United States Healthcare: Economics 1

United States Healthcare: Economics

By Kai Halpin

8/12/2023
United States Healthcare: Economics 2

Overview:

Not only does the United States outspend other nations in health care, but U.S. healthcare

costs are growing rapidly. (Bodenheimer, 2005) This means that healthcare is only becoming

more and more expensive for the average consumer, making it harder for the average American

to get the healthcare they need for a fair price. This stems from the type of healthcare system the

United States employs. Today, healthcare systems come mainly in 2 forms: a paid and a universal

system. Many countries employ a universal healthcare system, in which people have access to

the health services they need at all times, without financial hardship. An example of a successful

country employing the universal system comes in the form of Denmark. Denmark under this

system boasts one of the highest quality healthcare on the planet (World Population Review,

2020), while not forcing healthcare recipients to pay a penny. On the other hand, the United

States, one of the most established countries in the world, uses a paid healthcare system. A paid

healthcare system is one in which the healthcare recipient pays for their own healthcare. The

United States adheres to a paid healthcare system, displaying varying levels of success. The

United States' quality ranks 18th (World Population Review, 2020) in the world, however, United

States citizens have to pay out of pocket to receive their healthcare: with citizens paying on

average over $12,500 per person. (Peterson, 2023). Despite this hefty cost for consumers, there

are some positive effects, as the increased cost leads to a “higher utilization of a lot of different

[healthcare] services.”(Hohman, 2021) This helps boost the overall quality of healthcare in

America. Although there are some improvements to the quality, overall the United States

healthcare system suffers greatly when compared to other first-world countries, due to the large
United States Healthcare: Economics 3

economic burden placed upon consumers, stemming from insurance companies along with lack

of government Involvement.

Genesis of Costly Medicare:

Healthcare is costly due to the fact that the United States employs a “for-profit insurance

system” meaning that consumers must either pay for themselves or through the use of private

companies. (Hohman, 2021) Insurance Giants such as Kaiser Permanente, UnitedHealth Group,

and Elevance Health (Kissel, 2023) are whom many consumers turn to in order to pay for their

healthcare. However due to the fact that these companies are privately owned, and are integrated

within the United States' “for-profit insurance system”, these companies, rather than focusing on

the best possible healthcare for the consumer, instead, have an “underlying motive to make

money”. (Hohman, 2021) This means that prices of healthcare will rise, while patients will

struggle more to get quality healthcare at a fair price. Several Sources point to the lack of

competition as the source of this problem. According to MD Thomas Bodenheimer, “In all but

14 states, 3 insurers control over 65% of the market.” (Bodenheimer, 2005). Elucidating that the

“main” insurance companies have an overwhelming influence on the market. This means that

these insurers are able to raise prices at will, with only a small risk of losing customers, due to

customers having almost no other options. Not only will this lack of competition continue to

raise prices but it also will incentivize companies to no longer lower prices, as there is “little to

no incentive for them to lower costs since patients don't have much of a choice.” (Hohman,

2021) Overall this means that once healthcare prices are high, there is a high likelihood that they

will stay that way. The data above shows the absurd prices of healthcare, along with the

influence that insurance companies have on this. The lack of competition among private
United States Healthcare: Economics 4

insurance companies is essentially creating a monopoly – encouraging steep costs, with no

repercussions on said companies. This influences the costs that consumers pay for healthcare

tremendously, with consumers having no other choice but to adhere to these prices.

Healthcare is also costly due to the United States government's involvement, or lack

thereof, in the healthcare sector. As previously stated, insurance companies are a primary reason

for the inflated costs of healthcare in America. However, why does the United States government

not get involved, and try to help solve the issue of rising healthcare prices? Overall, the United

States government can make significant improvements to the current state of the healthcare

system; however, it is currently not intervening at an adequate level in order to make a

significant difference. Several sources show that government involvement/regulation could cause

substantially lower prices, but lack of that involvement causes prices to rise even more. An

example of this is exemplified in (Whaley, 2020) which was a recent study conducted seeing

how prices compared between private insurance companies and Medicare for the same medical

service in the same facility. The results were prominent, with private insurance companies' costs

being two and a half times that Medicare would’ve paid. If the government became involved,

costs could drop two and a half times within this sector. Moreover, according to Steven M.

Lierban, a USC-Brookings Schaeffer Initiative for Health Policy, the United States lets

“manufacturers of drugs and biologics set whatever price they choose” rather than setting a

standard on drug prices. (Ginsburg, 2021) This influences prices significantly, with 79% of

Americans considering drug prices to be “unreasonable”. The authors also suggest that federal

government involvement, in the form of lowering the prices of drugs directly, would save money

for consumers, governments, and employers. Overall the above evidence shows how the citizens

of America are against the high costs, along with examples in which the United States
United States Healthcare: Economics 5

government could have intervened in order to create better healthcare costs, but regrettably did

not. If the government intervened in the correct ways in the Healthcare Industry, in the form of

controlling markets and prices, costs could be notably lowered. However, the United States

government is not completely at fault in this scenario. Trying to veer away from the paid

healthcare system presents barriers in the form of cost, accessibility, and range of services (Zieff,

2020). In order for the United States to implement the desired values for universal healthcare

“most proposals would entail increasing federal taxes”, with estimations of costs ranging from 32

trillion to 44 trillion across a ten-year period. (Zieff, 2020 ) This would raise tax costs for the

general public, which would be detested by many, which presents a major reason that the

government would be wary of such intervention. Despite these penalizing aspects of the

government intervention, when looked at in the broader spectrum, it is almost absurd to look at

such an established nation like the United States, having such costly medicare, when government

action could help remedy this problem.

Conclusion

As displayed repeatedly, the current iteration of the American Healthcare system comes

at the expense of the residents, with large costs due to Insurance Companies and lack of

Government Intervention. This problem does not come without its solution; with many countries

employing universal systems, where these issues are negated. Although it may be difficult to

implement in the United States due to restrictions in the form of taxes as discussed above, based

on the information provided, the number of lives impacted in a positive manner would far

outweigh the potential repercussions of switching to a universal healthcare system.

United States Healthcare: Economics 6

References

Bodenheimer, T. (2005). High and Rising Health Care Costs. Part 1: Seeking an Explanation.

Annals of Internal Medicine, 142(10), 847.

https://doi.org/10.7326/0003-4819-142-10-200505170-00010

Ginsburg, P. (2021, August 30). Government regulated or negotiated drug prices: Key design

considerations. Brookings.

https://www.brookings.edu/articles/government-regulated-or-negotiated-drug-prices-key-

design-considerations/

Hohman, M. (2021, July 26). Why is health care so expensive in the United States? TODAY.com.

https://www.today.com/tmrw/why-healthcare-so-expensive-united-states-t192119https://

www.today.com/tmrw/why-healthcare-so-expensive-united-states-t192119

Kissel, C. (2023, January 3). Largest Health Insurance Companies 2022 – Forbes Advisor.

Www.forbes.com.

https://www.forbes.com/advisor/health-insurance/largest-health-insurance-companies/

Peterson, P. (2023, June 14). Why Are Americans Paying More for Healthcare? Www.pgpf.org.

https://www.pgpf.org/blog/2023/07/why-are-americans-paying-more-for-healthcare#:~:te

xt=In%202020%2C%20U.S.%20healthcare%20spending

Whaley, C. M., Briscombe, B., Kerber, R., O’Neill, B., & Kofner, A. (2020). Nationwide

Evaluation of Health Care Prices Paid by Private Health Plans: Findings from Round 3 of

an Employer-Led Transparency Initiative. Www.rand.org.

https://www.rand.org/pubs/research_reports/RR4394.html

World Population Review. (2020). Best healthcare in the world 2020. World Population Review.

https://worldpopulationreview.com/country-rankings/best-healthcare-in-the-world
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Zieff, G., Kerr, Z. Y., Moore, J. B., & Stoner, L. (2020). Universal healthcare in the United States

of America: A healthy debate. Medicina, 56(11), 1–7. National Library of Medicine.

https://doi.org/10.3390/medicina56110580