The True Reasons Why Medical Costs Are So High

Most people in the United States have felt the pain of high medical costs, whether they were driven into debt for a broken bone or they know someone dealing with a chronic condition like diabetes.

Even if you have insurance, you could face bills totaling hundreds or even thousands of dollars for injuries like broken bones or whiplash.

Some people would suggest that the reason medical costs are so high is because of a profit-driven market where prices aren’t controlled by the government, or because there’s a secret cabal of people conspiring to keep medical costs high for their own sake.

But the true reasons behind high medical costs are much clearer -- and much harder to deal with.

The Insurance Dilemma

First, we have to look at the problem of insurance. Most people would agree that health insurance is a good thing, or even a necessary thing, because of the high prices associated with medical care. If it costs $5,000 to fix a broken bone out of pocket, insurance is a practical necessity to mitigate that cost. However, the cost itself is due in part to the existence of insurance as it stands today.

Originally, health insurance was an optional financial tool that was accessible only to high earners. Some people took advantage of the program to cover themselves, but most people circumvented insurance altogether.

Over time, health insurance became popularly provided by employers in the United States and unions fought hard to make insurance available to all full-time workers.

While on the surface, this may seem like a good thing -- after all, why should only some people be insured? -- it led to a problematic pricing environment. Doctors and healthcare organizations would be inclined to charge more for services when they knew insurance was going to be billed; it didn’t add more financial strain to patients but generated more revenue. In turn, insurance companies caught on and imposed policies that stated they wouldn’t pay more than standard prices paid by uninsured patients.

In effect, this led to a constant push to move prices higher; insured patients barely noticed, since they weren’t the ones footing the bill, but uninsured patients began having to pay more and more for their services.

Lack of Price Transparency and Competition

The lack of price transparency and lack of competition means that organizations in the healthcare industry aren’t incentivized to offer lower prices to consumers. In many areas, there’s only one hospital -- and they won’t tell you how much it is to give you an X-ray before they recommend one to you. Because of this, the market can’t do its job – and people are stuck paying higher prices.

Medical Malpractice and Secondary Costs

We also need to consider the role of medical malpractice, our litigious society, and the long-term effects of these factors. These days, it’s possible to sue your doctor for any number of mistakes, such as prescribing the wrong treatment, making the wrong diagnosis, or neglecting some important instructions. In some ways, this is a good thing for consumers, since it holds medical professionals accountable for their work.

However, there are two important consequences. First, doctors and hospitals have to pay for malpractice insurance, covering millions of dollars of expenses if the worst happens. These policies are expensive, and they push the cost of healthcare much higher.

Second, most medical professionals are overly cautious when it comes to treating patients; to avoid the potential of a malpractice suit, they recommend many tests, treatments, and appointments that may not be strictly necessary.

The Doctor Shortage and Costs of Professional Services

It doesn’t help that we’re dealing with a massive doctor shortage in the United States. Because of strict government regulations and a flawed university system, it takes many years and hundreds of thousands of dollars to get the education necessary to become a doctor. Fewer people are entering this high-stress, difficult, expensive field as a result, and we have fewer trained professionals available to us. This drives up the salary of these professionals, understandably, and makes the cost of care higher.

Administrative Waste

On top of all that, the healthcare industry suffers from the burden of administrative waste. Onboarding patients, managing personal medical records, ensuring compliance, working with insurance companies, and billing create inordinate costs for organizations, adding tons of costs to an already costly system.

While it’s easy to see some of these problems from a logical perspective, it’s very hard to actually fix them. Our current medical system is suffering from a number of intersecting and complexly interacting factors, so there’s no one “easy fix.” Instead, we’ll have to make small steps to make this environment better, such as deregulating the environment, improving price transparency, and promoting more market competition.

Image: S. Graham-McWade 

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