"Why the U.S. spends so much on healthcare"

Andrew Mollica and Anna Wilde Mathews wrote an interesting article for The Wall Street Journal recently in order to help explain why the U.S. spends so much on healthcare compared to all of our peer countries.  They first cite well-known statistics that Americans spend more on healthcare than anyone else in the world.  Healthcare expenditures account for approximately 18% of the U.S. Gross Domestic Product.  We spend, on average, about twice as much money per person (approximately $14,775 per person per year) on health care every year compared to other large, wealthy countries (approximately $7,860 per person per year) (see "How does health spending in the U.S. compare to other countries?"), which once prompted legendary investor and CEO of Berkshire Hathaway Warren Buffet to call health care costs "the tapeworm of economic competitiveness".

According to data (from 2023) from the Center for Medicare and Medicaid Services and The Commonwealth Fund, here is how every dollar is spent on U.S. healthcare:

As you can see, Americans spend about 10 cents per every dollar on administrative costs.  While that doesn't sound like much, it's about five times more than the average that other countries spend on administrative costs.  The United States also spends as much on administrative costs as it does on long-term care costs, which is also a mismatch compared to what other countries spend on long-term care.  For example, Sweden spends 22x as much on long-term care compared to what it spends on administrative costs.

While I think Mollica and Mathews oversimplify what is in reality a more complicated issue, here are the factors that they say make U.S. healthcare the most expensive in the world:

1. Prescription drugs cost a lot more in America

"Most other nations force drugmakers to accept lower rates, while the U.S. government generally doesn't."

2. Big hospitals can charge higher rates because of consolidation

"Many cities and communities are now dominated by a single hospital system, partly because hospitals have been merging in recent years.  The consolidation has given hospital systems leverage to command higher rates during negotiations with health insurers.  The insurers would lose business if powerful hospitals shut them out."

3. The U.S. spends far more than outer countries on administration

"The costs include functions like billing, claims processing and customer service."

4. Labor costs are higher

"American doctors and nurses generally make more than their counterparts in other countries."

5. Americans are using more healthcare

"Healthcare utilization has grown faster than prices in the most recent years."