doesn’t have to be like this.

Looking at the history of healthcare in the United States gives us a framework upon which we can build the path ahead. Healthcare reforms like price transparency for insurance companies [8] or favorable cost-sharing to increase affordability [9] offer us glimpses of potential strategies we can use to tackle the daunting issues that plague our system, but these reforms often stall or fail due to the political polarization of healthcare. You have the power to change that. November is quickly approaching, and healthcare is always on the ballot. Take the time to learn more about health care policy, and make sure your voice is heard!

Sources:

1. Schneider, E. C., & Squires, D. (2017). From last to first — could the U.S. health care system become the best in the world? New England Journal of Medicine, 377(10), 901–903. https://doi.org/10.1056/nejmp1708704.
2. Congressional Research Service. (2022). U.S. health care coverage and spending. https://sgp.fas.org/crs/misc/IF10830.pdf.
3. Moseley, G. B. (2008). The U.S. Health Care Non-System, 1908–2008. AMA Journal of Ethics, 10(5), 324–331. https://doi.org/10.1001/virtualmentor.2008.10.5.mhst1-0805.
4. National Conference of State Legislatures. (2011, March). The Affordable Care Act: A Brief Summary. https://www.ncsl.org/research/health/the-affordable-care-act-brief-summary.aspx
5. Blumenthal, D., Davis, K., & Guterman, S. (2015). Medicare at 50 — origins and evolution. New England Journal of Medicine, 372(5), 479–486. https://doi.org/10.1056/nejmhpr1411701.
6. U.S. Centers for Medicare and Medicaid Services. (n.d.). What’s Medicare? Medicare. https://www.medicare.gov/what-medicare-covers/your-medicare-coverage-choices/whats-medicare.
7. Congressional Research Service. (2022). U.S. health care coverage and spending. https://sgp.fas.org/crs/misc/IF10830.pdf.
8. Kliff, S., Katz, J., & Taylor, R. (2021, August 22). Hospitals and Insurers Didn’t Want You to See These Prices. Here’s Why. The New York Times. https://www.nytimes.com/interactive/2021/08/22/upshot/hospital-prices.html
9. Ortaliza, J., et al. (2021, November 12). How do health expenditures vary across the population? Peterson-KFF Health System Tracker. https://www.healthsystemtracker.org/chart-collection/health-expenditures-vary-across-po pulation/?_sft_category=spending#Proportion%20of%20individuals%20by%20health%2 0status,%202019

Talia Rajasekar is a second year Molecular, Cell and Developmental Biology major at UCLA and is a THINQ 2022 intern.

Connor Yew is a second year Public Health and Neuroscience major and is a THINQ 2022 intern.

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