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Why Are American Health Care Costs So High?

Good morning Hank, it's Tuesday. I want to talk today about why healthcare costs in the

United States are so phenomenally, fascinatingly expensive, but first I have to blow your mind:

Alright, so you've probably heard that the reason that people enjoy "free" healthcare

in Australia and the UK and Canada, etc, etc is that they pay higher taxes. That money

then goes into a big pot and is used to pay for people's healthcare, but in fact, in the

US, we spend more tax money per capita on healthcare than Germany, Australia, the UK,

or Canada.

That's right Hank: you pay more in taxes for healthcare than you would if you were British,

and in exchange for those taxes, you get no healthcare.

In fact, only about 28% of Americans get their health insurance through government funded

programs, mostly poor people, old people, and Congresspeople. But as you can see in

this graph our private healthcare spending (most Americans are privately insured through

their employers) is WAY higher than anywhere else in the world.

In total, the US currently spends about 18% of its gross domestic product on healthcare costs.

Australia by comparison? 9%.

Why is this? Well because everything costs more, which seems obvious, but apparently

isn't, because every article you read is like "Oh it's because of malpractice insurance"

or "it's because we're obese" or we go to the doctor too much or people are prescribed

too many medications. Well, not really.

It's because everything costs more. A hip replacement in Belgium costs $13,000. In the

US it's often over $100,000. Colonoscopies average over $1100 a piece in the US; in Switzerland

they're $655. And on average a month of the drug Lipitor will cost you $124 if you live

in the US. If you live in New Zealand? $7.

Now we are also—not to brag—richer than all of these countries, so it makes sense

that we should spend a little more on healthcare. But we don't spend a little more. We spend

a ton more. And vitally, we don't get anything for that money, which means we are essentially

paying people to dig holes and then fill those holes back up. Like we don't live longer—in

fact we're 33rd in life expectancy—and in everything from asthma to cancer, according

to one recent nonpartisan study, American healthcare outcomes are "not notably superior."

So why are we spending all of this money for nothing? Well first, let's discuss some of

the problems that are not actually problems.

For instance, the problem is not so-called "overutilization:" the idea that Americans

go to the doctor more and get more tests and spend more time in hospitals. We know this

because Americans actually go to the doctor less than Europeans and spend much less time

in hospitals, although to be fair, you can stay in a Dutch hospital for seven nights

for what it costs to stay in an American hospital for one night, so no wonder we're hesitant.

Also it is not because we're sicker than other people. Everyone likes to blame obesity on

our rising healthcare costs, but yeah, no. That argument is just not supported by data.

For one thing, disease prevalence does not affect healthcare costs that much. And for

another thing, while we do have more obesity in the United States, which sometimes leads

to health problems, we have fewer smokers and less alcohol consumption (really? Apparently

yes). So that saves us a little money, and if you compare us to like the British or the

French, in the end it's probably a wash.

Hank, the truth, as usual, is complex. Like, there are obvious inefficiencies in our healthcare

system. For instance, not everyone has insurance. If you don't have insurance, you still get

healthcare, but you're responsible for paying for that healthcare, which often you can't

do, so you end up going bankrupt. That sucks for you, obviously, because you're bankrupt,

but it also sucks for the rest of us because we have to pay not only for your care, but

also for all the money the hospital spent trying to get you to pay for your care. Also

the only options available to uninsured people are usually the most expensive options, like

emergency rooms, which is just BANANAS. But those inefficiencies are hard to measure. Fortunately,

there are things we can measure.

So like I said before, because the US is one of the richest countries in the world, you

would expect us to pay a little more for healthcare than most people. The question is, when do

we pay MORE than you would expect us to pay, and that turns out to be pretty interesting.

Let's start with malpractice and so-called "defensive medicine." The idea here is that

doctors are scared of huge malpractice suits so they order a lot of unnecessary tests

in order to, like, cover their butts. That does contribute to our healthcare costs, like

there are more MRI and CT scans in the US than anywhere else. However, there are a bunch

of states like Texas that have passed tort reform to limit malpractice suits, and in

those states healthcare costs have dropped by an average of a whopping 0.1%. The biggest

estimates for the total costs of defensive medicine put it at around 55 billion dollars, which

is a lot of money, but only 2% of our total healthcare costs.

Another smallish factor: doctors (and to a lesser extent, nurses) are paid more in the

US than they are in other countries, and by my possibly-faulty math we end up spending

about 75 billion dollars more than you would expect us to there.

And then we have the cost of insurance and administration costs, like paperwork and marketing

and negotiating prices. That's about 90 billion dollars more than you would expect us to spend.

We spend about $100 billion more than you would expect on drugs, not so much because

we take MORE of them, but because the ones we take cost more per pill.

Okay, and now for the big one. I'm gonna lump inpatient and outpatient care together, because

in the US we do a lot of things as outpatient procedures, like gallbladder surgeries, that

are often inpatient procedures in other hospitals. We're just gonna make a big ball [gestures].

That big ball is $500 billion more than what you would expect given the size of our economy.

Per year.

Why? Because in the United States we do not negotiate as aggressively as other countries do with

healthcare providers and drug manufacturers and medical device makers. So like in the

UK the government goes out to all the people who make artificial hips and says "One of

you is going to get to make a crapton of fake hips for everybody who is covered by the NHS

here in the United Kingdom. But you better make sure your hips are safe, and you better

make sure that they are cheap, because otherwise we're going to give our business to a different

company." And then all the fake hip companies are motivated to offer really low prices because

it's a really huge contract. Like think if your company got to put hips inside of

everyone in England and Scotland and Wales and Northern Ireland (I guess not everyone.

Just the people who need hips).

But in the US we don't have any of that centralized negotiation, so we don't have as much leverage.

The only big exception is Medicare, the government-funded healthcare for old people, which, not coincidentally,

always gets the lowest prices.

So basically, Hank, in the United States, providers charge whatever they think they

can get away with, and they can get away with a lot, because it's really difficult to put

a price on, like, not dying. This is a phenomenon called "inelastic demand," like if you tell

me that this drug will save my life costs $7 a month, I will pay you $7 a month for

it. If you tell me that it costs $124 a month, I will find a way to find $124 a month to

pay for it. You can't negotiate effectively on your own behalf for healthcare services

because you NEED them. And not like you need a Macbook Air or the new season of Sherlock,

but actual, physical need (I guess it is like the new season of Sherlock).

So basically, Hank, until and unless we can negotiate as effectively with the people providing

healthcare as Australians and British people do, US healthcare costs will continue to rise

faster than anywhere else in the world and we WON'T get better healthcare outcomes.

Hank, I know this video is long, although it could have been much longer, but I am so

tired of people offering up simple explanations for what's wrong with our healthcare system.

They say "Oh, it's malpractice," or "it's doctors who must also be businesspeople" or

"it's insurance companies" or "it's insane rules for who can GET insurance." It's drug

companies, it's government bureaucracy, it's an inability to negotiate prices. Yes, yes,

yes, yes, and YES! It is all of those things and more! It is not a simple problem, there

will not be a simple solution, but it is probably the biggest single drag on the American economy

and it's vital that we grapple with it meaningfully instead of just treating healthcare costs

as political theatre.

So I hope I've at least introduced the complexity of the problem. I've put some thoroughly nonpartisan

links in the doobly-doo for further reading. Hank, welcome back to the United States. As

you can see, everything is peachy here. I'll see you on Friday.

Friendly reminder, educational videos are allowed to be more than four minutes long. All of the people who are commenting about how

punished I am did not watch to the end of the video. I feel dizzy.