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U.S. Healthcare Costs and Spending

Updated: Mar 25

The U.S. healthcare system is the most expensive in the world. According to a study conducted in 2018, the U.S. spent 16.9% of its GDP on healthcare services, nearly twice as much as any other average in an OECD country. 


The health services delivery system in the U.S. is loosely structured and highly fragmented. Inadequate health planning at the federal and state levels allows physicians to operate practices at will and permits the functioning of hospitals dictated by the market for health services. 


Certain federal and state-funded programs provide primary care services to areas where private providers are absent. A majority of hospitals are owned by private, not-for-profit organizations; the rest are owned by the government and other for-profit organizations.


The high costs and spending of the U.S. healthcare system are driven by a mixed structure of payers ranging from public, which includes the federal, state and local governments, to private insurance payers and payments made by individuals. 

The absence of a universal healthcare coverage system results in the average U.S. citizen spending around $1,122 out-of-pocket per year, including co-payments for visits to doctors’ offices, prescription medication and deductibles for health insurance. Private insurance is provided by employers to employees and their dependents, whereas government programs cater mainly to the older, disabled and, to an extent, poor populations.


Despite spending a significant portion of the economy on healthcare, the U.S. healthcare system has some of the worst health outcomes in the world, such as low life expectancy rates, high rates of chronic illness and obesity. The misaligned profit motivations among different stakeholders are the central challenge in the system, driving the overall cost up. However, policy actions focusing on access, affordability and equity can help reform the current system.


There are many proposals aimed at restructuring our healthcare system. One relatively nonpartisan approach is featured in ONC's book, Let's Fix America. I don't have space to get into all the particulars of that proposal or other ones. But obviously, what we're doing now isn't working. The first step towards a solution is acknowledging the problem and analyzing its causes. 


Sources


Branning, Gary, and Martha Vater. “Healthcare Spending: Plenty of Blame to Go Around.” American Health & Drug Benefits, Engage Healthcare Communications, LLC, Nov. 2016, www.ncbi.nlm.nih.gov/pmc/articles/PMC5394555/


Lew, Nancy De, et al. “A Layman's Guide to the U.S. Health Care System .” National Library of Medicine, 1992, www.ncbi.nlm.nih.gov/pmc/articles/PMC4193322/


Shrank, William H., et al. “Health Costs and Financing: Challenges and Strategies for a New Administration: Health Affairs Journal.” Health Affairs, 21 Jan. 2021, www.healthaffairs.org/doi/10.1377/hlthaff.2020.01560


Tikkanen, Roosa, and Melinda K Abrams. “U.S. Health Care from a Global Perspective, 2019: Higher Spending, Worse Outcomes?” U.S. Health Care from a Global Perspective, 2019 | Commonwealth Fund, 30 Jan. 2020, www.commonwealthfund.org/publications/issue-briefs/2020/jan/us-health-care-global-perspective-2019.

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