Why do Americans pay more for health care?

The United States spends significantly more on health care compared to other countries, but does not achieve better health outcomes. Additionally, rising healthcare spending is a major reason behind America’s unsustainable public debt, and high healthcare costs are also making it more difficult to respond to public health crises like the COVID-19 pandemic. Below we take a look at rising health care costs in the United States, what is driving this rapid growth, and why it matters to public health and our budgetary prospects.

How much does the United States spend on healthcare?

The United States has one of the highest healthcare costs in the world. In 2021, US healthcare spending reached $4.3 trillion, averaging about $12,900 per person. In comparison, average healthcare costs per person in other affluent countries are about half as high. While the COVID-19 pandemic has exacerbated the trend of rising health care costs, such spending was increasing well before COVID-19 began. Relative to the size of the economy, healthcare costs have increased over the past few decades, from 5 percent of GDP in 1960 to 18 percent in 2021.

Why is healthcare spending rising in the United States?

In general, healthcare spending can be viewed as a function of price (dollars charged for healthcare services) and utilization (the amount of services consumed). There are several underlying factors that can increase price and usage, thereby increasing healthcare spending. The most notable of these factors are an aging population and healthcare prices.

An aging population

The proportion of the US population aged 65 and older has increased significantly in recent years, rising from 13 percent in 2010 to 16 percent in 2021. Additionally, that number is expected to continue to rise, and 20 percent by 2030 reached. As people age People over 65 spend more on health care, on average, than any other age group. The increase in the number of older Americans over time is expected to increase overall health care costs.

In addition, people who turn 65 are eligible for Medicare, and the number of participants in the program — 65 million in 2022 — is set to increase significantly. The rising number of enrollments is expected to significantly increase the cost of Medicare over time. In fact, the Congressional Budget Office projects that Medicare spending relative to the size of the economy will nearly double over the next 30 years — from 3.1 percent of GDP in 2023 to 5.5 percent in 2053.

The rising cost of healthcare services

Prices are another major driver of healthcare spending in the United States. The cost of healthcare services tends to increase faster than the cost of other goods and services in the economy. Over the past 20 years, the consumer price index (CPI) — the average change in prices urban consumers pay for various goods and services — has risen at an average rate of 2.5 percent per year, while the CPI for medical supplies has risen at an average rate of 3 .2 percent per year.

There are many possible reasons for the rise in healthcare prices:

  • The introduction of new, innovative health technologies can lead to better and more expensive procedures and products.
  • The complexity of the US healthcare system can create administrative waste in providers’ insurance and payment systems.
  • Consolidation of hospitals can lead to a lack of competition or even a monopoly and give providers the opportunity to raise prices.

However, more research needs to be done to confirm the reasons healthcare costs are increasing so rapidly.

Why rising healthcare costs matter

It would be one thing if high health spending led to better health outcomes. However, this is not the case in the United States. The United States lags behind other countries in ranking general health metrics, despite spending more on such goods and services.

High healthcare costs put pressure on already tight budgetary positions and are one of the main reasons for the long-term structural imbalance between expenditure and revenue embedded in government budgets. Containing high healthcare costs is important to our country’s long-term financial and economic well-being. For ideas on how to solve some of these problems, see our solutions page and the Peterson Center on Healthcare.

Related: Infographic: US Health Spending

Photo Credit: Photo by Chip Somodevilla/Getty Images

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