<p>In <a href="https://www.forbes.com/2009/06/18/milton-friedman-medical-insurance-opinions-columnists-health-care.html" rel="noreferrer">Milton Friedman's view</a>, the cost of health care in the USA is high because consumers don't pay for it directly, and the people paying don't directly care whether it's a good value for the money spent. Consumers pay premiums driven by <em>average</em> costs but pay little of the <em>marginal</em> cost of their health care. Insurers don't care much about reducing costs because they can be passed on in the premiums. Consumers, who are already overpaying, don't have much incentive to make their <em>individual</em> usage more efficient, so costs continue to rise.</p>
<p>Other developed countries may share the feature that consumers don't pay for health care directly, but there is some more straightforward cost control in the form of single payer or other universal coverage. The centralized administrator has more negotiating power with providers, and can impose rationing on consumers; at the same time, there is political pressure not to raise premiums (which often take the form of taxes). So such an administrator is more likely to keep costs down.</p>

CC BY-SA 4.0
2021-06-21T07:04:21.897Z
This does not address why there is a difference between the healthcare costs of the US and of other developed countries.
Giskard
CC BY-SA 4.0
2021-06-21T08:06:12.980Z
@Giskard In other developed countries, the people who pay for it directly **do** care whether it's a good value for the money spent.
Todd Wilcox
CC BY-SA 4.0
2021-06-21T08:07:29.710Z
@nanoman:  In Germany, I don't "see" the true costs of any of the medical services.  I pay a 10€ fee for any prescription, no matter if the medicine itself costs 50€ or 500€ per package.  I have no idea what it costs the insurance company when I visit the doctor, nor do I care.  I 've had several examinations in the last year that had to be done under general anesthetic at the local hospital - I have no idea what those examinations cost, and I will never see a bill for them - the insurance takes care of that.  Despite this, the total cost per person in Germany is lower than in the US.
JRE
CC BY-SA 4.0
2021-06-21T08:14:36.410Z
@JRE The fact that you don't care what it costs the insurance company is one reason why costs are lower. In the German system, the insurance company has to pay the whole bill, and can't pass any costs on to the patient. This gives the insurance company a lot of motivation to fight for lower costs - which is not as true in the US. In the US system, the insurance companies have little motivation to compare costs.
Todd Wilcox
CC BY-SA 4.0
2021-06-21T11:08:06.757Z
In the UK, "health insurance" is entirely voluntary. The NHS is almost entirely funded from taxation, and any notional "profit" it makes simply accrues back to the government. And when negotiating with suppliers, the buyer of products and services is a single monopoly, not a fragmented set of consumers (operating under 50 different state regulatory systems, in the US!) who can be played off against each other by suppliers.
alephzero
CC BY-SA 4.0
2021-06-21T14:29:29.447Z
@ToddWilcox I would not say that is completely accurate.  I recently had a policy where they would pay 90% for an independent laboratory to do bloodwork, but only 60% if you used a hospital laboratory.  My out of pocket went from \$100 to \$7, and their payment went from \$150 to \$63 by encouraging the independent lab using this technique.  They did the same for imaging/x-rays and other services.
rtaft
CC BY-SA 4.0
2021-06-21T18:25:21.640Z
This effect can be readily seen, by looking at the opposite scenario, that of healthcare that is not typically covered by insurance. For instance, LASIK surgery in the US has continually decreased in price, while the convenience and comfort provided to the customer has increased. This is because patients are paying with there own hard earned dollars and providers are competing for them.
Glen Yates
CC BY-SA 4.0
2021-06-22T10:54:53.673Z
@GlenYates Not a convincing example because the price of laser equipment has plummeted due to technological advances. One would have to separate the underlying  cost reductions from the market-based effects before concluding anything about this example.
user_1818839
CC BY-SA 4.0
2021-06-22T13:15:39.083Z
One thing that fits into this explanation that you don't mention is that people who get their insurance through their employer generally have only one choice for insurance.  Employer-sponsored insurance further separates costs and incentives.
JimmyJames
CC BY-SA 4.0
2021-06-29T08:29:51.957Z
@alephzero And half the government would very much like to decrease the cost of the NHS, I'm sure.
Criticize SE actions means ban
CC BY-SA 4.0
2021-06-21T05:19:46.847Z
2021-06-21T09:23:42.627Z
2021-06-21T09:23:42.627Z
nanoman
<p>It may not explain the entire difference, but GDP isn't a very good way to compare the amount of income that residents of different countries might spend on healthcare for a <a href="https://randomcriticalanalysis.com/2018/11/19/why-everything-you-know-about-healthcare-is-wrong-in-one-million-charts-a-response-to-noah-smith/#rcatoc-on-material-living-conditions-and-its-role-in-health-spending" rel="noreferrer">number of reasons</a>. Usually this has to do with the structure of the economy, but GDP can also be distorted by <a href="https://en.wikipedia.org/wiki/Gross_domestic_product#Components_of_GDP_by_expenditure" rel="noreferrer">high trade deficits</a>, the effects of <a href="https://en.wikipedia.org/wiki/Modified_gross_national_income" rel="noreferrer">international tax avoidance</a>, or <a href="https://carnegieendowment.org/chinafinancialmarkets/78138" rel="noreferrer">specific political situations</a>. With a <a href="https://randomcriticalanalysis.com/2018/11/19/why-everything-you-know-about-healthcare-is-wrong-in-one-million-charts-a-response-to-noah-smith/" rel="noreferrer">better-motivated x-axis</a>, the US looks less like an outlier:</p>
<p><a href="https://i.sstatic.net/mWXY9.png" rel="noreferrer"><img src="https://i.sstatic.net/mWXY9.png" alt="Heath spending vs AIC" /></a></p>
<p>The idea is that AIC/c better predicts healthcare spending because it's a proxy for the total amount of (macroeconomic) income within the system available to spend on healthcare.</p>
<p>This isn't to say that American healthcare isn't expensive in an absolute sense—it's both a large fraction spending, and the most expensive in the world. So it's probably less useful to look just at factors that are unique to the American system and see it more as an extreme example of a global phenomenon.</p>

CC BY-SA 4.0
2021-06-21T21:55:29.300Z
Continuing that curve off the right end of the chart, a country where the average annual consumption is about 110k USD is expected to spend 100% of its income on healthcare (going above 100% for >110k). We also see the reverse if you disaggregate the USA into income tiers: the poor spend *more* money on healthcare than the rich. So this is rather problematic for several reasons.
JounceCracklePop
CC BY-SA 4.0
2021-06-22T03:45:46.157Z
@Dan : Many thanks for the link(s). What a treasure trove of information on an area full of misconceptions! I spent hours reading this, and will spend more time with it.
Aganju
CC BY-SA 4.0
2021-06-22T06:52:21.880Z
@JounceCracklePop Healthcare workers are highly educated professionals who nevertheless are very limited in how many patients they can treat each day. The US has the second highest wages for them, which has a fair contribution to health costs in the US - in most of the world, healthcare workers tend to be rather underpaid. Even then, when you look at the cost and quality of health services _not_ covered by insurance (i.e. paid for by the actual patient), the US is at the top - when the incentives aren't distorted, quality goes up and price goes down.
Luaan
CC BY-SA 4.0
2021-06-22T09:55:07.297Z
@JounceCracklePop Good point; I've clarified in the answer that it's about total (macroeconomic) income in the system rather than individual income. Different ways of distributing the costs to individuals then make the result more or less fair. The Swiss system is an extreme example where healthcare is ~$300/month for everyone, which is very fair to sick people and very unfair to poor people.
Dan
CC BY-SA 4.0
2021-06-21T12:56:07.333Z
2021-06-22T09:58:38.550Z
2021-06-22T09:58:38.550Z
Dan
<p>There are several reasons for that, following <a href="https://jamanetwork.com/journals/jama/article-abstract/2674671" rel="noreferrer">Papanicolas et al (2018)</a>:</p>
<ol>
<li><p>High regulatory and administrative burden. US has one of the highest regulatory and administrative burdens. US healthcare market might be unregulated in terms of prices and range of services and procedures you can get but it is actually quite heavily regulated when it comes to licensing, building codes etc. in addition, US does not have unified administration system for insurance which also creates a lot of admin costs.</p>
</li>
<li><p>High costs of pharmaceuticals (drugs) and medical equipment.</p>
</li>
<li><p>High labor costs. This is actually one of the more important reasons since US medical labor costs are extremely high. US doctors and nurses are payed much more than in many other advanced countries.</p>
</li>
</ol>
<p>These are one of the primary reasons listed in literature, there are also some other issues that contribute to this, such as excessive testing due to US being very litigious country and hospitals wanting to avoid liability (see <a href="https://www.tandfonline.com/doi/full/10.3111/13696998.2014.959125" rel="noreferrer">Brateanu et al 2014)</a>. A serious concern is also high market concentration in healthcare industry making it not very competitive which is also a reason why prices are very high (see <a href="https://files.givewell.org/files/labs/health-care-reform/Reinhardt%20Hussey%20Anderson%202004.pdf" rel="noreferrer">Reinhardt et al 2004)</a>.</p>

CC BY-SA 4.0
2021-06-20T13:44:52.470Z
I was skeptical about the labor cost, but indeed apparently US doctors make around 200k/annum while other top rich countries only pay 80k to 150k. But what about nurses and other not quite so qualified personnel? Are they really paid that well in the USA?
Nobody
CC BY-SA 4.0
2021-06-20T13:53:31.077Z
@Nobody yes according to OECD 2017 report on nurses renumeration, the nurse pay in the US is second highest from all OECD countries, only Luxembourg has higher costs. In US on average nurse earns about 76k in Germany only about 54K (this is already PPP adjusted), see the report here https://www.oecd-ilibrary.org/social-issues-migration-health/health-at-a-glance-2019_a44d2e24-en This is also not a recent phenomenon, I recall this held already in 2010s (pay was of course different but US was 2nd already back then and the difference between US GER was even back then about 20-30k)
1muflon1
CC BY-SA 4.0
2021-06-20T14:00:55.647Z
By the way comments are not to be used for off topic disussion economic growth is unrelated to either question posed by OP or this answer, if you want to discuss it further please go   [to chat](https://chat.stackexchange.com/rooms/126698/discussion-on-answer-by-1muflon1-why-is-healthcare-so-expensive-in-the-usa).
1muflon1
CC BY-SA 4.0
2021-06-20T14:44:01.670Z
Why are labor costs much higher?
meriton
CC BY-SA 4.0
2021-06-20T15:02:59.643Z
@meriton that is a good question, in short there are various reasons for that. In the US for example you have many superstar physicians since US is large rich country with high demand for healthcare services which will allow for more specialization and thus also higher marginal productivity and also allows for superstars in a way that small segmented markets elsewhere might not allow (a large US city has a population that often surpasses population of whole EU member states), there are high entry barriers into becoming a doctor, high costs of training to become doctor etc
1muflon1
CC BY-SA 4.0
2021-06-20T15:04:12.787Z
if you want some more detailed answer you can ask that as a separate question, since comments do not allow for a long text with more details
1muflon1
CC BY-SA 4.0
2021-06-20T20:47:48.020Z
@EikePierstorff According to the OECD document remuneration is defined as gross wage plus all benefits, so it includes taxes and social contributions. It might not include 100% of all labor costs because I do not think they fully taken into account such hard to measure benefits such as working in safe and pleasant environment  which are very hard   enumerate, but it should be a reasonably good proxy for labor costs. To put it bluntly, I seen remuneration used in peer reviewed research as stand in for labor costs before
1muflon1
CC BY-SA 4.0
2021-06-21T05:59:04.297Z
I had thought that the argument for capitalism is that it drives prices down, through competition. I guess that you are saying that the regulations prevent new entrants from entering the competition. But, why don't those already in the market compete to drive prices down? Or should this be a new question?
Mawg
CC BY-SA 4.0
2021-06-21T07:49:51.740Z
@MawgsaysreinstateMonica There are a lot of exceptions in practice. Really, so many exceptions that capitalist theory kind of only works on paper. In healthcare in the US, there really isn't competition in any meaningful sense. First, we choose the closest hospital when we need one and we choose the doctor we are most comfortable with. We do not compare prices. Also, we do not see prices. Partly we don't ask, but also because when we do ask, it's very hard to get an answer. Basically health care is not capitalist in the US.
Todd Wilcox
CC BY-SA 4.0
2021-06-21T07:55:23.893Z
That was my experience when I lived there. It sort of contradicts the idea of a free market economy, but I don't want to get into politics or start a flame war, so I'll leave it here. Thanks for a very good explanation(+1).
Mawg
CC BY-SA 4.0
2021-06-21T08:31:37.057Z
@MawgsaysreinstateMonica actually capitalism is not properly defined in economics so we do not use that word as it is next to useless (there are serious scholars calming USSR was capitalist economy so nowadays the word is next to meaningless) but assuming you mean by capitalism predominantly market and competition oriented system, you are right that competition should drive down prices but even in a model of perfect competition you would get a result that price has to be equal marginal cost, we can then ask a subsequent question why the prices on a market for equipment and labor market for
1muflon1
CC BY-SA 4.0
2021-06-21T08:35:52.000Z
@MawgsaysreinstateMonica doctors or market for drugs which are costs of healthcare industry are so high, but that would require separate question (preferably for all of those categories as they are in themselves very broad subjects). However, this being said as mentioned in the last paragraph of my answer there are also non-competitive elements to healthcare market and this is definitely likely because firm do not have fully free entry. The issue is that depending on nature of competition you might need some minimum number of firms to drive price to its minimum possible value
1muflon1
CC BY-SA 4.0
2021-06-21T08:38:00.570Z
@MawgsaysreinstateMonica for example, if a competition is structured as a Bertrand type competition, even 2 firms in a market are enough to have perfectly competitive price, if a competition is structured as Cournot competition you might need large amount of firms **or** threat of entry for competition to have minimum price possible (meaning price=marginal costs)
1muflon1
CC BY-SA 4.0
2021-06-21T08:39:13.943Z
@DonFusili if you want to discuss whether *healthcare* in US is capitalist or not please open a chat room that is neither subject of the question nor my answer, comments are not supposed to be used for off topic discussion.
1muflon1
CC BY-SA 4.0
2021-06-21T08:39:35.423Z
@ToddWilcox if you want to discuss whether *healthcare* in US is capitalist or not please open a chat room that is neither subject of the question nor my answer, comments are not supposed to be used for off topic discussion.
1muflon1
CC BY-SA 4.0
2021-06-21T08:47:28.007Z
@1muflon1 Seems like the person who has made the most comments on the capitalist nature (or not) of the US healthcare system is you. I don't have any interest in discussing it beyond the passing mention I made of it. Would you like me to delete my comment?
Todd Wilcox
CC BY-SA 4.0
2021-06-21T08:51:31.360Z
@ToddWilcox ? I do not mention capitalism at all except saying its poorly defined in economics. Your comment was musing about whether US healthcare is capitalist or not, you do not need to delete that single comment, but if you want to pursue that kind of debate please do not do that here, that is why I tagged both you and DonFusili, I am already moderator long enough to see when there are comments that will just likely spiral into off topic discussion, in my experience any time word capitalism is mentioned comments devolve into semantic off topic discussion
1muflon1
CC BY-SA 4.0
2021-06-21T08:56:06.357Z
@1muflon1 If you insist. By the way, who is DonFusili? He doesn't seem to have made any comments on your answer.
Todd Wilcox
CC BY-SA 4.0
2021-06-21T08:56:39.093Z
@ToddWilcox oh he must have deleted the comment
1muflon1
CC BY-SA 4.0
2021-06-21T08:57:27.293Z
@1muflon1 Maybe if you want to discuss why you are concerned that my comment will lead to a discussion we should do so in a chat?
Todd Wilcox
CC BY-SA 4.0
2021-06-21T09:00:48.113Z
@ToddWilcox okay since DonFusili deleted his comment it makes less sense, but in your comment you use value laden and undefined word capitalism, DonFusili in now deleted comment challenged your use of word capitalism in a way that would definitely spark a discussion, I wanted to get ahead of a situation before there are 100 comments of you arguing with DonFusili, but immediately after my comment DonFusili deleted his comment, so I guess thats why you are now puzzled
1muflon1
CC BY-SA 4.0
2021-06-21T09:01:56.877Z
@ToddWilcox by the way since now after donFusili deleted his comment this is no longer relevant just let me know once you read this comment and I will prone the comments above as now it does not make sense anymore
1muflon1
CC BY-SA 4.0
2021-06-21T09:33:04.557Z
#3 is due to the doctors cartel, officially known as the American Medical Association. They control the number of doctors who can graduate per year. They're also responsible for regulation where even a German doctor cannot just come and work in the US willy nilly without tons of paperwork. If you allowed Canadian, Australian and EU doctors to move into the US with zero paperwork and start working, plus allowed unlimited number of doctors to graduate, doctor salaries would quickly crash to reasonable levels.
JonathanReez
CC BY-SA 4.0
2021-06-21T11:03:09.247Z
@1muflon1 I deleted my comment because I wanted to avoid the discussion, you're right, it would have gotten off-topic immediately and I shouldn't have posted it to begin with.
DonFusili
CC BY-SA 4.0
2021-06-22T10:03:43.860Z
This answer, to some extent, begs the question. It decomposes the costs, but why are the component costs as high as they are? Apparently they are lower in other countries.
henning no longer feeds AI
CC BY-SA 4.0
2021-06-22T10:07:49.167Z
@henning, that is to an extent a valid point, however, that is too broad discussion for SE format. From economic perspective it is valid to answer that cost of a service, or good are high because if you look downstream costs of inputs are high, that of course begs the question of why the cost of inputs is high, but to cover that in a single SE answer is impossible. Explaining why medical wages in US itself are high would require its own SE Q and A<- if you are interested in that please do not shy away from asking it as a new Q. SE format is not well suited for book or full paper length answers
1muflon1
CC BY-SA 4.0
2021-06-22T10:10:34.837Z
my option here was to either interpret the Q as being broad and asking for every explanation of price of every input in which case it would need to be closed as a too broad question for this site, or be generous to OP and assume the question is narrow of just why the healthcare costs are higher than elsewhere where answer, because costs of inputs in the US is higher than elsewhere is a valid answer, even if maybe not a satisfying one
1muflon1
CC BY-SA 4.0
2021-06-22T12:53:35.733Z
One issue with regulation that people may not understand (including US citizens) is that there are differing regulations across all the states and territories of the US, and for different populations (Medicare/Medicaid).
JimmyJames
CC BY-SA 4.0
2021-06-22T12:59:31.157Z
What these kinds of answers don't explain is why the cost of healthcare rises so rapidly.  People often point to the administrative costs such as private insurance companies and while the overhead can be significant, it's not changing year over year.  Rising costs are driven by the cost of care and I don't see anything in these answers that addresses that.  You could cut all overhead but if the cost of care keeps rising faster than inflation, those savings will be erased over time.
JimmyJames
CC BY-SA 4.0
2021-06-22T13:52:26.450Z
Is there a factor that makes pharmaceutical/medical equipment costs higher (other than regulatory/administrative costs and labor costs)?  The other two points makes lots of sense to me as they are very US-specific, but pharmaceuticals can be made anywhere.
Nathan Merrill
CC BY-SA 4.0
2021-06-22T14:24:02.820Z
@NathanMerrill there are many factors for that, again that would require its own post but in short it is because: 1. Very strong and long lasting patent laws 2. High costs of approving medicine for use in the US. For example following Forewood (2006) an cost of **just bringing** new drug to market from discovery to approval is **on average** 802 million dollars and most of this cost is spent on admin and approval process. 3. US is at a technological frontier when it comes to medicine and it relies on cutting edge pharmaceuticals even if there are older less powerful but still usable ones
1muflon1
CC BY-SA 4.0
2021-06-22T14:27:31.670Z
@NathanMerrill in fact one reason why insulin in US is so expensive it’s that in the US market you will mainly have newer improved but patented versions of insulin instead of cheap generic ones. 4. There are high barriers to entry. Again US could have generic insulin manufacturers for example, but barriers to set up pharma production firm are so high that people will do it only if rewards are sufficiently high and in the US consequently generics are not interesting.
1muflon1
CC BY-SA 4.0
2021-06-22T16:48:53.340Z
@1muflon1 isn't that essentially "Regulatory costs", then?  Sure, developing drugs is expensive, but that is true everywhere.  The only US-specific factor I'm seeing is that generic drugs are not viable due to regulatory costs.
Nathan Merrill
CC BY-SA 4.0
2021-06-22T16:53:35.900Z
@NathanMerrill well, it is not the same regulatory costs mentioned in the answer, but whole other regulatory costs. Also high barriers to entry are not necessarily caused *just* by regulation, but by high fixed costs etc
1muflon1
CC BY-SA 4.0
2021-06-22T21:12:28.673Z
@NathanMerrill One of the factors related to drug cost in the US is that there is/are federal laws preventing the government from using it's buying power to bargain for lower drug prices for e.g. Medicare.
JimmyJames
CC BY-SA 4.0
2021-06-19T16:15:35.960Z
2021-06-19T16:58:29.197Z
2021-06-19T16:58:29.197Z
1muflon1
<p>I find this phenomenon to be kind of puzzling.</p>
<p>USA is one of the countries with one of the highest purchasing powers in the world, yet when it comes to healthcare an standard US citizen is likely to not be able to afford it if what needs to be dealt with is something not too simple.</p>
<p>For example <a href="https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-countries/#item-spendingcomparison_gdp-per-capita-and-health-consumption-spending-per-capita-2019" rel="noreferrer">this graph</a>, based on OECD data, clearly shows that the USA is an outlier when it comes to healthcare spending: It spends almost twice as much per capita as other comparably affluent countries.</p>
<p>I can understand that as an essential service prices may skyrocket if the market is left without regulation but... essential goods like housing and food are by no means comparable with healthcare costs in general (for this question I'm setting as time frame last 10 years).</p>
<p>What are the reasons healthcare costs are so skyrocketed in the USA?</p>

CC BY-SA 4.0
2021-06-20T22:54:45.757Z
In my experience, a "standard citizen" can easily afford healthcare. I'm bombarded with "experts say" and "studies show" (they mean nothing anymore) all the time but when rubber meets road, your average person in the US has affordable options. I think your question makes more sense if you ask specifically about poor people.
acpilot
CC BY-SA 4.0
2021-06-21T01:32:17.667Z
@acpilot untrue, my family is essentially uninsurable outside of employer-sponsored plans, and my wife and I make well above the median income. While I don't disagree that the problem is frequently exaggerated as a rhetorical ploy I'm inclined to say that intuition is probably flawed, and the statistics are probably correct.
Jared Smith
CC BY-SA 4.0
2021-06-21T03:43:34.740Z
But they are so consistently flawed.
acpilot
CC BY-SA 4.0
2021-06-21T07:56:59.403Z
@acpilot I'm not sure if you live in the US, but if you do, I expect you have a full-time job with an employer with a health care plan that you participate in. You also might be single. Unless you have a quality plan through your employer, health insurance will cost a significant portion of your income in the US. And that's just the insurance, which does **not** pay for all of your health expenses. I was insured when I broke my foot and also when I was taken by ambulance to the emergency room. Both events cost me more than a month's rent after insurance. And I'm firmly middle-class.
Todd Wilcox
CC BY-SA 4.0
2021-06-21T09:35:36.023Z
See this [fantastic answer](https://politics.stackexchange.com/a/50734/7434) on Politics.SE to answer your question. TL;DR the healthcare market is not free by any measure.
JonathanReez
CC BY-SA 4.0
2021-06-21T10:50:38.250Z
_"essential goods like housing and food are by no means comparable with healthcare costs"_ Housing costs are no joke either.
Flater
CC BY-SA 4.0
2021-06-21T10:53:06.230Z
@acpilot: I don't think that is a fair assessment. The question isn't "Why is it unaffordable?" nor is it "Do many people have issues with medical costs?". People who get seriously ill for the long term consistently run into either exorbitant medical costs or will have been paying a premium on their insurance up until then (well above what the average person can reasonably afford). And even then, the question isn't whether it is affordable or not, but why it is so high _relative to other countries_. Even if affordable, that does not make it as cheap.
Flater
CC BY-SA 4.0
2021-06-21T10:57:21.113Z
Surely the reason is simple: In the US almost all healthcare is provided by *for-profit* organizations at every level. In any economic activity, the more middle-men taking a profit, the higher the cost to the final consumer.
alephzero
CC BY-SA 4.0
2021-06-21T11:01:39.833Z
@acpilot "Affordable" is irrelevant to the question (aside from the dispute about your assertion).  The question is "why does healthcare in the US *cost more* than elsewhere" not "is healthcare *affordable*."
alephzero
CC BY-SA 4.0
2021-06-21T19:06:19.937Z
But affordability is key.  That's the whole concern.
acpilot
CC BY-SA 4.0
2021-06-22T08:19:33.207Z
@acpilot If affordability is key then I'll just say this: comparatively its not affordable. And multiple people already gave you examples as to why its unaffordable eg. middle-class paying more then a months salary as Todd said, you'd call that affordable? Where I live I pay around 150 euros a month and most is included (you can choose to not include dental for example), if I make very high costs I'd only have to pay a specified number I agreed to (called "own risk" if you translate it), that number isn't very high and can even be 0 but that would mean your monthly payments go up.
EpicKip
CC BY-SA 4.0
2021-06-22T12:39:33.430Z
Your title asks why heathcare is so expensive in the US but the content of your question and the data you reference is about spending.   In order to understand whether healthcare is 'expensive', you need to understand how much healthcare US citizens get and/or what outcomes they get relative to other nations.  I'm not sure there's a way to do that that is satisfying to all interested parties.
JimmyJames
CC BY-SA 4.0
2021-06-22T15:54:21.510Z
@JimmyJames I think it's fair to equate the level of healthcare between the US and e.g. Western Europe in terms of reasons to visit and what is provided. The main difference is the cost, not the medical procedure. You are correct if we are comparing nations with a huge difference in healthcare quality, but OP specifically mentions *comparably affluent nations*. For those, we can reasonably equate healthcare standards.
Flater
CC BY-SA 4.0
2021-06-22T16:40:29.637Z
@acpilot apart from you talking about "affordable" healthcare (which, as has already been pointed out, has nothing at all to do with the question as asked), I notice that you used words such as "standard citizen" and "easily afford". Could you clarify, for the benefit of the discussion, who is a "standard citizen" and what "easily afford" means for you?

Also, I have to ask: why would it matter if a "standard citizen" could "easily afford" it? Healthcare is a basic requirement for living in a modern society, so what about those "non-standard-citizens"? Good riddance?
Jon
CC BY-SA 4.0
2021-06-22T17:01:51.623Z
@Flater And another confounding factor is that hospitals are not allowed to turn people away if they cannot pay so they are forced to subsidize those costs by overcharging other customers. Insurers (despite claims in this answers) have the power to negotiate these rates but individuals do not. So trying to determine e.g. what an MRI scan costs in the US is no simple task.  You end up having to look at the entire spend and divide by the population with is also flawed. E.g, how do to account for homeless people using the ER as a shelter? Is that counted in the EU as a healthcare expense?
JimmyJames
CC BY-SA 4.0
2021-06-22T17:44:59.807Z
@JimmyJames Your points are somewhat inverted. Offsetting costs for non-payers by charging others more doesn't change the total cost for all patients, if the offset is done solely for the purpose of covering the costs of non-payers. Prohibitively high costs for simple medical procedures or insurance _cause_ people to avoid medical procedures, which can skew the figures either way (less patients, but then also more severe cases due to avoided early treatment). But mainly, "many things could be different" does not preclude OP's investigation into _why_ things such as cost are different.
Flater
CC BY-SA 4.0
2021-06-22T17:50:54.880Z
@JimmyJames [..] Your response to OP is akin to asking a roadside mechanic why your car won't start and having them tell you "well I can't check or fix every single part of your car when roadside!". It is not a reason to not investigate the issue at hand, even if there is a chance you might not be able to fully address it.
Flater
CC BY-SA 4.0
2021-06-22T17:51:37.437Z
@Flater I don't follow your logic.  My point is that the question' why is healthcare so expensive' is different from 'why are healthcare costs high'.  There's an implicit assumption that the cost is a function of higher prices but that far from certain unless something has changed since I studied healthcare economics in grad school less than 10 years ago.
JimmyJames
CC BY-SA 4.0
2021-06-22T17:53:26.763Z
@Flater Your tone is unnecessarily antagonistic.  I'm simply pointing out that there are two different questions here that are implied to be the same.
JimmyJames
CC BY-SA 4.0
2021-06-22T17:53:52.120Z
@JimmyJames "expensive" and "having a high cost" are plainly synonymous, especially in common parlance.
Flater
CC BY-SA 4.0
2021-06-22T17:58:24.630Z
@Flater No, they are not, not in this context.  Just like 'cheap' can mean both 'inexpensive' and 'bad quality', cost means the total paid for something.  'Expensive' is a relative term related to a per unit cost of equivalent products.  It's possible, for example, to have high costs by buying many inexpensive things and have a low costs by buy few expensive items.
JimmyJames
CC BY-SA 4.0
2021-06-22T18:11:37.663Z
@Flater Look [here](https://internationalcomparisons.org/environmental/transportation/). We can see that the % of annual income spent on gasoline in the US is higher than every European country in the list.  Can we conclude that gasoline is more expensive (consumer price) in the US than in Europe?
JimmyJames
CC BY-SA 4.0
2021-06-22T21:13:14.763Z
Comments are not for extended discussion; this conversation has been [moved to chat](https://chat.stackexchange.com/rooms/126781/discussion-on-question-by-user2638180-why-is-healthcare-so-expensive-in-the-usa).
1muflon1
CC BY-SA 4.0
2021-06-23T10:15:34.797Z
@acpilot [Over half of US citizens report medical hardship](https://link.springer.com/article/10.1007/s11606-019-05002-w) - just maybe not the half you're personally familiar with.
Lio Elbammalf
CC BY-SA 4.0
2021-06-23T15:39:39.823Z
@JimmyJames: I get the point you're making but it's a well documented fact that healthcare costs per treatment (also note Lio's link in the comment directly above this one), and not just overall spending, is disproportionately high in the US, which is where your gasoline analogy fails to apply. The amount of bankrupcies in the US per capita caused by medical costs further proves that point.
Flater
CC BY-SA 4.0
2021-06-23T15:45:13.167Z
@Flater And I already explained why determining the cost per treatment is nearly impossible.  I'm not just hypothesizing about this: I am very familiar with what it takes to attempt to do this and there's no one answer per state or even region.  As already noted, there is a lot of shifting of costs as well.  For example, medicaid payments are often below cost.
JimmyJames
CC BY-SA 4.0
2021-06-23T15:48:00.243Z
@Flater In addition, even if the cost of treatment is higher in the US, that doesn't mean that higher utilization is a not also contributing to higher costs.  These are not mutually exclusive factors.
JimmyJames
CC BY-SA 4.0
2021-06-23T15:54:21.153Z
@JimmyJames: Precisely the point: that is part of an answer to the question at hand, not a preclusion.
Flater
CC BY-SA 4.0
2021-06-23T15:55:57.653Z
@Flater What's the question?  Why are costs high or why is it more expensive?
JimmyJames
CC BY-SA 4.0
2021-06-26T00:45:04.537Z
Wow, they "report hardship?"  Well, I guess I can too, huh?  Sound like a pretty solid empirical measure!
acpilot
CC BY-SA 4.0
2021-06-26T00:55:16.080Z
@Jon - spare me.  Average has a definition already.  And you know exactly what I'm driving at.  Poor people have a hard time, but most people are not poor.  Medical costs are certainly higher than they need to be but the root cause is government meddling and the political pull of groups who profit from illnesses.  Making it "free" or will simply add another unsustainable entitlement to our list of things that will inevitably run out of funding.  I do not want my neighbor to foot my medical bill.  I want to pay market price, not some bureaucratically inflated price.  Get government out of it.
acpilot
CC BY-SA 4.0
2021-06-28T08:07:44.353Z
@acpilot I would have given you a proper response to this nonsense, but exactly like you say, here in Europe we've already run out of money due to this horrible unsustainable practice and I'm currently very busy fending off raiders. Also, it's frankly hilarious that you're paying through the nose compared to pretty much everyone else in the world (the very reason this question exists in the first place) and yet you don't want to pay "some bureaucratically inflated price". I guess the capitalist-gouging-inflated "free market" price has a better aftertaste. And finally, you're dodging questions.
Jon
<united-states><health-economics>
Why is healthcare so expensive in the USA?
user2638180
# Why is healthcare so expensive in the USA?

(Asked by: username_0 on 2021-06-19)

I find this phenomenon to be kind of puzzling.

USA is one of the countries with one of the highest purchasing powers in the world, yet when it comes to healthcare an standard US citizen is likely to not be able to afford it if what needs to be dealt with is something not too simple.

For example [this graph](https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-countries/#item-spendingcomparison_gdp-per-capita-and-health-consumption-spending-per-capita-2019), based on OECD data, clearly shows that the USA is an outlier when it comes to healthcare spending: It spends almost twice as much per capita as other comparably affluent countries.

I can understand that as an essential service prices may skyrocket if the market is left without regulation but... essential goods like housing and food are by no means comparable with healthcare costs in general (for this question I'm setting as time frame last 10 years).

What are the reasons healthcare costs are so skyrocketed in the USA?

**Tags:** united-states, health-economics

> **Comments:**
> **username_1**: In my experience, a "standard citizen" can easily afford healthcare. I'm bombarded with "experts say" and "studies show" (they mean nothing anymore) all the time but when rubber meets road, your average person in the US has affordable options. I think your question makes more sense if you ask specifically about poor people.  
> **username_2**: @username_1 untrue, my family is essentially uninsurable outside of employer-sponsored plans, and my wife and I make well above the median income. While I don't disagree that the problem is frequently exaggerated as a rhetorical ploy I'm inclined to say that intuition is probably flawed, and the statistics are probably correct.  
> **username_1**: But they are so consistently flawed.  
> **username_3**: @username_1 I'm not sure if you live in the US, but if you do, I expect you have a full-time job with an employer with a health care plan that you participate in. You also might be single. Unless you have a quality plan through your employer, health insurance will cost a significant portion of your income in the US. And that's just the insurance, which does **not** pay for all of your health expenses. I was insured when I broke my foot and also when I was taken by ambulance to the emergency room. Both events cost me more than a month's rent after insurance. And I'm firmly middle-class.  
> **username_4**: See this [fantastic answer](https://politics.stackexchange.com/a/50734/7434) on Politics.SE to answer your question. TL;DR the healthcare market is not free by any measure.  
> **username_5**: _"essential goods like housing and food are by no means comparable with healthcare costs"_ Housing costs are no joke either.  
> **username_5**: @username_1: I don't think that is a fair assessment. The question isn't "Why is it unaffordable?" nor is it "Do many people have issues with medical costs?". People who get seriously ill for the long term consistently run into either exorbitant medical costs or will have been paying a premium on their insurance up until then (well above what the average person can reasonably afford). And even then, the question isn't whether it is affordable or not, but why it is so high _relative to other countries_. Even if affordable, that does not make it as cheap.  
> **username_6**: Surely the reason is simple: In the US almost all healthcare is provided by *for-profit* organizations at every level. In any economic activity, the more middle-men taking a profit, the higher the cost to the final consumer.  
> **username_6**: @username_1 "Affordable" is irrelevant to the question (aside from the dispute about your assertion).  The question is "why does healthcare in the US *cost more* than elsewhere" not "is healthcare *affordable*."  
> **username_1**: But affordability is key.  That's the whole concern.  
> **username_7**: @username_1 If affordability is key then I'll just say this: comparatively its not affordable. And multiple people already gave you examples as to why its unaffordable eg. middle-class paying more then a months salary as username_3 said, you'd call that affordable? Where I live I pay around 150 euros a month and most is included (you can choose to not include dental for example), if I make very high costs I'd only have to pay a specified number I agreed to (called "own risk" if you translate it), that number isn't very high and can even be 0 but that would mean your monthly payments go up.  
> **username_8**: Your title asks why heathcare is so expensive in the US but the content of your question and the data you reference is about spending.   In order to understand whether healthcare is 'expensive', you need to understand how much healthcare US citizens get and/or what outcomes they get relative to other nations.  I'm not sure there's a way to do that that is satisfying to all interested parties.  
> **username_5**: @username_8 I think it's fair to equate the level of healthcare between the US and e.g. Western Europe in terms of reasons to visit and what is provided. The main difference is the cost, not the medical procedure. You are correct if we are comparing nations with a huge difference in healthcare quality, but OP specifically mentions *comparably affluent nations*. For those, we can reasonably equate healthcare standards.  
> **username_9**: @username_1 apart from you talking about "affordable" healthcare (which, as has already been pointed out, has nothing at all to do with the question as asked), I notice that you used words such as "standard citizen" and "easily afford". Could you clarify, for the benefit of the discussion, who is a "standard citizen" and what "easily afford" means for you?  Also, I have to ask: why would it matter if a "standard citizen" could "easily afford" it? Healthcare is a basic requirement for living in a modern society, so what about those "non-standard-citizens"? Good riddance?  
> **username_8**: @username_5 And another confounding factor is that hospitals are not allowed to turn people away if they cannot pay so they are forced to subsidize those costs by overcharging other customers. Insurers (despite claims in this answers) have the power to negotiate these rates but individuals do not. So trying to determine e.g. what an MRI scan costs in the US is no simple task.  You end up having to look at the entire spend and divide by the population with is also flawed. E.g, how do to account for homeless people using the ER as a shelter? Is that counted in the EU as a healthcare expense?  
> **username_5**: @username_8 Your points are somewhat inverted. Offsetting costs for non-payers by charging others more doesn't change the total cost for all patients, if the offset is done solely for the purpose of covering the costs of non-payers. Prohibitively high costs for simple medical procedures or insurance _cause_ people to avoid medical procedures, which can skew the figures either way (less patients, but then also more severe cases due to avoided early treatment). But mainly, "many things could be different" does not preclude OP's investigation into _why_ things such as cost are different.  
> **username_5**: @username_8 [..] Your response to OP is akin to asking a roadside mechanic why your car won't start and having them tell you "well I can't check or fix every single part of your car when roadside!". It is not a reason to not investigate the issue at hand, even if there is a chance you might not be able to fully address it.  
> **username_8**: @username_5 I don't follow your logic.  My point is that the question' why is healthcare so expensive' is different from 'why are healthcare costs high'.  There's an implicit assumption that the cost is a function of higher prices but that far from certain unless something has changed since I studied healthcare economics in grad school less than 10 years ago.  
> **username_8**: @username_5 Your tone is unnecessarily antagonistic.  I'm simply pointing out that there are two different questions here that are implied to be the same.  
> **username_5**: @username_8 "expensive" and "having a high cost" are plainly synonymous, especially in common parlance.  
> **username_8**: @username_5 No, they are not, not in this context.  Just like 'cheap' can mean both 'inexpensive' and 'bad quality', cost means the total paid for something.  'Expensive' is a relative term related to a per unit cost of equivalent products.  It's possible, for example, to have high costs by buying many inexpensive things and have a low costs by buy few expensive items.  
> **username_8**: @username_5 Look [here](https://internationalcomparisons.org/environmental/transportation/). We can see that the % of annual income spent on gasoline in the US is higher than every European country in the list.  Can we conclude that gasoline is more expensive (consumer price) in the US than in Europe?  
> **username_10**: Comments are not for extended discussion; this conversation has been [moved to chat](https://chat.stackexchange.com/rooms/126781/discussion-on-question-by-username_0-why-is-healthcare-so-expensive-in-the-usa).  
> **username_11**: @username_1 [Over half of US citizens report medical hardship](https://link.springer.com/article/10.1007/s11606-019-05002-w) - just maybe not the half you're personally familiar with.  
> **username_5**: @username_8: I get the point you're making but it's a well documented fact that healthcare costs per treatment (also note Lio's link in the comment directly above this one), and not just overall spending, is disproportionately high in the US, which is where your gasoline analogy fails to apply. The amount of bankrupcies in the US per capita caused by medical costs further proves that point.  
> **username_8**: @username_5 And I already explained why determining the cost per treatment is nearly impossible.  I'm not just hypothesizing about this: I am very familiar with what it takes to attempt to do this and there's no one answer per state or even region.  As already noted, there is a lot of shifting of costs as well.  For example, medicaid payments are often below cost.  
> **username_8**: @username_5 In addition, even if the cost of treatment is higher in the US, that doesn't mean that higher utilization is a not also contributing to higher costs.  These are not mutually exclusive factors.  
> **username_5**: @username_8: Precisely the point: that is part of an answer to the question at hand, not a preclusion.  
> **username_8**: @username_5 What's the question?  Why are costs high or why is it more expensive?  
> **username_1**: Wow, they "report hardship?"  Well, I guess I can too, huh?  Sound like a pretty solid empirical measure!  
> **username_1**: @username_9 - spare me.  Average has a definition already.  And you know exactly what I'm driving at.  Poor people have a hard time, but most people are not poor.  Medical costs are certainly higher than they need to be but the root cause is government meddling and the political pull of groups who profit from illnesses.  Making it "free" or will simply add another unsustainable entitlement to our list of things that will inevitably run out of funding.  I do not want my neighbor to foot my medical bill.  I want to pay market price, not some bureaucratically inflated price.  Get government out of it.  
> **username_9**: @username_1 I would have given you a proper response to this nonsense, but exactly like you say, here in Europe we've already run out of money due to this horrible unsustainable practice and I'm currently very busy fending off raiders. Also, it's frankly hilarious that you're paying through the nose compared to pretty much everyone else in the world (the very reason this question exists in the first place) and yet you don't want to pay "some bureaucratically inflated price". I guess the capitalist-gouging-inflated "free market" price has a better aftertaste. And finally, you're dodging questions.  

---

## 3 answers

### Answer by username_10 on 2021-06-19. Score: 46 | Accepted answer

There are several reasons for that, following [Papanicolas et al (2018)](https://jamanetwork.com/journals/jama/article-abstract/2674671):

1. High regulatory and administrative burden. US has one of the highest regulatory and administrative burdens. US healthcare market might be unregulated in terms of prices and range of services and procedures you can get but it is actually quite heavily regulated when it comes to licensing, building codes etc. in addition, US does not have unified administration system for insurance which also creates a lot of admin costs.
2. High costs of pharmaceuticals (drugs) and medical equipment.
3. High labor costs. This is actually one of the more important reasons since US medical labor costs are extremely high. US doctors and nurses are payed much more than in many other advanced countries.

These are one of the primary reasons listed in literature, there are also some other issues that contribute to this, such as excessive testing due to US being very litigious country and hospitals wanting to avoid liability (see [Brateanu et al 2014)](https://www.tandfonline.com/doi/full/10.3111/13696998.2014.959125). A serious concern is also high market concentration in healthcare industry making it not very competitive which is also a reason why prices are very high (see [Reinhardt et al 2004)](https://files.givewell.org/files/labs/health-care-reform/Reinhardt%20Hussey%20Anderson%202004.pdf).

> **Comments:**
> **username_23**: I was skeptical about the labor cost, but indeed apparently US doctors make around 200k/annum while other top rich countries only pay 80k to 150k. But what about nurses and other not quite so qualified personnel? Are they really paid that well in the USA?  
> **username_10**: @username_23 yes according to OECD 2017 report on nurses renumeration, the nurse pay in the US is second highest from all OECD countries, only Luxembourg has higher costs. In US on average nurse earns about 76k in Germany only about 54K (this is already PPP adjusted), see the report here https://www.oecd-ilibrary.org/social-issues-migration-health/health-at-a-glance-2019_a44d2e24-en This is also not a recent phenomenon, I recall this held already in 2010s (pay was of course different but US was 2nd already back then and the difference between US GER was even back then about 20-30k)  
> **username_10**: By the way comments are not to be used for off topic disussion economic growth is unrelated to either question posed by OP or this answer, if you want to discuss it further please go   [to chat](https://chat.stackexchange.com/rooms/126698/discussion-on-answer-by-username_10-why-is-healthcare-so-expensive-in-the-usa).  
> **username_24**: Why are labor costs much higher?  
> **username_10**: @username_24 that is a good question, in short there are various reasons for that. In the US for example you have many superstar physicians since US is large rich country with high demand for healthcare services which will allow for more specialization and thus also higher marginal productivity and also allows for superstars in a way that small segmented markets elsewhere might not allow (a large US city has a population that often surpasses population of whole EU member states), there are high entry barriers into becoming a doctor, high costs of training to become doctor etc  
> **username_10**: if you want some more detailed answer you can ask that as a separate question, since comments do not allow for a long text with more details  
> **username_10**: @EikePierstorff According to the OECD document remuneration is defined as gross wage plus all benefits, so it includes taxes and social contributions. It might not include 100% of all labor costs because I do not think they fully taken into account such hard to measure benefits such as working in safe and pleasant environment  which are very hard   enumerate, but it should be a reasonably good proxy for labor costs. To put it bluntly, I seen remuneration used in peer reviewed research as stand in for labor costs before  
> **username_25**: I had thought that the argument for capitalism is that it drives prices down, through competition. I guess that you are saying that the regulations prevent new entrants from entering the competition. But, why don't those already in the market compete to drive prices down? Or should this be a new question?  
> **username_3**: @MawgsaysreinstateMonica There are a lot of exceptions in practice. Really, so many exceptions that capitalist theory kind of only works on paper. In healthcare in the US, there really isn't competition in any meaningful sense. First, we choose the closest hospital when we need one and we choose the doctor we are most comfortable with. We do not compare prices. Also, we do not see prices. Partly we don't ask, but also because when we do ask, it's very hard to get an answer. Basically health care is not capitalist in the US.  
> **username_25**: That was my experience when I lived there. It sort of contradicts the idea of a free market economy, but I don't want to get into politics or start a flame war, so I'll leave it here. Thanks for a very good explanation(+1).  
> **username_10**: @MawgsaysreinstateMonica actually capitalism is not properly defined in economics so we do not use that word as it is next to useless (there are serious scholars calming USSR was capitalist economy so nowadays the word is next to meaningless) but assuming you mean by capitalism predominantly market and competition oriented system, you are right that competition should drive down prices but even in a model of perfect competition you would get a result that price has to be equal marginal cost, we can then ask a subsequent question why the prices on a market for equipment and labor market for  
> **username_10**: @MawgsaysreinstateMonica doctors or market for drugs which are costs of healthcare industry are so high, but that would require separate question (preferably for all of those categories as they are in themselves very broad subjects). However, this being said as mentioned in the last paragraph of my answer there are also non-competitive elements to healthcare market and this is definitely likely because firm do not have fully free entry. The issue is that depending on nature of competition you might need some minimum number of firms to drive price to its minimum possible value  
> **username_10**: @MawgsaysreinstateMonica for example, if a competition is structured as a Bertrand type competition, even 2 firms in a market are enough to have perfectly competitive price, if a competition is structured as Cournot competition you might need large amount of firms **or** threat of entry for competition to have minimum price possible (meaning price=marginal costs)  
> **username_10**: @username_26 if you want to discuss whether *healthcare* in US is capitalist or not please open a chat room that is neither subject of the question nor my answer, comments are not supposed to be used for off topic discussion.  
> **username_10**: @username_3 if you want to discuss whether *healthcare* in US is capitalist or not please open a chat room that is neither subject of the question nor my answer, comments are not supposed to be used for off topic discussion.  
> **username_3**: @username_10 Seems like the person who has made the most comments on the capitalist nature (or not) of the US healthcare system is you. I don't have any interest in discussing it beyond the passing mention I made of it. Would you like me to delete my comment?  
> **username_10**: @username_3 ? I do not mention capitalism at all except saying its poorly defined in economics. Your comment was musing about whether US healthcare is capitalist or not, you do not need to delete that single comment, but if you want to pursue that kind of debate please do not do that here, that is why I tagged both you and username_26, I am already moderator long enough to see when there are comments that will just likely spiral into off topic discussion, in my experience any time word capitalism is mentioned comments devolve into semantic off topic discussion  
> **username_3**: @username_10 If you insist. By the way, who is username_26? He doesn't seem to have made any comments on your answer.  
> **username_10**: @username_3 oh he must have deleted the comment  
> **username_3**: @username_10 Maybe if you want to discuss why you are concerned that my comment will lead to a discussion we should do so in a chat?  
> **username_10**: @username_3 okay since username_26 deleted his comment it makes less sense, but in your comment you use value laden and undefined word capitalism, username_26 in now deleted comment challenged your use of word capitalism in a way that would definitely spark a discussion, I wanted to get ahead of a situation before there are 100 comments of you arguing with username_26, but immediately after my comment username_26 deleted his comment, so I guess thats why you are now puzzled  
> **username_10**: @username_3 by the way since now after donFusili deleted his comment this is no longer relevant just let me know once you read this comment and I will prone the comments above as now it does not make sense anymore  
> **username_4**: #3 is due to the doctors cartel, officially known as the American Medical Association. They control the number of doctors who can graduate per year. They're also responsible for regulation where even a German doctor cannot just come and work in the US willy nilly without tons of paperwork. If you allowed Canadian, Australian and EU doctors to move into the US with zero paperwork and start working, plus allowed unlimited number of doctors to graduate, doctor salaries would quickly crash to reasonable levels.  
> **username_26**: @username_10 I deleted my comment because I wanted to avoid the discussion, you're right, it would have gotten off-topic immediately and I shouldn't have posted it to begin with.  
> **username_27**: This answer, to some extent, begs the question. It decomposes the costs, but why are the component costs as high as they are? Apparently they are lower in other countries.  
> **username_10**: @username_27, that is to an extent a valid point, however, that is too broad discussion for SE format. From economic perspective it is valid to answer that cost of a service, or good are high because if you look downstream costs of inputs are high, that of course begs the question of why the cost of inputs is high, but to cover that in a single SE answer is impossible. Explaining why medical wages in US itself are high would require its own SE Q and A<- if you are interested in that please do not shy away from asking it as a new Q. SE format is not well suited for book or full paper length answers  
> **username_10**: my option here was to either interpret the Q as being broad and asking for every explanation of price of every input in which case it would need to be closed as a too broad question for this site, or be generous to OP and assume the question is narrow of just why the healthcare costs are higher than elsewhere where answer, because costs of inputs in the US is higher than elsewhere is a valid answer, even if maybe not a satisfying one  
> **username_8**: One issue with regulation that people may not understand (including US citizens) is that there are differing regulations across all the states and territories of the US, and for different populations (Medicare/Medicaid).  
> **username_8**: What these kinds of answers don't explain is why the cost of healthcare rises so rapidly.  People often point to the administrative costs such as private insurance companies and while the overhead can be significant, it's not changing year over year.  Rising costs are driven by the cost of care and I don't see anything in these answers that addresses that.  You could cut all overhead but if the cost of care keeps rising faster than inflation, those savings will be erased over time.  
> **username_28**: Is there a factor that makes pharmaceutical/medical equipment costs higher (other than regulatory/administrative costs and labor costs)?  The other two points makes lots of sense to me as they are very US-specific, but pharmaceuticals can be made anywhere.  
> **username_10**: @username_28 there are many factors for that, again that would require its own post but in short it is because: 1. Very strong and long lasting patent laws 2. High costs of approving medicine for use in the US. For example following Forewood (2006) an cost of **just bringing** new drug to market from discovery to approval is **on average** 802 million dollars and most of this cost is spent on admin and approval process. 3. US is at a technological frontier when it comes to medicine and it relies on cutting edge pharmaceuticals even if there are older less powerful but still usable ones  
> **username_10**: @username_28 in fact one reason why insulin in US is so expensive it’s that in the US market you will mainly have newer improved but patented versions of insulin instead of cheap generic ones. 4. There are high barriers to entry. Again US could have generic insulin manufacturers for example, but barriers to set up pharma production firm are so high that people will do it only if rewards are sufficiently high and in the US consequently generics are not interesting.  
> **username_28**: @username_10 isn't that essentially "Regulatory costs", then?  Sure, developing drugs is expensive, but that is true everywhere.  The only US-specific factor I'm seeing is that generic drugs are not viable due to regulatory costs.  
> **username_10**: @username_28 well, it is not the same regulatory costs mentioned in the answer, but whole other regulatory costs. Also high barriers to entry are not necessarily caused *just* by regulation, but by high fixed costs etc  
> **username_8**: @username_28 One of the factors related to drug cost in the US is that there is/are federal laws preventing the government from using it's buying power to bargain for lower drug prices for e.g. Medicare.  

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### Answer by username_12 on 2021-06-21. Score: 33

In [Milton Friedman's view](https://www.forbes.com/2009/06/18/milton-friedman-medical-insurance-opinions-columnists-health-care.html), the cost of health care in the USA is high because consumers don't pay for it directly, and the people paying don't directly care whether it's a good value for the money spent. Consumers pay premiums driven by *average* costs but pay little of the *marginal* cost of their health care. Insurers don't care much about reducing costs because they can be passed on in the premiums. Consumers, who are already overpaying, don't have much incentive to make their *individual* usage more efficient, so costs continue to rise.

Other developed countries may share the feature that consumers don't pay for health care directly, but there is some more straightforward cost control in the form of single payer or other universal coverage. The centralized administrator has more negotiating power with providers, and can impose rationing on consumers; at the same time, there is political pressure not to raise premiums (which often take the form of taxes). So such an administrator is more likely to keep costs down.

> **Comments:**
> **username_13**: This does not address why there is a difference between the healthcare costs of the US and of other developed countries.  
> **username_3**: @username_13 In other developed countries, the people who pay for it directly **do** care whether it's a good value for the money spent.  
> **username_14**: @username_12:  In Germany, I don't "see" the true costs of any of the medical services.  I pay a 10€ fee for any prescription, no matter if the medicine itself costs 50€ or 500€ per package.  I have no idea what it costs the insurance company when I visit the doctor, nor do I care.  I 've had several examinations in the last year that had to be done under general anesthetic at the local hospital - I have no idea what those examinations cost, and I will never see a bill for them - the insurance takes care of that.  Despite this, the total cost per person in Germany is lower than in the US.  
> **username_3**: @username_14 The fact that you don't care what it costs the insurance company is one reason why costs are lower. In the German system, the insurance company has to pay the whole bill, and can't pass any costs on to the patient. This gives the insurance company a lot of motivation to fight for lower costs - which is not as true in the US. In the US system, the insurance companies have little motivation to compare costs.  
> **username_6**: In the UK, "health insurance" is entirely voluntary. The NHS is almost entirely funded from taxation, and any notional "profit" it makes simply accrues back to the government. And when negotiating with suppliers, the buyer of products and services is a single monopoly, not a fragmented set of consumers (operating under 50 different state regulatory systems, in the US!) who can be played off against each other by suppliers.  
> **username_15**: @username_3 I would not say that is completely accurate.  I recently had a policy where they would pay 90% for an independent laboratory to do bloodwork, but only 60% if you used a hospital laboratory.  My out of pocket went from \$100 to \$7, and their payment went from \$150 to \$63 by encouraging the independent lab using this technique.  They did the same for imaging/x-rays and other services.  
> **username_16**: This effect can be readily seen, by looking at the opposite scenario, that of healthcare that is not typically covered by insurance. For instance, LASIK surgery in the US has continually decreased in price, while the convenience and comfort provided to the customer has increased. This is because patients are paying with there own hard earned dollars and providers are competing for them.  
> **username_17**: @username_16 Not a convincing example because the price of laser equipment has plummeted due to technological advances. One would have to separate the underlying  cost reductions from the market-based effects before concluding anything about this example.  
> **username_8**: One thing that fits into this explanation that you don't mention is that people who get their insurance through their employer generally have only one choice for insurance.  Employer-sponsored insurance further separates costs and incentives.  
> **username_18**: @username_6 And half the government would very much like to decrease the cost of the NHS, I'm sure.  

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### Answer by username_19 on 2021-06-21. Score: 14

It may not explain the entire difference, but GDP isn't a very good way to compare the amount of income that residents of different countries might spend on healthcare for a [number of reasons](https://randomcriticalanalysis.com/2018/11/19/why-everything-you-know-about-healthcare-is-wrong-in-one-million-charts-a-response-to-noah-username_2/#rcatoc-on-material-living-conditions-and-its-role-in-health-spending). Usually this has to do with the structure of the economy, but GDP can also be distorted by [high trade deficits](https://en.wikipedia.org/wiki/Gross_domestic_product#Components_of_GDP_by_expenditure), the effects of [international tax avoidance](https://en.wikipedia.org/wiki/Modified_gross_national_income), or [specific political situations](https://carnegieendowment.org/chinafinancialmarkets/78138). With a [better-motivated x-axis](https://randomcriticalanalysis.com/2018/11/19/why-everything-you-know-about-healthcare-is-wrong-in-one-million-charts-a-response-to-noah-username_2/), the US looks less like an outlier:

[![Heath spending vs AIC](https://i.sstatic.net/mWXY9.png)](https://i.sstatic.net/mWXY9.png)

The idea is that AIC/c better predicts healthcare spending because it's a proxy for the total amount of (macroeconomic) income within the system available to spend on healthcare.

This isn't to say that American healthcare isn't expensive in an absolute sense—it's both a large fraction spending, and the most expensive in the world. So it's probably less useful to look just at factors that are unique to the American system and see it more as an extreme example of a global phenomenon.

> **Comments:**
> **username_20**: Continuing that curve off the right end of the chart, a country where the average annual consumption is about 110k USD is expected to spend 100% of its income on healthcare (going above 100% for >110k). We also see the reverse if you disaggregate the USA into income tiers: the poor spend *more* money on healthcare than the rich. So this is rather problematic for several reasons.  
> **username_21**: @username_19 : Many thanks for the link(s). What a treasure trove of information on an area full of misconceptions! I spent hours reading this, and will spend more time with it.  
> **username_22**: @username_20 Healthcare workers are highly educated professionals who nevertheless are very limited in how many patients they can treat each day. The US has the second highest wages for them, which has a fair contribution to health costs in the US - in most of the world, healthcare workers tend to be rather underpaid. Even then, when you look at the cost and quality of health services _not_ covered by insurance (i.e. paid for by the actual patient), the US is at the top - when the incentives aren't distorted, quality goes up and price goes down.  
> **username_19**: @username_20 Good point; I've clarified in the answer that it's about total (macroeconomic) income in the system rather than individual income. Different ways of distributing the costs to individuals then make the result more or less fair. The Swiss system is an extreme example where healthcare is ~$300/month for everyone, which is very fair to sick people and very unfair to poor people.  

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