Why Healthcare in the U.S. is so expensive.

Dan Munro, Author of Casino Healthcare and a Forbes contributor has written one of the best articles on the reason behind the high cost of healthcare in the U.S.  He was kind enough to allow me to reprint his article which first appeared in Quora on May 24th, 2018.  All of his articles are worth reading if you want a great understanding of the Healthcare problem in the U.S.  You can also follow him on Twitter @danmunro.

Dan Munro 

Author of Casino Healthcare &
Forbes Contributor

Healthcare is so expensive in the U.S. because for a very large portion of the population, there are NO pricing controls — at all.

In the U.S. healthcare delivery system (doctors, clinics and hospitals), there are only 4 general ‘buckets’ of incoming revenue.

  1. Uninsured — almost 100% negative margin (loss)
  2. Medicaid — Government fixed pricing (typically negative margin – loss)
  3. Medicare — Government fixed pricing (very thin positive margin – gain)
  4. Private Insurance — free-market pricing (robust positive margin – gain)

Now — out of those 4 buckets — the largest single category (about 155 million Americans — or 48% of the total population) is Private Insurance. The cost of obtaining private health insurance (mostly derived through an employer) is astronomical. This year — 2018 — the average cost of Preferred Provider Organization (PPO) coverage through an employer for an American family of 4 is over $28,000.

So — while we argue, fuss and fight over the huge Medicare and Medicaid expense (which it is), we’re distracted from the primary source of our runaway cost — free market pricing through private insurance (brokered predominantly through employers).

The result is painfully clear.

NB: This chart only goes to 2014. This year — 2018 — our per capita spending will exceed $11,000 … AND … our Life Expectancy (for a host of reasons) has declined for each of the last 3 years.

Medical advances (primarily through miraculous drug discoveries) is a contributing factor — because prescription drugs also have no pricing limit. Here’s an example for Insulin — a drug developed in the 1920’s (the patent for which was literally sold to the University of Toronto for $3).

How about another drug — that was featured on the TV show 60 Minutes just this last week.

In 2015, two small children of Rockford (Illinois) were treated with Acthar, a drug that’s been on the market since 1952. It’s used to treat a rare and potentially fatal condition called infantile spasms that afflicts about 2,000 babies a year.

The drug works – it’s considered the gold standard for infantile spasms. In 2001, Acthar sold for about $40 a vial. Today: more than $40,000. An increase of 100,000 percent. [1]

So — the answer to the question as to why healthcare in America is so expensive is pretty basic. It’s the prices paid by everyone who has private insurance (about 48% of the population). For this large group, there are NO pricing controls — at all!