It is taken as a truism by pundit and media types that Americans vastly overpay for healthcare and higher education. I have never found this to be totally convincing. Sure, the sticker price is high for such services, which does seem like an injustice or a failure of policy, but just looking at price overlooks various mitigating factors.
1. As the US economy grows and Americans become wealthier on a real per capita basis, it stands to reason they will also spend more on healthcare, too, like any other consumer good. Inflation-adjusted US personal income has grown 23% from 2010-2020, or about a 2% annual real growth rate, which closely tracks growth of healthcare spending, too.
There is no reason why healthcare and education should be exempt from this. This also includes the booming industry for elective procedures, cosmetic procedures, various vanity drugs or off-label use (like Ozempic for weight loss), etc.
2. The sticker price is not what is actually paid. Thanks to steep discounting, haggling, scholarships, etc. means that the effective price is much lower than the quoted price. Top colleges have among the most generous of financial aid, with middle income or below students sometimes paying no tuition. After factoring in various scholarships and other discounts, on average only half of the MSRP is paid in full:
Also, the sticker price is seldom paid in full. From what I have read, the amount actually paid is 50% of the MSRP after factoring in aid and scholarships. From NPR, “At private universities, almost no one pays full price. Even at the high end of the income spectrum, the net price is significantly less than the sticker price. It’s the opposite at public schools. In public schools, net price often meets sticker price at the high end.”
Same for healthcare. Those huge bills (like $50 for a cotton swab) are never paid in full, but discounted heavily through negotiating between the patient, the hospital, and the insurer. The final price may just be pennies on the dollar.
Regarding procedures overseas being cheaper, there are some caveats, as discussed in Explaining why America’s healthcare is so expensive:
I’m sure many have seen tables that show how US hospitals charge more for certain procedures, compared to foreign countries. The good ol’ hip replacement (a favorite example given) costs 35% less France than in the US. However, the obvious difference is, there is less negotiating power. It’s not like an American can travel to France and then haggle down the price of his surgery by 50%. Rather, the prices are set by the government, and most private healthcare providers require that uninsured patents pay prior to treatment.
The major difference is that foreign prices are set in stone; you cannot negotiate, and patients must pay upfront.
For example, a hip replacement costs $40,000 in the US vs $9,000 in India. So it may seem like Americans are overpaying, except that after factoring in discounts/haggling, charity care, and the difficulty of collecting private debts, that it’s possibly not cheaper go abroad. Also, one must factor in travel costs, which can be very expensive (and lost wages due to traveling). The above table would only be valid if Americans were writing checks for $40,000-$100,000 for these procedures, like buying a new car or taking a luxury cruise, but no one consumes healthcare this way (at least not for expensive procedures): either it’s subsidized, paid for by insurers, negotiated for a much lower price, or even not paid at all.
So when you see a viral story about a family or individual being billed some huge sum for a seemingly routine or small procedure, it’s worth keeping in mind no one is paying that bill. It would perhaps be ideal if there was more transparency in the billing process, but such breathless reporting overlooks the nuance of the situation. For example, in 2019 a story of a $142,938 snake bite went viral. How much was actually eventually paid by the family out of pocket for treating the snake bite? Nothing:
Resolution: The insurer IU Health Plans negotiated down the antivenin and air ambulance charges and ended up paying $44,092.87 and $55,543.20, respectively. After adjustments to additional bills, IU Health Plans paid a total of $107,863.33. Oakley’s family didn’t pay a dime out of pocket for her emergency care, but such high outlays contribute to rising premiums.
Instead of taking the media’s word, with its predictable biases, I decided to investigate personal accounts on Reddit of ordinary Americans, not journalists, regarding healthcare costs. Are things as bad as framed by the media? I came into this already optimistic, but even then my expectations were shattered. The reality is not at all like portrayed by the media.
[This is Reddit, which is known for having generally a left-wing bias, and in 2019/2020 when Trump was in office and Covid was in full swing, so people were probably already feeling pessimistic.]
From user “ShinySpoon“, who pays less taxes compared to the NHS:
Or from Pinwurm:
Heart attack and $0 out of pocket expenses:
Obviously $3,500/year is not free, but again, one must take into account lower taxes and superior private care compared to higher taxes and worse care under public plan. Overall, most people are paying little, about $50-150/month, for comprehensive care. This is about the same cost as cable internet, yet how much outrage is there by the media about unaffordable internet?
3. Healthcare is heavily subsidized. When the media or politicians say that healthcare is a right or that Americans are being denied access to healthcare, they are overlooking or ignoring the abundance of charity/subsidized care, such as Medicare, Medicaid, and free emergency room care (via the Emergency Medical Treatment & Labor Act (EMTALA) of 1986). In 2021, the US federal government spent $4.3 trillion on healthcare, and states and local governments spent $345 billion. Although perhaps this is not ideal compared to having insurance and a primary care physician, nevertheless, there are plenty of options.
Also, about a third of hospitals lose money, and the average hospital has a 2-7% profit margins, which is about average for a publicly traded company, so it’s not like hospitals are reaping huge profits from these headline-grabbing stories or $15 Band-Aids:
Axios analyzed the financial filings for 84 of the largest nonprofit U.S. hospitals and systems and found that these providers made $14.4 billion on patient care, an operating profit margin of 2.7%. However, when stocks, bonds, accounting gains from mergers and other investments are included, profit rises to $35.7 billion, a profit margin of 6.7%.
By comparison, Google has over 30% profit margins.
4. Americans have among the lowest income taxes in the developed world and the most disposable income. Despite the UK and other countries having ‘free’ healthcare, thanks to low taxes, higher wages, and employer-sponsored healthcare, Americans still end up having more disposable income and wealth, in the end. It’s not really free healthcare if it’s paid for by higher taxes, as the earlier Reddit screenshot above shows.
A single payer healthcare system in exchange for higher taxes would probably make most Americans worse-off in terms of wealth, which is probably why the idea has never gained much political traction.
5. Similar to healthcare, annual tuition growth tracks growth of real per capita wealth. Americans spend a lot on tuition, but earn a lot, too. The college tuition debate mostly focusses on price and less on earnings. Even after factoring debt and inflation, college grads still earn considerably more than high school grads, and American college grads earn way more than their foreign counterparts, even after factoring in free tuition. The difference is quite drastic:
The average salary in the U.S. in 2021 was around $58,260 across all occupations. In the U.K., the average salary in 2021 was about $38,291 when converted to dollars.
Free tuition but lower wages may be a worse tradeoff, especially for high earners in white collar jobs, who are able to pay the loans back quickly or have little difficulty making the minimum monthly payments. The disparity of pay is widest at the tail-end of the income distribution: no mid-six-figure tech jobs in Europe. Doctors earn considerably less, too (doctors in the US earn about 3x more vs. UK doctors).
6. Regarding quality of care, Americans have higher survival rates for various cancers (controlling for cancer stage), as well as more access to experimental treatments and elective procedures compared to the NHS or other healthcare system, as well as dedicated cancer centers, like MD Anderson Cancer Center. Why The US Has Better Cancer Survival Rates Than The Rest Of The World:
So with all of that said, yes, America has among the best cancer survival statistics because of an incredible abundance of high technology equipment and drugs, more extensive screening, and more aggressive treatment.
America also in general has better survival statistics when cancers are compared stage for stage. Of course there are exceptions. Japan survival statistics for stomach cancer are much better than American numbers.
Very expensive cancer treatments such as the new immunotherapies for cancer are more widely available in America than in countries with national healthcare where there are restrictions based on cost/benefit and budget caps.
From Forbes: EU vs US Cancer Care: You Get What You Pay For, higher spending in the US has led to higher survival rates:
Are Americans getting what they are paying for? Our research suggests that countries that invest more in cancer care have better outcomes. One analysis we did in 2012, which was featured in the 2013 Economic Report of the President, compared the value of cancer survival gains in the US vs the EU from 1983 to 1999. We found that cancer patients in the US lived longer than in the EU, and these survival gains were not due to more aggressive screening of US patients. Most importantly, these additional US survival gains were worth the higher spending – to the tune of almost $600 billion over the period, or $43 billion per year. In other words, the US was spending more but getting around $61,000 in additional value per cancer patient. These findings were borne out by another study, which shows that cancer mortality rates fell faster in the highest-spending countries than in medium- and low-spending countries.
7. ‘Free’ healthcare comes with a lot of caveats, such as long wait times, overworked personnel, and excluded procedures or drugs. Long wait times, especially for elective procedures, in the UK and Canada, had led to medical tourism, as well as a booming industry for private care:
Battered by the pandemic, workforce shortages and a chronic lack of social care capacity, the UK’s health systems are under acute strain. The latest NHS figures show that 7.19 million people were waiting for treatment in England alone in November, with 406,575 waiting over a year. There were more than 600,000 patients waiting in Scotland for planned procedures at the end of last September and there were more than 750,000 waiting to start treatment in Wales in October.
There is no reliable source of data on outbound UK medical tourism, but the Office for National Statistics (ONS) has estimated that about 248,000 UK residents went abroad for medical treatment in 2019, compared with 120,000 in 2015.
One may be surprised to learn that dental care is often not covered under Canada’s national healthcare system, hence the ‘luxury bones‘ meme. Although in fairness, Medicare does not cover dental procedures either. But then why are Brits and Canadians going abroad or choosing private options if, according to the US media, the free healthcare is supposed to be better?
8. Malpractice is another major expense, costing between $45-55 billion annually. The ability of patients, immediate family, and caregivers to seek redress for substantial sums for negligence is factored into healthcare costs. It would be much harder under a universal healthcare system for patients to get large settlements like in the US. For example, for the NHS the typical malpractice settlement is $60,000 compared to $300k-$400k in the US.
9. Much of drug research for new compounds is by US firms (about 36% versus 10% in the UK). Foreign countries pay less for these drugs, but the higher price for Americans is to recoup the costs of the research, which makes sense (because developing drugs is very expensive, and drug companies need a financial incentive to produce new drugs). But hardly anyone is paying out of pocket for these new drugs, which are either covered by private insurers, Medicare, or Medicaid, even if the drugs are not that effective (or may not work at all).
I think this is possibly a major source of waste, but having access to experimental, new treatments, even if the treatments only add months of additional life expectancy, is another perk of the US healthcare system. Sometimes though the experimental treatments to do yield cures for once-terminal conditions or significant improvement of life expectancy, like Gleevec, which significantly improves survival for chronic myeloid leukemia. Or Tirzepatide, which although expensive now, offers hope for putting a dent in the obesity epidemic in the US and even worldwide, because ‘diet and exercise’ is apparently not that effective long term as a solution.
10. Regarding tuition and college affordability, one must keep in mind that although college may be cheaper or free overseas, there are fewer resources (staff to student ratio, individualized care, accommodations, etc.) and admissions are more restricted, and or more filtering. Anyone in the US who can pass high school with even a low GPA is probably eligible for some scholarships or financial aid, but overseas admissions is based on exams or other more stringent filtering. It’s not like the government is subsidizing tuition for everyone. A lot of countries have a two-track system in which students are designated for vocational work or continuing education, compared to the college-for-everyone mold in the US.
Overall, I think much of the higher prices can be explained by Americans being wealthier overall, the subsidization drug company research, negotiating, and charity care. Transparency is often touted as a solution, and I could see how this would be helpful at avoiding sticker shock, but I think one of the benefits of opacity is the ability to negotiate prices. A hospital cannot have fixed pricing, because of the variability of how much anyone can pay. An MRI scan may be billed for $2,000, which a tiny percentage of patients will pay the bill in full, and this is enough to offset the many who do not. I think much more perspective, nuance, and context is needed by the media and politicians instead of the doom and gloom and partisan generalizations that dominates.