The Cost of American Healthcare

UPDATE: The real answer is refined sugars and high fructose corn syrup. The following is merely rhetoric.

In 2016, American healthcare spending amounted to over $3.3 trillion, representing roughly 17% of our country’s gross domestic product. Per capita, Americans spend roughly double for healthcare than citizens of other developed nations, and while the reasons are plenty, their complexity (or perhaps simplicity) restricts understanding by most. Inspired by recent personal involvement with the American healthcare industry, I set out to find out why Americans spend so much on healthcare. After looking into the subject, I find that better questions are: “When Americans pay for healthcare, what are they actually paying for?” and “How much of that money is actually related to their health?” What I’ve found in my search is that there are many reasons for the high cost of healthcare in this country, and that perhaps much of the money spent misses the point of it all, which is the health of the people. In this report, I’ll compile and analyze the reasons experts share in four separate news articles about the causes of our high-cost healthcare system.

Going into this project, all I really knew was that our healthcare system was expensive, but that the mainstream discourse seemed to overlook or omit some of the more obvious potential causes. Through this research I’ve found that those reasons once overlooked are being scrutinized by the public more now than when I last looked into the problem. It appears people are beginning to understand what happens when the Hippocratic Oath meets the fierce competition of market capitalism, which I believe underscores the fundamental problems related to this issue, as well as others. I’ll briefly examine the reasons experts give for the rising cost of healthcare and attempt to determine which of those costs are actually serving to preserve and increase the health of the nation, and which are perhaps not. One of the factors related to healthcare costs that I believed was often and potentially intentionally understated is the fact that hospitals, the pharmaceutical and medical products industries, and even the insurance industry spend massive amounts of money on marketing campaigns every year to entice consumers to buy their products. Once, in another life, I learned that businesses like to factor in their overhead expenses when deciding on price points for their products, but it seems to me that American consumers either believe that these companies swallow these expenses, never passing them off to the consumer, or that the fact is to be ignored because advertising is just the cost of doing business. The latter, I believe, is the reason why the issue is overlooked by the media, as they are fundamentally connected to the advertising industry, and wouldn’t want to damage their credibility and their sponsors’ desire to remain such.

I found my first source rather deliberately, I simply typed into a Google search bar, “why are American health care costs so high,” and chose wisely from the first three hits, per the new standard. I chose an interview of Harvard economist David Cutler conducted by a PBS staff writer. Cutler broke healthcare costs down to three main reasons: providers charge Americans more than they charge citizens of other countries, Americans elect to undergo more procedures than citizens of other countries, and finally, administrative costs. The administrative costs reasons I can get behind, but the other two reasons are only derived by way of comparison to what people pay in other countries, which in my estimation can’t get to the root of why American healthcare costs are as high as they are. Cutler makes the point that administrative costs comprise 25% of our total burden, which seems astronomical, but the other two reasons only compare costs, they don’t explain them. If companies charge Americans more than Canadians, why do they do so? Is it because Americans simply have more money and the market should bear that fact? The answer is yes, they charge Americans more because Americans are willing to pay more, so if this is a legitimate reason, then I guess the American would only have the American to blame for it. The idea that Americans opt for more procedures, and therefore more money is spent seems like a red herring to me in that it describes more of a cost average comparison based on the total number of procedures compared to the number performed elsewhere. It doesn’t answer the question why an American would be charged more for the same procedure. If the demand for procedures was greater, then presumably the cost per procedure would decrease if free market economics were at play. So for this source, I’m willing to accept expenses on administration as a legitimate reason for our rising health care costs, but as for the other two, I believe they miss the point. 

The amount of money that healthcare related industries spend on marketing has doubled over the last two decades, from about $17 billion to $29 billion. My second source, a piece authored by Shefali Luthra of Kaiser Health News, addresses the healthcare industry’s advertising culture and interviews several professionals on the topic. With regard to advertising expense, Dr. Yael Schenker, professor of medicine at the University of Pittsburgh suggests that advertising dollars spent on healthcare do not carry the same benefits to the consumer that would advertisements for other consumer goods. Dr. Shenker states that advertising serves to educate the consumer, allowing them to make informed choices when deciding to purchase, however ads for pharmaceuticals and hospitals carry little information content on which to base the decision to consume, and physicians must be consulted prior to making decisions anyway. Dr. Schenker points out that advertising is also used by hospitals to increase their perceived ‘prestige’ for use as leverage when bargaining with insurance companies – not to save the consumer money, but to justify increased insurance payouts when certain prestigious ‘specialty’ procedures are performed. So from this source one may conclude that the effect of an advertising dollar spent on healthcare is of dubious value, or of value to the healthcare provider, not necessarily the patient. I think now is another good time to point out that all of this money spent on these questionable practices comes from the patient, either directly or from the patient’s insurance provider. Either way, the cost of these things is eventually passed to the consumer, either directly or through the insurance premiums they pay. Only secondary to the useful information in this source is the idea that it’s title presents, which is the actual marketing tactics employed to get consumer’s attention, namely visions of doom and hope, obvious Bernaysian plays to emotion. As important as the poorly presented idea is, it is not the subject of my focus.

Continuing with my look into medical marketing, I ran across a Reuters article based on a research paper entitled “Medical Marketing in the United States, 1997-2016.” As the JAMA journal entry was based purely on data regarding expenditures, I was pleased to find the paper’s authors interviewed by Reuters staffer Lisa Rapaport in the article, lending me the insight into their conclusions from the study. Focusing solely on ‘direct-to-consumer’ advertising, the study shows that medical industry advertising expenditure has doubled in the last two decades, but in neither the article nor the research paper does it suggest the financial ramifications to the consumer. Importantly, the authors of the paper point out that their study did not include figures related to sales and ad force salaries, marketing research, governmental lobbying efforts, or what are know as ‘detailing expenses,’ which would include per diems, entertaining clients, and other minor logistical expenses which tend to add up. Similar to my second source, paper co-author Meredith Rosenthal points out that medical advertising might have the detrimental effect of encouraging “consumers to get services they don’t need,” adding to the expense, but also refers to the positive effect advertising can have to “de-stigmatize conditions and … encourage people to seek care.”  

After most of this, I’m going to conclude that of the average American patient’s healthcare bill, only about fifty to thirty percent of it is actually related to healthcare. The rest is tied up in administration, advertising, lobbying, and creating the appearances necessary to better gouge insurance companies for ‘specialty’ procedures. To me, the solution looks like a consumer-led boycott. Petitioning the government is probably the slowest and most ineffective way to create change in this arena, considering that the government has been worked with money from these corporate entities to act in their favor over a span of decades. Streamlining costs in administration and marketing at this point would result in massive layoffs, sending literally hundreds of thousands of paper pushers to the breadlines, and negatively affecting overall economy as a result. Unfortunately, the healthcare system we have is the only option available short of temporary expatriation to undergo procedures in other countries, an option which some Americans do choose to exercise. What this means for the rest of Americans is that they will simply have to continue to pay the high price as boycott is only effective as a deliberate, concerted effort, and that type of sacrifice for the greater good necessarily means many would have to endure personal risk to support the cause. I don’t think Americans are ready to sacrifice for the greater good yet – the paychecks are flowing, as is the water and electricity. On the upside, I think it would only take a tiny bit of inconvenience and hardship to make America turn an issue like this around, but if it comes to that, healthcare would likely be one of the least of issues that would need confronted.

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