In part one, I discuss end-of-life care and chronic diseases and how they are a major contributing factor for rising healthcare expenditures. I also discuss the ethical considerations of denying care to such individuals.
But America’s healthcare cost expansion isn’t just limited to the elderly and the chronically ill–it’s expensive for everything and everyone, and in this post I will try to explain why. This also applies to student loans, which like healthcare, has grown substantially in recent decades.
Scott’s ‘cost disease’ post, which went hugely viral, attempts to answer this question.
Scott asks: “LOOK, REALLY OUR MAIN PROBLEM IS THAT ALL THE MOST IMPORTANT THINGS COST TEN TIMES AS MUCH AS THEY USED TO FOR NO REASON, PLUS THEY SEEM TO BE GOING DOWN IN QUALITY, AND NOBODY KNOWS WHY, AND WE’RE MOSTLY JUST DESPERATELY FLAILING AROUND LOOKING FOR SOLUTIONS HERE.”
The problem with this debate is it falls under the category of ‘un-answerables’:
‘Global warming…if it exists, is it man-made or not?’
‘Student/college loan/tuition crisis/bubble–what can be done?’
‘Job loss and automation–will technology destroy all jobs?’
‘Why is healthcare in America so expensive?’
‘Free trade–is it good or bad?’
‘Why is affordable housing in California so difficult?…zoning, NIMBYism, etc.’
These are issues that despite being debated to death, have no consensus or resolution. These things will never be settled. Anther problem with these issues is they are highly partisan in nature, meaning they are based on emotion and ‘tribalism’ more so than empirical evidence. But I’ll try anyway. For this post, going to ignore public elementary and secondary school cost increases and just focus on college tuition.
Costs for both tuition and healthcare have surged relative to inflation and other services:
Not only has tuition surged, so too has federal student loan borrowing, suggesting a link between the two:
The student loan and tuition crisis is discussed in more detail in the post We’re Making Life Too Hard for Millennials:
The first problem is credentialism; second, students going to college who are not smart enough or mature enough graduate, taking on debt and then dropping out; third, federal student aid driving-up tuition costs; fourth, students majoring in subjects that pay poorly instead of STEM. As I explain in an earlier article Countering Flawed Arguments of the Anti-College Movement:
Also, to further answer Scott’s question, the issue is, hardly anyone pays out of pocket for anything anymore, both for healthcare and education. There are so many programs to avoid or defer paying: medicaid, medicare, free emergency room treatment, generous student loan grants and financial aid for everyone of almost all income brackets, and student loan forgiveness. As discussed in the earlier post Affordable Housing, Healthcare, & Tuition: Putting Things in Perspective, when adjusted for aid, public care, assistance, scholarships, loans, and various deferments, the burden of these costs on consumers is not as bad. When you make a service effectively free, demand for it will go up, increasing the total amount spent.
The full sticker price is seldom paid. According to the article, only 1/3rd of private university student pay the full sticker price, and the most attractive students get the best aid packages. Tuition is only growing at 2-4% a year, which is anywhere from 0-2% greater than the CPI inflation, after adjusting for a myriad of subsidies, grants, and other financial aid.
Furthermore, it’s very hard to collect on defaults. Costs may be rising at a rate greater than inflation also because people are requesting more total education and more total healthcare…instead of going to the hospital for life-threatening stuff, they go because of a stomach ache or a small cut, as well as more spending for elective procedures (nose realignment and stuff like that). Colleges and high schools have more elective programs , bigger campuses, more computers, more courses, more staff, etc. than in the past. Some colleges have AI and robotics labs. A college campus today has vastly more amenities than a campus generations ago…why are people surprised that it should cost more too?
American’s expectations for healthcare and education quality are high: We demand schools with lots of teachers, athletics, and other programs; colleges with lots of programs, stupid/pointless classes, and amenities; and for hospitals to treat everything and everyone, regardless of cost or ability to pay; and we want quick access to latest treatments and diagnostic machines. Other factors also boost costs, such as America’s use of private and two-person hospital rooms:
For example, in the middle of the last century, the U.S. decided that private or at most two-person rooms were best, because they made it easier to control infection and to let patients rest. For decades, we built hospitals to this standard; when my mother was in the hospital for a complicated appendectomy, there weren’t even any semi-private rooms on the surgical ward.
Private rooms drive up costs in a lot of ways: They take up more space, you have to duplicate equipment, and because the nurses can’t see the patients, you need more monitors and/or staff circulating to make sure no one has stopped breathing. Basic hospital rooms in many other countries look spartan and overcrowded compared with what most Americans are used to, because they have more people and fewer beeping machines.
Shorter waiting times and private rooms decreases the risk of complications and infection, boosting survival rates.
But a major factor for high healthcare costs in America is how American drug companies subsidize treatments at a lower price for foreign countries:
The price of a medical miracle varies by country. Imatinib — also known as Gleevec — was hailed as a miracle cure to treat chronic myeloid leukemia, a rare type of cancer, upon the drug’s approval in 2001. In the U.S., a year of treatment cost $92,000 in 2013. Everywhere else in the world, including in developed countries, it cost far less. Germany’s price tag was $54,000. In the U.K., it was $33,500 for annual care.
In Europe, drug prices are set by governments, not by pharmaceutical companies the way they are in the U.S. On average, the difference between the price of one drug in the U.S. and the same drug in France, Germany, Italy, Spain and the U.K. was 50 percent, an analysis by the consulting firm McKinsey has found.
“U.S. consumers are in fact subsidizing other countries’ public health systems, at least with respect to drug pricing,” Jacob Sherkow, an associate professor at New York Law School, said.
If France had to develop their own drugs and medical devices at a cost less than in America, they would probably fail.
As explained in part one, costly diseases are also major factor. It costs $200k-$1,00,000 to treat leukemia..and the average household has negative net worth…even the uninsured get the same treatment…obviously, the typical patient is not paying that, so it gets added (along with other cancers and costly diseases) to per-capita medical costs.
Medical care has become vastly more advanced too: some cancers can now be cured and survival prolonged for many others…treatments for so many diseases have gotten better than generations ago. Imagine if we could extrapolate the chart of medical costs to the medieval times…yes it would have been cheaper but also competently useless (actually iatrogenic) in terms of quality of care (as anesthesia did not exist and they believed in things like ‘humors)’. Yes, healthcare in Botswana is very cheap, but good luck getting your rare malignancy with special chromosomal markers treated there. Does this answer the question? Probably not by a long shot, but just a perspective. IMHO, when you adjust the costs in terms of out-of-pocket costs vs. sticker costs, quality of care, and innovation, perhaps it’s not so bad.
A common argument is that healthcare in all developed nations is the same, but Americans are simply paying more. However, the evidence suggests American healthcare is superior in many respects.
Survival rate for various cancer patients in America is higher than other developed countries:
Fact No. 1: Americans have better survival rates than Europeans for common cancers. Breast cancer mortality is 52 percent higher in Germany than in the United States, and 88 percent higher in the United Kingdom. Prostate cancer mortality is 604 percent higher in the U.K. and 457 percent higher in Norway. The mortality rate for colorectal cancer among British men and women is about 40 percent higher.
America also leads the world in cancer screenings:
And access to various medical procedures and diagnostic tests:
But prices are high in America relative to other countries, hence the rise of ‘medical tourism’, although there are risks associated with seeking healthcare abroad.
Government-level bureaucracy and waste, as well as inflated medical device and drug costs and billing by unscrupulous companies probably also plays a role although it seems intellectually lazy to to blame everything on that.
Scot also mentions that doctors are unhappy with their jobs:
Why Doctors Are Sick Of Their Profession – “American physicians are increasingly unhappy with their once-vaunted profession, and that malaise is bad for their patients”. The Daily Beast: How Being A Doctor Became The Most Miserable Profession – “Being a doctor has become a miserable and humiliating undertaking. Indeed, many doctors feel that America has declared war on physicians”. Forbes: Why Are Doctors So Unhappy? – “Doctors have become like everyone else: insecure, discontent and scared about the future.” Vox: Only Six Percent Of Doctors Are Happy With Their Jobs. Al Jazeera America: Here’s Why Nine Out Of Ten Doctors Wouldn’t Recommend Medicine As A Profession. Read these articles and they all say the same thing that all the doctors I know say – medicine used to be a well-respected, enjoyable profession where you could give patients good care and feel self-actualized. Now it kind of sucks.
But so too are lawyers. Maybe the problem is not that being a doctor causes depression, but the people who are drawn to these highly-competitive fields (such as law and medicine) are more susceptible to being depressed and ‘burning out’.
A common question is why can’t America have a single-payer healthcare system? The problem is, taxes would have to go up:
Americans are not interested in paying significantly higher income taxes to have ‘government-provided’ healthcare. National health insurance, or single payer, is a dream for many Americans, but if they actually comprehended what it will cost them, and the rest of the taxpayers, they may pause and reconsider.
For example, Britain has a relatively well-regarded universal healthcare system that every citizen pays for through national income tax. The tax rate for income tax and National Health Insurance in the United Kingdom (England) in 2015-16 for all citizens earning between zero and £31,785, considered basic-rate (flat rate) taxpayers, is a whopping 20 percent of their entire income. It is a full 15 percent more than America’s middle class tax rate and would entail a 20 percent tax hike for 45 percent of Americans who pay nothing now.
If a British citizen earns just one pence over that “basic threshold,” their income tax rate jumps to 40 percent up to £150,000. For income over that number the rate is 45 percent; all to cover the National Health plan administered solely by the government with a form of rationing
It gets much more complicated when you compare the US healthcare system with every other country, to try to figure out why, for example, Singapore spends so little of its GDP on healthcare. Singapore has much more favorable demographics than western nations, which could account for its lower healthcare spending relative to GDP:
To get a more definitive answer means having to compare demographics, R&D costs, drug costs, the types of diseases people get, quality of care, hospital quality, public vs. private expenditures, copay and out of pocket expenses, etc., for every country, to determine if America’s healthcare system is unduly overpriced. Due to the magnitude if this undertaking–and even if one were to prove that adjusted for the aforementioned factors, Americans do not pay too much–convincing people of this fact would be nearly impossible anyway due to politics and other partisan factors. Scott’s post covers education and healthcare, but just healthcare alone is daunting enough. This is one of those issues that seems impossible to ever resolve and is something we will just have to learn to live with.