The High Cost of Healthcare in the United States
Overview and Issue Summary
By Elaine Chen
Last updated: July 12, 2024
The Cost of Healthcare Today
On average, a person in the United States spends $13,493 a year on healthcare as of 2022. That is more than twice the average in other countries considered wealthy, according to one research and grant-making foundation.[1][2][3]
Healthcare expenses can include costs of legal medical services from physicians, surgeons, dentists, and other medical practitioners for the diagnosis, cure, mitigation, treatment, or prevention of disease, as well as medical insurance premiums and the cost of transportation to receive medical care.[4][5]
If, for example, it costs around half as much to give birth in the United Kingdom or Australia as it does in the United States,[6] what is the reason behind the discrepancy?
Reasons for High Healthcare Costs
There are many factors contributing to the rising cost of healthcare.
The percentage of Americans aged 65 and above has been increasing, for example from 14% of the population in 2012 to 17% in 2022.[1] On average, this age group requires more healthcare services and spends more medically, contributing to increased healthcare spending in the country overall.[1][7] In addition, as the aging population increases, the number of individuals enrolled in Medicare rises, and government spending for this program can increase substantially—from 3.1% of GDP in 2023 to a projected 5.5% in 2053, according to the Congressional Budget Office.[1]
Another contributing factor is the rising cost of healthcare services. The cost of medical care typically grows more than that of other goods and services, with the Consumer Price Index for All Urban Consumers (CPI-U) growing at a rate of 3.1% per year for medical care compared to a rate of 2.6% for other goods and services over the last 20 years.[1] Healthcare price increases may be attributable to more expensive procedures and products resulting from new, innovative healthcare technologies, and to the complex U.S. healthcare system characterized by “administrative waste in the insurance and provider payment systems.”[1]
The merging of hospitals could also lead to a monopoly and therefore an opportunity for providers to raise prices, due to lack of competition.[1] Research suggests that mergers of hospitals within five miles of each other can lead to a 6% average price increase, and suggests a 12% price difference on average between monopoly hospitals and “hospitals with . . . nearby competitors.”[8]
The Effect on Patients
Financial Instability
The high cost of healthcare has been a prevalent issue for both the lower-income and uninsured, and higher-income and insured adults, as pinpointed by KFF surveys. According to a 2022 KFF survey, 47% of adults in the United States were finding it “very or somewhat difficult . . . to afford their health care costs.”[9]
Lacking insurance coverage adds to already-high costs; however, health insurance itself is expensive to afford, so many individuals are uninsured.[9] Among uninsured individuals in fair or poor health, 51% reported to KFF in 2023 that “they or a family member in their household [had] had problems paying for health care” in the previous 12 months.[9]
The need to seek and cover the costs of medical assistance contributes to the financial strain that lower-income families already experience; in 2022, 69% of individuals with an annual income below $40,000 said it was very difficult to afford healthcare, whereas 21% of individuals with an annual income above $90,000 said the same.[9]
Due to these high costs, healthcare debt has become a major problem in the United States, with 41% of U.S. adults in medical debt.[9] Seventy percent of respondents to an Undue Medical Debt (“Undue MD”) survey with more than $2,500 in medical debt reported cutting back on essentials such as food, clothing, and basic household items as a result of that debt.[10]
In addition, 68% of Undue MD survey respondents reported a negative impact on their credit score as a result of medical debt.[10] Particularly, if a person borrows from a lender with interest to finance their care, and is unable to pay off their debt on time, the interest accumulates, adding to their indebtedness.[10]
Mental Stress
With accumulating medical debt, unaffordable medical bills may not only contribute to financial instability, but also take a toll on mental health.[10]
Individuals and families may experience stigma, mental burden, and isolation when coping with financial distress and avoid facing unpaid medical bills.[10] This is concerning given that research has shown a positive association between feelings of isolation and loneliness, and risk of depression and other poor health outcomes: according to an Undue MD survey, 60% of individuals in medical debt reported negative impacts on their mental health, 42% reported negative impacts on their self-worth, and 21% have reported negative impacts on relationships,[10] potentially adding to isolation and loneliness.
Deferred Treatment
The financial burden posed by healthcare has led Americans to defer treatment as an attempt to alleviate medical debt.[9]
According to a 2023 KFF survey, a quarter of adults reported skipping or postponing treatment in the previous 12 months because of the high cost.[9]
One of the most critical medical expenses is insurance. Sixty-one percent of uninsured adults told KFF that they would avoid seeking medical assistance even if necessary.[9]
Another source of high costs is prescription medication: 21% of adults reported not filling a prescription because of high cost, and 12% reported cutting back on their medications to preserve their drugs.[9]
The effect of deferring treatment can be detrimental. Fifty-seven percent of individuals who deferred treatment during the COVID-19 pandemic said they experienced adverse consequences.[11] Waiting too long to receive treatment can worsen a medical condition, leading to higher costs from “prescriptions, treatments, or surgeries [that] may not [have] be[en] necessary if the condition [had been] identified from the start.”[11]
The Effect on Providers
Revenue Losses
Continuous inflation has impacted health systems as well.[12]
With factors such as workforce shortages, severe fracture in the supply chain for drugs and supplies, inadequate increases in reimbursement from the government, and inappropriate commercial health insurance practices, many healthcare providers have faced financial challenges.[12]
Since 2022, many hospitals and other healthcare facilities, like patients, have reported experiencing financial instability, and being unable to invest in quality care and new technologies. According to Strata Decision Technology, “[T]he number of days cash on hand for hospitals and health systems . . . declined by 28.3%” from January 2022 to June 2023. In 2022, “over half of hospitals closed out the year operating at a loss,” and many hospitals spent much of 2023 struggling to break even.[12][13]
Impact on Services
With limited financial resources, hospitals and health systems have faced challenges in providing services.[12]
In 2022, “hospitals admitted nearly 137 million patients in emergency departments and delivered over 3.5 million babies,” with many of these services being “extremely resource intensive and costly to offer.”[12]
In addition, many government health insurance programs such as Medicare and Medicaid, and private insurance companies, can reimburse services “far below costs.” From 2018 to 2022, cumulative Medicare and Medicaid underpayments increased to $522 billion.[12]
These shortfalls make it extremely challenging for healthcare providers to afford and offer essential services to those who need them.[12]
Lower Quality of Care
In addition to impacting services, the financial strain that healthcare providers face can also result in lower quality of care.[12] These facilities may face challenges affording the same resources and enough staff to serve patients and their families.
Hospital labor costs accounted for nearly 60% of their expenses in 2023, and growth in hospital employee wages and benefits surpassed economy-wide inflation over the last decade.[12] Without enough financing for a high quantity and quality of staff, maintaining high quality of care and services is challenging.[12]
Healthcare providers may face difficulty affording the cost of “implementing, maintaining and upgrading information management systems and overall technology infrastructure,” which is critical to efficiency and quality of care.[12]
In addition, hospitals have been a target of cyberattacks because of the abundant confidential patient data they hold. In addition to their other financial burdens, they also face increasing costs of cybersecurity, which is important to patient care.[12]
The Bigger Picture: Healthcare and the Economy
According to National Health Expenditure (NHE) data from the Centers for Medicare and Medicaid Services (CMS), healthcare spending grew at a faster rate compared to GPD through 2021.[5] Health spending increased from $74.1 billion in 1970 to $4.5 trillion in 2022.[5] Particularly during the pandemic, from 2019 to 2020, the annual change in national health spending reached $400 billion, compared to $133 billion in 2020-2021 and $175 billion in 2021-2022.[5] Although federal public health spending decreased in 2021-2022, spending remained above pre-pandemic levels in 2022.[5]
Economists in the early 2000s cautioned that a rise in healthcare spending could ultimately reduce economic growth and employment and raise inflation.[14] However, some argued that increased spending in healthcare means more access to new technologies and treatments, contributing to a neutral or positive impact on the economy.[14]
More recent analyses have argued that, overall, “[t]he United States spends more than other countries without obtaining better health outcomes,” and that “[r]emoving excess costs from the health-care system is . . . an economic imperative.”[7]
Conclusion
The purpose of this issue summary is to highlight the un-affordability of healthcare, the inaccessibility of critical services and care in the United States, and their implications for patients, providers, and the economy.
High costs have taken a toll on both patients and providers. Patients can experience worsened health and difficulty seeking medical assistance, while providers can experience revenue losses and challenges with respect to maintaining a high quantity and quality of care.
The rise in costs and higher spending can also impact the economy, though the nature of the impact is complex and debatable.
Ultimately, continued high healthcare costs are a notable source of uncertainty for patients, providers, and the national economy.
References
[1] “WHY ARE AMERICANS PAYING MORE FOR HEALTHCARE?”, Peter G. Peterson Foundation, January 2, 2024, https://www.pgpf.org/blog/2024/01/why-are-americans-paying-more-for-healthcare.
[2] “NHE Fact Sheet,” CMS.gov, last modified June 12, 2024, https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet#:~:text=NHE%20grew%204.1%25%20to%20%244.5,18%20percent%20of%20total%20NHE.
[3] “ABOUT THE PETER G. PETERSON FOUNDATION,” Peter G. Peterson Foundation, accessed July 8, 2024, https://www.pgpf.org/about.
[4] “Publication 502 (2023), Medical and Dental Expenses,” IRS, accessed July 8, 2024, https://www.irs.gov/publications/p502 (providing one definition of healthcare expenses).
[5] Matthew McGough, Aubrey Winger, Shameek Rakshit, and Krutika Amin, “How has U.S. spending on healthcare changed over time?,” Peterson-KFF, December 15, 2023, https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/ (providing information on the $13,493 per-person National Health Expenditure total, which includes out-of-pocket spending, health insurance spending, government spending on public health, and investment, among other categories).
[6] Melissa Willets, “This Interactive Map Shows the Cost of Childbirth Worldwide,” Parents, December 19, 2022, https://www.parents.com/pregnancy/everything-pregnancy/interactive-map-shows-cost-of-childbirth-around-the-world-and-its/.
[7] Ryan Nunn, Jana Parsons, and Jay Shambaugh, “A dozen facts about the economics of the US health-care system,” Brookings, March 10, 2020, https://www.brookings.edu/articles/a-dozen-facts-about-the-economics-of-the-u-s-health-care-system/.
[8] Equitable Growth, “Hospital consolidation matters,” Washington Center for Equitable Growth, April 4, 2024, https://equitablegrowth.org/research-paper/hospital-consolidation-matters/.
[9] Lunna Lopes, Alex Montero, Marley Persiado, and Liz Hamel, “Americans’ Challenges with Health Care Costs,” KFF, March 1, 2024, https://www.kff.org/health-costs/issue-brief/americans-challenges-with-health-care-costs/.
[10] “MEDICAL DEBT, MONEY, AND MENTAL HEALTH,” Undue Medical Debt, September 2024, https://unduemedicaldebt.org/medical-debt-money-and-mental-health/.
[11] “Deferred Medical Care Can Cost Employers More Than They Think,” Allstate Insurance Company, accessed July 8, 2024, https://www.allstate.com/allstate-benefits/news-and-insights/deferred-medical-care-can-cost-employers-more-than-they-think.aspx.
[12] “America’s Hospitals and Health Systems Continue to Face Escalating Operational Costs and Economic Pressures as They Care for Patients and Communities,” American Hospital Association, May 2024, https://www.aha.org/costsofcaring.
[13] “Hospital Vitals: Financial and Operational Trends,” Syntellis, Q1-Q2 2023, https://www.syntellis.com/sites/default/files/2023-11/aha_q2_2023_v2.pdf.
[14] “Effects of Health Care Spending on the U.S. Economy,” ASPE, February 21, 2005, https://aspe.hhs.gov/reports/effects-health-care-spending-us-economy-0.
Elaine Chen is a Decency LLC Summer 2024 intern. She is a Mechanical Engineering (BSE) and Biomedical Engineering (Minor) student at Case Western Reserve University.