[Ed. Note: The views expressed within this article do not reflect the opinions of Ringle or Ringle Content.]
The United States is one of the richest and most powerful countries in the world. Ironically, its health care became a cautionary tale of market failure and administrative monstrosity. Of course, it is not uncommon to complain about any system, ignoring the goods that come with it. As the American economist Tsung-Mei Cheng solemnly stated, “No matter how good the health care in a particular country, people will complain about it.” Despite the supposed cutting edge-technology that comes with the American system, the overall outcome seems to be unimpressive, especially given the amount of money spent on health care.
The US burns through [1] more than 17% of its GDP on health care, more than any other country. Japan, a country with the oldest population in the world that visits the doctor most frequently (14 average office visits per year) spends $3,400 per person on health care. The US, with 5 annual visits per person, burns through $7,400 per person. According to joint research by Harvard Medical School and Harvard Law School, medical bills annually drive 700,000 Americans to bankruptcy.
However, in 2020, when a Harvard Medical School professor developed a formula to assess the fairness and quality of national health care, the US ranked 37, just behind Dominica and Costa Rica, and just ahead of Slovenia and Cuba. Americans receive only about 50-75% of the recommended care that they need. According to the Healthcare Handbook, more than a quarter of Americans encounter difficulty in accessing the health care system.
US health care in a nutshell
For those employed full-time and under 65, both providers and payers of health care are private. Doctors and hospitals operate privately; The worker and the employer share the premiums for the insurance policy [2] provided by a for-profit insurance company.
For military personnel, veterans, and Native Americans, health care is completely nationalized. Doctors in the Pentagon’s TriStar system are government employees working in government-owned facilities. Americans in this system never receive medical bills. The Indian Health Service also provides free service via government clinics.
For those over sixty-five, the providers are private but the payers are public. Senior citizens are covered by Medicare, a nationalized health insurance scheme with near-universal participation. People with end-stage renal disease are also covered by Medicare regardless of their age.
For those who do not fit into the above categories; 45 million Americans are uninsured, facing stratospherically steep medical bills. These people can access health care only when they have the money to pay the bill out of pocket, access charity clinics, or by visiting an emergency room which tends to result in even higher costs.
What is causing the inefficiency?
Some point out that US doctors have a higher salary than their counterparts abroad, but research suggests that reducing the money that flows into the pocket of health care providers would be only marginally helpful, if at all.
One issue in the US healthcare system is that private insurance companies are for-profit: primarily focused on maximizing return on investment. Profit maximization is not problematic in and of itself [3]. However, this motive incentivizes actions that hamper the efficiency of health care. For example, American insurance companies burn through 20% percent of their premium income on administrative expenses. Compare this to the administrative costs of Britain’s National Health Service: 5%. Ironically, Britain's health care system is nationalized (both the providers and payers are public), contrasting our intuition that public systems are always less efficient than private ones.
These high levels of administrative costs are a product of the medical “loss” ratio (the proportion of premium income spent on medical bills) these companies have to maintain at a certain level. If the loss ratio gets higher than 80%, their stock plummets. Thus, insurance companies that are for-profit are on the lookout for opportunities to reduce their loss ratio, spending more money on marketing, creating a plethora of complicated insurance policies, and cherry picking [4] customers.
Conclusion
There are many goods in the American health care system. Compared to Britain where healthcare is completely nationalized, patients don’t have to wait for months to see a doctor or get treatment. Moreover, many university affiliated hospitals are world leaders with regards to research and development.
Yet, when data points to an existing problem, we should start discussing potential solutions. Criticism on for-profit insurance companies doesn’t have to be taken as a whole-sale blow against the free market. Research in behavioral economics indicates that a perfect free market, without any intervention or regulation, leads to market failure because of our warped cognition and irrationalities — because we are human.
More importantly, other equally important issues were not introduced in this essay, for the sake of brevity. Experts often point to the lack of a centralized database to manage patient information to explain the inefficiency in the health care system. That said, this essay was written to explore a topic that many are vaguely aware of but don’t have the language to articulate. What can be done about the healthcare system? Compared to health care systems in other countries, how does the US system reflect?