Seven Reasons Why Americans Pay More For Health Care Than Any Other Nation

Americans spend significantly more on healthcare than any other country, yet the United States has the lowest life expectancy among wealthy nations. This paradox is largely due to the unique structure of the U.S. healthcare system, which prioritizes high costs over outcomes. From rewarding medical procedures instead of promoting preventative care to the opaque pricing structure, several factors contribute to the escalating cost of healthcare in the U.S.

According to Harvard economist David Cutler, “We spend more on administrative costs than we do on caring for heart disease and cancer. It’s an absurd amount.” As healthcare costs rise, the financial burden on working-age Americans has become overwhelming. Over the past 24 years, the amount spent on health insurance premiums through payroll deductions has increased nearly three times faster than wages. Medical debt remains the leading cause of personal bankruptcy in the U.S., with more than half of all consumer debt records linked to medical bills, according to the Consumer Financial Protection Bureau.

Public frustration with these rising costs has intensified. In the wake of the recent tragic death of UnitedHealthcare CEO Brian Thompson, public anger has squarely targeted health insurers. Massachusetts Senator Elizabeth Warren has warned that while violence is never justified, the public’s frustration should signal to the healthcare industry that reform is needed. However, experts argue that the entire healthcare system—not just insurers—should be scrutinized to address runaway medical bills.

Reason 1: Lack of Price Limits

The U.S. has more specialists than most other countries, and the availability of 24/7 specialty care, especially in metropolitan hospitals, drives up costs, says Michael Chernew, a Harvard Medical School health policy professor. U.S. hospitals are also known for offering greater privacy and space for patients compared to international facilities, which often operate with open wards. These factors, combined with labor market differences and regulatory requirements, contribute significantly to healthcare costs.

In 2022, hospitals accounted for 30% of the nation’s $4.5 trillion healthcare spending, while doctors took home 20%. Prescription drugs made up 9%, and administrative costs from both private and public health insurance accounted for 7%. Many U.S. hospitals are nonprofit and benefit from tax breaks but often fall short of fulfilling their charity care obligations. Research from Johns Hopkins University and Texas Christian University estimated that nonprofit hospitals saved $37.4 billion in taxes in 2021, despite only providing $15.2 billion in charity care.

Reason 2: Fee-for-Service System

The current U.S. healthcare system rewards providers based on the number of tests and procedures performed, rather than patient outcomes. This fee-for-service model leads to an emphasis on quantity over quality, critics argue. As long as healthcare providers order more procedures, they are compensated more—regardless of whether patients improve.

Despite efforts to shift to value-based care programs, which emphasize outcomes over volume, the U.S. healthcare system has been slow to adopt these models. Only a handful of the 50 programs introduced by the Centers for Medicare and Medicaid Services (CMS) in the past decade have demonstrated both cost savings and improved patient outcomes.

Reason 3: Specialist Pay Disparities

Specialists such as cardiologists and oncologists earn significantly more than primary care doctors. The disparity reflects a system that compensates providers for treating complex conditions rather than focusing on preventative care, which could reduce long-term healthcare costs.

Medicare payment rates set the benchmark for healthcare prices, and private insurers often base their rates on these figures. As specialists continue to earn higher payments, the value placed on preventative care remains low, contributing to higher overall healthcare spending.

Reason 4: High Administrative Costs

Administrative costs are one of the largest contributors to inefficiency in the U.S. healthcare system. Experts estimate that up to 25% of healthcare spending is absorbed by administrative tasks. Health insurers impose additional requirements on doctors and hospitals, such as prior authorizations for procedures and step therapy for prescriptions, which create a significant administrative burden.

These inefficiencies are compounded by outdated technology, such as the persistent use of fax machines to share patient information between providers and insurers. According to Cutler, government-run Medicare is more efficient because it allows for smoother billing and payment processes compared to private insurers.

Reason 5: Lack of Pricing Transparency

Healthcare prices in the U.S. are often opaque, leaving patients in the dark about how much they will pay for procedures. For example, the cost of an MRI can vary from $300 to $3,000, and a colonoscopy may range from $1,000 to $10,000. A federal law passed under the Trump administration mandates that hospitals disclose prices for common procedures, but compliance has been uneven. A 2023 report from the nonprofit Patient Rights Advocate found that only 21% of hospitals fully complied with price transparency rules, down from 35% earlier in the year.

Reason 6: Prescription Drug Prices Are Skyrocketing

Americans pay significantly more for prescription drugs than residents of other wealthy nations. A 2023 report from the Department of Health and Human Services revealed that U.S. prescription drug prices are more than 2.5 times higher than those in 32 other comparable countries. For example, while the cancer drug Ozempic costs $969 per month in the U.S., the same medication is priced at $155 in Canada, $122 in Denmark, and $59 in Germany.

This price disparity has caught the attention of lawmakers, with Senator Bernie Sanders questioning pharmaceutical executives about the reasons behind such high costs during a September hearing.

Reason 7: The Role of Private Equity

Private equity firms, which now control many U.S. hospitals and large medical practices, have been accused of prioritizing profits over patient care. One example is Steward Health Care, which filed for bankruptcy after being acquired by private equity investors. Despite the financial struggles of the hospital chain, the firm’s CEO, a former heart surgeon, received more than $100 million in compensation and purchased a $40 million yacht.

Private equity’s influence extends to specialty practices as well. In Texas, the Federal Trade Commission (FTC) sued U.S. Anesthesia Partners for its role in acquiring multiple practices, which led to higher costs for consumers. A study by the National Bureau of Economic Research found that such acquisitions, known as “rollups,” resulted in fewer choices for patients and inflated prices.

Conclusion

The rising cost of healthcare in the U.S. is a complex issue involving numerous systemic factors. From a fee-for-service model that rewards volume over quality to the opaque pricing of medical services and prescription drugs, these issues contribute to a healthcare system that is both inefficient and expensive. The role of private equity investors further complicates the situation, as profit-driven motives may lead to higher prices for patients. As public frustration continues to grow, experts argue that comprehensive reform is necessary to address these underlying issues and make healthcare more affordable for all Americans.