Why does our health care cost so much?

Ezra Klein:

Why an MRI costs $1,080 in America and $280 in France

There is a simple reason health care in the United States costs more than it does anywhere else: The prices are higher.

That may sound obvious. But it is, in fact, key to understanding one of the most pressing problems facing our economy. In 2009, Americans spent $7,960 per person on health care. Our neighbors in Canada spent $4,808. The Germans spent $4,218. The French, $3,978. If we had the per-person costs of any of those countries, America’s deficits would vanish. Workers would have much more money in their pockets. Our economy would grow more quickly, as our exports would be more competitive.

There are many possible explanations for why Americans pay so much more. It could be that we’re sicker. Or that we go to the doctor more frequently. But health researchers have largely discarded these theories. As Gerard Anderson, Uwe Reinhardt, Peter Hussey and Varduhi Petrosyan put it in the title of their influential 2003 study on international health-care costs, “it’s the prices, stupid.”

As it’s difficult to get good data on prices, that paper blamed prices largely by eliminating the other possible culprits. They authors considered, for instance, the idea that Americans were simply using more health-care services, but on close inspection, found that Americans don’t see the doctor more often or stay longer in the hospital than residents of other countries. Quite the opposite, actually. We spend less time in the hospital than Germans and see the doctor less often than the Canadians.

“The United States spends more on health care than any of the other OECD countries spend, without providing more services than the other countries do,” they concluded. “This suggests that the difference in spending is mostly attributable to higher prices of goods and services.”

Ezra is a Village Idiot so he can’t tell you the truth. As Bob Somerby can tell you any informative discussion about health care costs is absolutely taboo among the professional media. That’s what makes this article so amazing.

But it isn’t nearly enough. There are major gaps in the information.

Here’s one example:

The result is that, unlike in other countries, sellers of health-care services in America have considerable power to set prices, and so they set them quite high. Two of the five most profitable industries in the United States — the pharmaceuticals industry and the medical device industry — sell health care. With margins of almost 20 percent, they beat out even the financial sector for sheer profitability.

The players sitting across the table from them — the health insurers — are not so profitable. In 2009, their profit margins were a mere 2.2 percent. That’s a signal that the sellers have the upper hand over the buyers.

According to at least one source with first-hand knowledge, Big Pharma is laying off everyone except the suits. But merely telling us what a company’s profit margin is doesn’t tell us why it’s that way or how much in actual dollars we’re talking about.

Here’s another:

“There is so much inefficiency in our system, that there’s a lot of low-hanging fruit we can deal with before we get into regulating people’s prices.” says Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University. “Maybe, after we’ve cut waste for 10 years, we’ll be ready to have a discussion over prices.”

Why can’t we do both simultaneously?

Ezra gives us a glimpse behind the curtain, but what we need is comprehensive data we can trust. We know how much we spend, but exactly where does it go?

For every dollar we spend on health care insurance, how much goes to pay for health care? I’ve seen estimates that 30% of each dollar stays with the insurance companies. How much of the money they keep goes to administrative costs, executive salaries, commissions, bonuses, lawyers, etc?

For every dollar that goes to pay for health care, how much goes to pay doctors, nurses, administrative staff, office costs, equipment, tests, malpractice insurance, lawyers, etc?

How do we make informed choices if we don’t have all the information?

We can’t. Which is pretty much the point of keeping us in the dark.

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14 Responses to Why does our health care cost so much?

  1. votermom says:

    Healthcare payments feels a lot like blackmail (regular and emotional) and extortion at this point.
    On the one hand money (or debt), on the other hand life or death. Pay up.

    • Jadzia says:

      No kidding. Talk about a CAPTIVE market! (And even more so once the new health care law is implemented.)

      As all of you probably know, health care and higher education — more specifically, the utter unaffordability of both — were the reasons that we left the U.S. So far I am really happy with the health care we have gotten here; the major differences from a patient’s POV are that the doc offices/hospitals are WAY less “nice” here (our doctor’s office is all but falling down) and there are clearly far fewer administrators (some docs, including ours, don’t even have a receptionist to make appointments–you call and talk to the doc directly). I had Amelia in a hospital that looked like it hadn’t been updated since the 1950s at least, and had a roommate the whole time I was there. Which was OK with me. In terms of the actual care, it’s been pretty much the same as we had in the U.S.

      • votermom says:

        As all of you probably know, health care and higher education — more specifically, the utter unaffordability of both — were the reasons that we left the U.S.

        Yup, they are both a scam. We are the marks.

        • Jadzia says:

          Seriously. My oldest son is still in the States. He is wonderful, has a kind heart, is an amazing son and brother, and is not very academically oriented. He is the classic example of a kid who would have done very well back when we still had vo-tech and kids could learn a skill while they were still in school. I am extremely worried about his future prospects because the “other side of the family” (so to speak) is definitely pushing him towards the 4-year-college plan. I know I’m gonna end up on the hook for half of 6 years of that tuition, and when I see what kind of prospects non-math/science majors have coming out of college these days, it is really scary. But there’s this whole classist thing about community colleges and practical job training, and I am not going to win that battle.

        • HELENK says:

          there is a 4 year school called the Williamson School. It is a trade school. I know kids that have gone there and went on to make a good living.


        • Jadzia says:

          Wow, I never knew that school existed; thanks.

  2. yttik says:

    “In 2009, Americans spent $7,960 per person on health care”

    Of course, some people spent nothing on healthcare while others got hit by a bus and spent over a million. So a statistic like this doesn’t really give us an accurate picture. That 7960 is not equally distributed.

    I know why private practice doctors charge what they do. They have to cover the cost of malpractice insurance and also the office staff required to process all the insurance billing. My doctor stopped delivering babies because he found he couldn’t afford the malpractice insurance which in my state has risen to approx 200 grand. Our eye doctor discovered that if he took cash paying clients that didn’t require all the insurance billing, he could provide his service 30% cheaper, something he’s not going to be allowed to do anymore under Obamacare.

  3. votermom says:

    MyIq, I shedyuled a post.

  4. votermom says:

    Surprisingly on topic:


    At BuzzFeed, Andrew Kaczynski breaks the news that, in a 2009 op-ed for USAToday, Mitt Romney encouraged President Obama that he’d be well-served by adopting elements of the Massachusetts Romneycare plan, particularly the individual mandate. [Hat tip, Erick Erickson at Red State.]

    We are so skarood.

    • myiq2xu says:

      I support the general idea of a mandate – but not this one.

      I want single payer – Medicare For All. Premiums should be progressive (based on income) with a cap. 95% of the premiums should go directly to pay for healthcare, not administrative overhead.

      • votermom says:

        That’s what I wanted too, until I saw how full of thieves the govt & congress is. Now I’m at a “WTH get your paws off our tax money, you crooks!” stage.
        I think 8 yrs of Pres. Clinton got a lot of voters to trust govt, but that’s all been thrown away by W & B0.

        Edit: Hillary’s version was sensible — uninsured people get enrolled into the default govt plan at point of contact with the ER. Obama’s version – too poor to get insured, then pay a fine and be uninsured anyway, is a sick sick joke.

        • Jadzia says:

          That’s exactly where I ended up! Leaving me in the paradoxical position of probably voting Socialist (once I have my citizenship) here, but if I was voting in the US (which I can do but probably won’t) I would be much further to the right on fiscal matters. SOLELY because of the corruption/lobbyist/corporatocracy issue.

        • Three Wickets says:

          That’s where I may or may not be, still working it thru my head. Being further to the right on fiscal matters does mean reducing support for social security and/or medicare which are currently more than half the federal budget and growing…especially if we extend all Bush tax cuts at the end of this year, which it looks like we’ll be doing.

    • foxyladi14 says:


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