Why Your Healthcare Costs Are So High

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Ever wonder why the average American pays directly and indirectly (through employer subsidies) over $900 a month for family health insurance?  God forbid you don’t have adequate coverage, when you can be saddled with a bill in the tens of thousands of dollars for many surgical procedures or if you have to stay in a hospital for more than a few days.  Health care costs in the United States seem to have spiralled out of control over the last couple of decades to the point that it now consumes almost one-fifth of our national and individual annual income.  This is almost double the average of thirty other developed nations across the globe—and the rate of annual increase is more than twice that of inflation.

Why does this situation exist?  Are doctors better paid in the United States?  Do we have more sophisticated equipment, or larger and better hospitals?  While it’s true that our privately funded health care system allows for two tiers of medical care, represented by the typical city (public) hospital serving the general community as well as the more exclusive (private) institutions such as the Mayo Clinic in Minneapolis, these more expensive facilities are estimated to represent less than 14% of total doctor billing.  And although American doctors do enjoy higher incomes than in most other countries, one study estimates this contributes only 6% to the differential cost of health care in the United States.

So what accounts for the large discrepancy?  A portion of it can be explained by the far higher incidence of medical malpractice lawsuits that are brought against doctors and hospitals in the United States, partly due in turn to the unique form of lawyer compensation in the U.S. (where lawyers are normally paid as a percentage of the plaintiff award rather than a flat per diem fee for actual days worked on the case).  Americans sue 50% more often for medical malpractice than in Britain or Australia for instance—and a whopping 350% more than in Canada.  But a lower portion of these lawsuits are settled in favor of the plaintiff, and the average payout is actually slightly less in the U.S. than in these other countries.  The net effect, is that malpractice litigation represents less than one percent of total health care spending in the U.S.

However, the typical doctor’s medical malpractice insurance premiums average $16,000 per year in the U.S., more than twice that of other countries, and these costs are eventually passed on to the consumer in the form of higher fees.  Plus, one of the ways in which doctors attempt to reduce their medical malpractice claims—and also reduce the likelihood that a jury might decide they took insufficient measures—is to order more tests, at least to give the defensible appearance of having done everything in their power to treat their patient.  The costs of such ‘defensive medicine’ practices have been estimated to represent up to 9% of total health care spending.

But all of this still only accounts for less than a fifth of the differential cost of medical service in the United States.  The main reason health care costs are so high in the United States is because HMO rates are structured to pay much higher fees to doctors for highly invasive and often unnecessary procedures and tests, and because doctors prescribe so much more (relatively expensive) medication as standard practice when compared with anywhere else in the world.  Fully eighty-five percent of every physician visit nowadays involves some sort of diagnostic test, sixty-four percent involves the prescription of one or more medications, and almost nine percent involve some sort of surgical procedure that is either ordered or performed.

The big health management organizations exert a tremendous and lopsided influence on both the supply and demand for health care services in the U.S.  Most doctors and hospitals are now reimbursed for their services at pre-determined rates by HMOs, which in their wisdom have established a fee structure where the initial patient examination (or subsequent follow-up examinations) is deemed of lower value-added than the practice of performing more invasive tests or surgical procedures.  These rates are skewed in favor of shorter patient visits, more invasive procedures, and a higher prevalence of tests—all of which contribute to more misdiagnoses, longer diagnostic wait times, and an increasing cost of medical care.

The effect of this HMO payment structure on the patient demand side of the equation is equally dysfunctional.  Because most insurance policyholders know they will be covered for just about every health contingency (except pre-existing conditions), they flock with little hesitation and increasing frequency to their doctor’s office or the most convenient local clinic to be treated for any and all perceived ailments, no matter how trivial or inconsequential.  One study found that as many as 70% of visits for new health problems are unnecessary.  Plus, because doctors’ earnings rise the more quickly they move patients in and out the door, their tendency to treat the superficial symptoms rather than the underlying cause of their patient’s condition can result in the patient returning to the doctor’s office with the same malady as much as  four times before they are successfully treated.  The more frequently patients return to the doctor’s office for treatment of the same malady (because the doctor failed to find the correct treatment the first time), the greater the repeat visit fees and the more higher paying tests and procedures that will be considered necessary to perform.

The U.S. healthcare system is broken—and unlikely to change anytime soon.  The three largest spenders of lobby funds directed toward elected officials and those running for office all represent institutional medicine interests.  Congressional records and statutory campaign disclosures reveal the pharmaceutical and insurance industries consistently rank as the top two contributors, and the Amercian Medical Association as the second highest individually contributing independent group (just ahead of the gun lobby).  According to the Center for Responsive Politics, there are over two thousand health care lobbyists registered with the federal government, which works out to an average of almost 4 lobbyists for each member of Congress.

If you are dubious that the efforts of these lobbyists actually work, you only need to look at the example of U.S. House of Representatives Billy Tauzin (Republican, La), who as the former chairman of the House committee that regulates the pharmaceutical industry, passionately fought to deny passage of a bill that would have permitted the federal government to negotiate lower drug prices.  As a result, the prices paid by insurers and eventually the taxpayer will be much higher under federal-state Medicaid programs serving the poor—and also generate hundreds of millions of additional dollars each year for the large drug companies.  Mr. Tauzin, who at the time argued that his actions were motivated purely by his fervent belief that the bill would not serve the public interest, was rewarded for his efforts by the grateful pharmaceutical industry shortly after he retired his seat in Congress with the chairmanship of their largest lobby group, which pays him an annual salary in excess of 2 million dollars per year!

The good news is that you have the power to change the system directly via your own pocketbook.  The less often you blindly accept your doctor’s recommendation for another prescription or for surgical intervention or for more tests to confirm your diagnosis, the less you’ll be contributing to the overall cost of the U.S. healthcare system, and to the cost of your individual health insurance premiums.  It starts with taking more responsibility for your own health by not rushing to your nearest health care provider for every little pain or irregular symptom.  Studies show that up to 80% of illnesses are caused by external factors (lifestyle and/or environment toxins), factors your personal physician is unlikely to uncover in the typical 9.7 minutes you’ll get in the examining room. If you’re not suffering in extreme pain or with a life-threatening situation, keep in mind you possess three things your doctor doesn’t: the time, motivation, and information to thoroughly analyze your illness history and seek a drug-free cure.  Once you uncover the external triggers for your illness, normally a quick and low-cost cure can be applied simply by changing or removing these triggers and letting your body recover the way it was designed to.  Live frugally and live naturally!

[Excerpted from Chapter 2 of the book Be Your Own Health Detective.  Please share your comments and experience in the comment threat below.]

By Reid Jenner

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