Americans spend a massive amount on healthcare, exceeding any other country, and the growth rate of costs has almost outpaced all indicators of the US economy.
The total national expenditure on healthcare in the United States, which includes costs paid through public and private means, has surpassed the growth rates of inflation, household income, Gross Domestic Product (GDP), population, and even the rise in housing prices in recent decades.
By 2023, Americans’ total expenditure on healthcare reached $4.9 trillion, which is six times the defense spending. No other country’s healthcare expenditure reaches such high levels. In terms of GDP share, the US spends one-third more than Germany and France and more than double that of China.
However, according to key healthcare indices, Americans are not healthier than people in similar countries and do not live as long as their counterparts.
Jackson Hammond, a senior policy analyst at the Paragon Health Institute in New York, told The Epoch Times, “We are wealthy, but we are not healthy.”
The complexity of the US healthcare system is a significant reason for the rising healthcare costs. Experts believe the primary reason is the deteriorating health conditions of the population.
This article will provide an overview of US healthcare expenditure, analyze the reasons for high healthcare costs, and introduce a reform proposed by experts that is believed to reduce costs.
In 2023, the average out-of-pocket healthcare expenditure per person in the US was $1,500, amounting to $6,000 for a family of four. However, this is just the tip of the iceberg. The actual total expenditure is ten times this figure: $14,570 per person, and over $58,000 for a family of four.
Part of the funding comes from employer-sponsored full or partial payment of employee health insurance premiums and other third-party payments. However, the majority of the funds come from taxpayers. In the US, federal, state, and local governments contribute more than half of healthcare expenditures.
In the 2023 fiscal year, the federal government’s expenditure on healthcare exceeded $1.8 trillion, with a budget deficit of $1.7 trillion in the same year.
Most healthcare expenses (51%) are spent on payments to hospitals and outpatient service providers such as physicians and laboratories. Prescription drug costs account for approximately 9%.
At the same time, healthcare expenditure is rapidly increasing. In the 2023 fiscal year, out-of-pocket healthcare costs rose by 7.2%. Hospital service costs increased by over 10%, and prescription drug costs increased by 12%.
The aging population in the United States is more significant than 30 years ago, with more severe health issues, driving the growth of healthcare costs.
Orriel Richardson, the executive director of Morgan Health in New York, informed The Epoch Times, “A considerable proportion of the US population suffers from chronic diseases.”
Richardson stated that the costs of treating chronic diseases are very high because the number of patient visits to healthcare facilities, prescriptions, and other necessary treatments continually increases, often requiring lifelong care.
Reyn Archer, a former office director for a congressman and a medical doctor, stated, “Many diseases are caused or exacerbated by lifestyle factors developed from a young age.”
Archer told The Epoch Times, “We found cases of chronic diseases spreading among 10 to 12-year-old children.”
“In 1991, we found a case of a child in Texas with type 2 diabetes among the first group of affected children in the US,” Archer said.
“In some areas today, up to 70% of new diabetes cases are type 2 diabetes, often caused by obesity.”
According to data released by the Peterson-KFF Health System Tracker in the US, the number of deaths from diabetes and chronic liver, kidney, and respiratory diseases ranks highest among developed countries.
Simultaneously, the US population is also experiencing an aging trend. In 1960, the median age of Americans was 29, with only 9% of the population aged 65 and over. By 2023, the median age had risen to 39, with 18% of Americans aged 65 and over.
New therapies increase healthcare costs because their initial prices are very high when first adopted and become widely used.
Archer illustrated this phenomenon with joint replacement surgery. “Because we are very skilled at the mechanical principles of this work, we make it ubiquitous,” he said.
Previously, patients undergoing joint replacement surgery required hospitalization. In 2015, Medicare paid up to $33,000 for such procedures, with costs varying based on the treatment location and other factors. Around one million joint replacement surgeries were performed in the US that year.
Now, these surgeries are often done on an outpatient basis. The cost Medicare pays for outpatient knee replacement surgery is less than $10,000. However, the number of people undergoing joint replacements is growing every year.
Richardson also believes that newly developed drugs are driving overall healthcare costs upward.
“Cell and gene therapy technologies provide us with many personalized high-tech solutions that could be truly effective,” she said, “but you have to foot the bill.”
These new drugs include Ozempic and Rybelsus for type 2 diabetes treatment and Wegovy for weight loss, which are approved in the US.
As of March 2024, Wegovy was priced at $1,349 for a monthly dose. Federal payments for Semaglutide class drugs, such as Ozempic, increased from $57 million in 2018 to $5.7 billion in 2022, a tenfold rise within five years.
According to the National Institutes of Health, over 11% of American adults have diabetes, over a third are obese, and approximately 17% of American children are obese.
Given the complexity of the US healthcare system, any minor adjustment, no matter how well-intentioned, could lead to unexpected outcomes. In this regard, experts often cite the Medical Loss Ratio (MLR) as an example.
The MLR is a requirement in the Affordable Care Act aimed at limiting insurance companies’ profits. It mandates the proportion of premiums insurance companies can retain for administrative costs and the percentage that must be spent on medical services.
For large group insurance plans, insurance companies must allocate 85% of premiums received to healthcare service providers or refund it to policyholders.
Hammond told The Epoch Times, “Because the law mandates the Medical Loss Ratio, one of the few ways for insurance companies to make higher profits is to spend more on healthcare, inevitably raising insurance costs.”
The Affordable Care Act was fully implemented in 2014. From 2018 to 2023, average annual premiums for American families increased by 22%, a 47% rise compared to 2013.
Private health insurance in the US is increasingly concentrated among fewer, larger insurance companies and healthcare service providers. By 2023, the top six largest health insurance companies accounted for nearly 30% of total US healthcare expenditure. In 2011, this figure was only 10%.
John Dicken, the healthcare director at the Government Accountability Office, stated in an article titled “Health Insurance Costs Are Increasing As Markets Become More Concentrated with Fewer Insurance Companies” published on December 5, 2024, “This situation may lead to rising insurance costs, fewer affordable healthcare services, and consequently reduced consumer choices.”
In addition to private insurance, many insurance companies are involved in Medicare Advantage and Medicaid programs. Therefore, understanding the flow of funds and improving the healthcare insurance system might be more challenging for lawmakers.
Richardson stated, “If the federal Medicare program cuts certain items, insurance companies will shift those costs to their commercial market and charge higher fees, sustaining their businesses.”
Recently, even basic supply and demand issues have contributed to cost increases. “Our workforce shortages have led healthcare service providers to charge higher fees accordingly,” she said.
Experts suggest that the simplest way for Americans to reduce healthcare expenses is to make themselves healthier.
Richardson believes that increasing the number of frontline professionals, including doctors, nurse practitioners, and physician assistants, is a good start.
“We need primary care outpatient doctors to identify these patients before they develop more severe illnesses,” Richardson said, “for example, screening more people for diabetes can prevent those at risk from developing the disease, saving thousands of dollars over a lifetime.”
Archer stressed, “It is essential to ‘go to the source’ and work closely with the community to create new incentives in the healthcare system.”
He stated that this approach means starting “from daily basics, helping people gradually reshape their lifestyles.”
“We need to reshape how people work with doctors and change the public perception of diet—precisely, every aspect of people’s lives must be adjusted,” he added.
Others, including Republican Representative Chip Roy from Texas, advocate for legislative reforms that give Americans greater control over their healthcare expenditures, including expanding the use of Health Savings Accounts (HSA).
Healthcare expenditure is “one of the most complex equations you can imagine,” concluded Archer.