10 Questions in the U.S. Health Care Cost Debate

Americans pay a whopping $3 trillion annually for health care. That's twice what people in the rest of the developed world pay. It's also the same amount as the United Kingdom's GDP -- and the U.K. has the world's fifth-largest economy [sources: Consumer Reports, CNN]. Why such a discrepancy?

Here's the most obvious reason: The numbers are higher because everything associated with health care just costs more in the U.S. — whether it's a hospital stay, X-ray or prescription drug. U.S. physicians earn a lot more money than their counterparts in the rest of the world, too. This is partly because they pay a lot for their education, while doctors in other countries are educated nearly free of charge — so they need to charge more to pay off those student loans.

American physicians also tend to order a lot of tests to ensure a correct diagnosis and avoid a malpractice lawsuit, which drives up the cost of care. Drug companies are free to charge whatever they wish for their pharmaceuticals and medical devices, so they do. In addition, the American health care system is much more complicated than the health care systems in other countries, as it's composed of innumerable private plans plus separate systems for seniors, veterans, Native Americans and others. This translates to high administrative costs; about 25 percent of that $3 trillion goes toward administration, again a much higher percentage than paid by other countries [sources: Thompson, Epstein, Consumer Reports].

There's no arguing that spending on health care has declined over the last decade. Is that because of the Affordable Care Act (ACA)? Experts say it's possible the act is responsible for some of America's lowered health care spending levels. But certainly not for all of it. Unfortunately, no one knows for sure [source: Kessler].

President Barack Obama signed the ACA into law on March 23, 2010. This act mandated that, with few exceptions, every American needed to purchase health insurance and the health insurance purchased had to include 10 essential benefits. Parts of the act were aimed at making health care more affordable and accessible. Two examples: Insurance companies have to prove any proposed premium increases of 10 percent or more are justified before the rates can take effect, and customers can't be turned away by insurers for pre-existing medical conditions [source: U.S. Department of Health & Human Services].

But while some of the new laws are clearly aimed at holding down prices, many aren't. (There's no cap on what hospitals can charge, for instance.) Which is why experts can't say for sure why spending levels are staying low long after the recession ended. The Henry J. Kaiser Family Foundation, for one, asserted that 77 percent of the decline in spending is due to changes in the broader economy, like lower inflation. And we don't know if the decline will last. The 3.2 percent increase in health care costs in 2015 was the lowest in 20 years, but the 2016 projection is 4.1 percent [source: Insurance Journal].

In 2015, more than half of Americans under 65 were covered by employer-sponsored health insurance. The price tag came to an average of $6,251 annually for single coverage and $17,545 per year for family coverage. But employers paid most of those costs; workers contributed an average of 18 percent (single) and 29 percent (family) of the premium [source: The Henry L. Kaiser Family Foundation].

In addition, more than 80 percent of covered workers first had to meet an annual deductible for single coverage before their plan would begin paying. The vast majority of workers also paid either a copayment for office visits or an average 18 or 19 percent coinsurance fee (primary versus specialty care). Additional fees were also assessed for surgeries, hospital care and drugs [source: The Henry L. Kaiser Family Foundation].

If those numbers seem high, be glad you're not unemployed. Since 1985, if you lose your job — and thus your employer-sponsored health insurance — you're eligible to continue group coverage for up to 18 or 36 months under COBRA (Consolidated Omnibus Budget Reconciliation Act). That's good news, yet COBRA is tremendously expensive, as you pay the entire cost of your insurance — the share you used to pay, plus the share your employer once covered. A single person who might have paid $83 a month for an employer-sponsored plan could now be paying $490, plus a 2 percent admin fee [source: Norris].

Under Obamacare, people paid an average of $389 per month in 2015 for medical insurance through the health care exchange, but were eligible for subsidies if they earned under 400 percent of the federal poverty level [source: Norris]. However, if they were in a state that did not expand Medicaid (and 19 states didn't), no subsidies were available. People in those states either would pay the full premium or go without insurance — and incur no penalty for not having it [source: Obamacare Facts].

People often lament the greedy pharmaceutical industry, and there's definitely a basis for their complaints, as pricey drugs are one of the main reasons Americans pay so much for health care. (Remember when drug company CEO Martin Shkreli raised an AIDS drug's price from $13.50 a pill to $750 overnight?) In most developed countries, the government negotiates with drugmakers to come up with fair prices. Not in the U.S. Only the Veterans Health Administration and Medicaid can negotiate drug prices — and their prices are the lowest in the nation. But everyone else is at the whim of drug companies, which charge whatever they want to, at least while any given drug remains under patent [sources: Epstein, Consumer Reports].

A quick example: Sovaldi (still under patent), is used to treat hepatitis C, a disease that affects mainly seniors, and costs $1,000 per pill. That's $85,000 to $150,000 for a course of treatment. When Congress created Medicare Part D in 2003 to offer drug coverage to Medicare recipients, it specifically said the federal government could not negotiate drug prices. Yet the Congressional Budget Office estimated the federal government could save $116 billion over 10 years if just low-income Medicare Part D recipients were allowed the same drug discounts as those given to Medicaid recipients [sources: Consumer Reports, Epstein]. Some say that because the U.S. has no cap on drug prices and most other nations do, the country is in effect subsidizing the global market for developing new drugs.

Many believe insurance companies and the pharmaceutical industry are the ones cashing in on all the money Americans spend on health care. But is this true? In 2008, before the Affordable Care Act was passed, health insurance companies' profit margins averaged a narrow 3.4 percent, ranking the 87th- most-profitable industry out of 215. Its ranking placed it a bit ahead of the median profitability of 2.2 percent. Beverages was the most profitable business back then; that industry had a 25.9 percent profit margin. Oil and gas also fared reasonably well, at 10.2 percent [source: Newman].

Looking at figures from 2013, with the Affordable Care Act in place, the top U.S. insurers reported slightly better profitability figures from those in 2008, though they had dropped a little from 2012: For instance, Aetna had a 4.3 percent profit margin (versus 5.13 percent the previous year) and UnitedHealth, 6.4 percent (down from 7.5 percent) [source: Mark Farrah Associates].

The drug companies are faring much better. In 2014, the top global pharmaceutical companies pulled in profits ranging from 24.2 percent (Merck & Co.) to a whopping 52.3 percent (Gilead Sciences), with most in the 25 to 35 percent range [source: Statistica]. Perhaps more chillingly, the world's 10 largest drug companies — six of which are based in the U.S. — control more than one-third of the global marketplace. Since very little government money is spent on developing new drugs, pharmaceutical companies tend to concentrate on drugs for the more lucrative markets, rather than ones for diseases more common in developing countries. Drug companies are also spending twice as much money on marketing as on research and development [source: World Health Organization].

Theoretically, yes, which is one of the reasons Obamacare requires people to be insured. The reasoning is, if you don't have health insurance, you'll be forced to go to a hospital emergency room (ER) if you're seriously ill or injured. Hospital ERs aren't cheap; they cost much more than a typical office visit to your physician. Plus hospitals are required to treat everyone, even if they can't pay. So if you are treated and the hospital picks up the tab, those costs may be spread around on everyone else's hospital bills.

Another reason for insuring as many people as possible is that this helps spread the risk. To keep costs in line, it helps to insure a lot of healthy people along with high-risk folks. Everyone pays in, but since the healthy folks won't use their insurance that often, the insurer will be able to pay the numerous and expensive claims of those with a lot of medical issues. But if health insurance is voluntary and a lot of healthy people opt out, that might leave insurers with mostly sickly, high-risk customers. If most customers are constantly submitting claims, that will drive up the cost to the insurer, who will likely pass those costs back onto the consumer [source: eHealth].

Some refute these assertions, noting that under mandatory insurance, health care costs will definitely rise for some people — those who currently don't have insurance or had a low-cost, high-deductible plan and now must purchase more to meet the mandate's minimum coverage requirement [source: Cannon]. Also there's evidence that there aren't enough primary care physicians to treat all the newly insured people. ER visits have actually increased since Obamacare took effect [source: Ungar and O'Donnell].

A lot. The majority of personal bankruptcies are due to medical bills, according to a 2013 study by NerdWallet Health. More than one in five people had difficulties paying their medical bills in 2013, while three out of five personal bankruptcies were due to medical bills [source: Lamontagne]. And these figures include those with health insurance along with the uninsured. All it takes is one major illness or injury to wreak havoc on your personal finances, even if you have a decent amount of savings and little or no debt.

A few sobering statistics: About 56 million Americans under age 65 have trouble paying their medical bills. More than 11 million Americans aged 19 to 64 will be forced to take on pricey credit card debt to pay their hospital bills. Some 10 million Americans aged 19 to 64 with year-round insurance still won't be able to pay their medical bills. And nearly 2 million Americans live in households that will declare bankruptcy due to medical bills [source: Lamontagne].

Clearly, this is a major problem. People generally can't help it if they incur staggering medical bills. Yet if someone files for bankruptcy, that's just the start of his problems. Filing for bankruptcy will, in turn, negatively affect a credit score for up to 10 years, result in much higher interest rates for credit, and make it more difficult to rent property. He may even lose out on job opportunities [source: Austin].

A single-payer system is when one entity — typically the federal government — is in charge of paying all medical bills out of a pool of money. Canada has a single-payer health care system; America's government-run Medicare is another example. In this model, everyone receives the same benefits, and all medical care providers receive the same pay. This is not the same as socialized medicine, where the government both owns and operates the health care system.

A single-payer system might lower costs. Proponents note that if everyone is insured, money should be saved since there will be fewer indigent people using expensive emergency-room treatment. Further, the government, as the sole medical-care purchaser, would be in a strong position to negotiate lower rates for pharmaceuticals, medical devices and the like. And rather than spending inordinate amounts of time and money working with innumerable insurance companies, medical providers would only have to deal with one, slashing their administrative costs [source: Sanghavi and Bleiberg].

One of the main negatives cited of the single-payer health care system is that the setup doesn't recognize or reward quality or value. There are often long waits for service. (Fifty-nine percent of Canadians wait four weeks or more to see a specialist. Just 20 percent of Americans wait that long [source: Kilff]). And, since providers are still paid on a fee-for-service basis, this setup could result in patient overuse, which could negate any potential savings. Finally, governments often clamp down on payments to providers to save money, which can result in less innovation and older technology [sources: Sanghavi and Bleiberg, Reinhardt].

With health care costs so high, it's hard to believe anything is keeping prices down. But some policies and practices have helped. Perhaps the most visible is restricting consumers' access to physicians and hospitals. This practice is most noticeable with managed care, or prepaid health plans. These plans are commonly known as HMOs (health maintenance organizations), although an HMO is just one model of a managed care plan [source: National Council on Disability].

Under the managed care model, the provider typically contracts with a single physician group to provide health services. If you elect to participate in a managed care program, your premiums are likely lower than those of non-managed care customers who can choose to see any physician they'd like. And if your locale has several managed care groups, meaning more competition, premiums can sink even lower [sources: Stanton, National Council on Disability].

Managed care, and HMOs in particular, are credited with tamping down some health care costs in the 1980s and early 1990s. In addition to limiting customers' choices, such plans also swapped out many hospital stays with care performed on an outpatient basis. And physicians who wanted to be part of the group had to agree to charge discounted rates [sources: Stanton, National Council on Disability].

But managed care doesn't always equate to lower costs. In some areas with little competition, HMOs were found to spar with their competitors by offering more benefits and services, not lowering prices [source: Stanton].

Perhaps the most frustrating aspect of America's astronomically priced health care is that it's not even helping keep Americans healthy. Over the past decade, the Commonwealth Fund has studied the health care systems of the top industrialized nations (like Australia, France, Canada, Sweden and the United Kingdom, to name a few). Every year, the U.S. comes in last place to these other countries.

Why does the U.S. falter? Much of its poor scoring is due to the fact that the U.S. doesn't offer universal health coverage, so a lot of Americans live without health care. The U.S. also is docked for inefficiency; it spends too much on medical care; its emergency room usage is too high and there's a lot of duplicative medical testing in the system.

And then there's actual health. Shockingly, the U.S. has the lowest life expectancy, the highest infant mortality rate and the highest percentage of its people over age 65 with two or more chronic diseases among the top industrialized nations [sources: The Commonwealth Fund].

On the plus side, the U.S. excels in cancer care. Its cancer mortality rates are much lower than they are in other countries. The other bright spot is wait times to see doctors, which are also much lower. There is also greater use of expensive technologies like MRI machines — which could be considered a plus or a minus.

Another consideration: The U.S. spends relatively little on social services like housing and food assistance, which some posit would be one way to keep the population healthier, and consequently, health care costs down [source: The Commonwealth Fund].