Skip to main content

Why is health care in America so expensive, and how can we address it?

By Gabrielle Decker | May 27, 2021 | Insurance Education

If you’ve ever wondered why health care in the United States is so expensive, you’re not alone.

It often strains the budget of families and businesses alike. In 2019, U.S. health care spending grew 4.6 percent, rising to $11,582 per person1. To put that into perspective, in 2019, the average American household spent $8,169 on groceries and going to restaurants2. That’s right, health care costs more per person than the cost to feed an entire household for a year.

At Blue Cross and Blue Shield of North Carolina, we believe that health care should be accessible and affordable for not only our members, but for all North Carolinians. We also know that for health care to be affordable, we first must address the underlying costs. Because of that, we’re dedicated to understanding the why behind the costs so we can work towards lowering them.

Addressing health care cost in our country is no small feat. It requires significant action, including setting the right health care policies at both the federal and state level.

Let’s talk about four key factors that impact cost, then look at how policy can be used to address health care cost.

Prescription Drug Costs

Prescription drugs play a critical, and often lifesaving, role in preventing and managing care for Americans. But the price tag attached directly impacts overall health care cost.

The U.S. has significantly higher drug prices than other countries — averaging 2.56 times higher than 32 other countries, and that number only continues to grow3. In 2019, retail prescription drug spending reached $369.7 billion, a 5.7 percent increase compared to the 3.8 percent increase in 2018 1.

One reason for high costs is the price of brand-name versus generic prescription drugs. While generic medications make up 84% of prescriptions filled per year, they only account for 12% of the total spend. By increasing access to generic prescription drugs, we can positively impact the overall cost of health care. As a matter of fact, generic drugs saved consumers $253 billion in 2017 and more than $1 trillion over the past decade4.

Medical Care Costs

It may go without saying, but the cost of medical care itself also plays a significant role in the overall cost of health care. That’s everything from x-rays to hospital stays.

In 2019, spending on hospital care services reached $1.2 trillion. Physician and clinical services spending surpassed $770 billion. The increased use and intensity of these services contributes to the cost. We also see impact from new technology and therapies, provider consolidation, and the location where services are performed.

Chronic Disease and Population Health

Treating chronic diseases and conditions also leads to high cost of care. While the U.S. spends much more than other countries on health care, we still achieve worse population health outcomes.

According to Blue Cross and Blue Shield Association, chronic diseases and conditions—such as arthritis, obesity, cancer and heart disease—are among the most common, costly and sometimes preventable of all U.S. health problems.

By preventing diseases before they occur, we can begin to chip away at the overall expense of health care in the U.S.

Additionally, drivers of health can impact the overall cost of care. These factors include socioeconomic status, food security, education, community environment, access to health care and more8.

Administrative Burden and Waste

There is a significant amount of unnecessary complexity within the U.S. health care system. A lack of coordination of care can result in duplicative services, something many of us have likely experienced. For example, you may have had to fill out the same intake forms many times or transfer medical records between doctors’ offices. This leads to significant waste in U.S. health care spending.

Health care waste is made up of duplication, lack of care coordination, over-treatment or low-value care, fraud and abuse, and more6. It’s estimated that waste in the U.S. health care system ranges from $760 to $935 billion — that’s 25% of total health care spending 6.

Reducing administrative burden and waste in our health care system could make a big difference in the overall cost of care. Implementing and using health information technology (Health IT) is one way to help streamline care, ease provider burden and positively impact health care cost.

The Role of Health Care Policy

Health care policy has a major impact on the U.S. health care system and how it operates. In recent years, it has a great impact on the cost of care. Health policy defines a vision for the future and set goals and standards through both state and federal laws and regulations.

Here are some recent examples of federal policy changes that target cost:

The Interoperability and Patient Access final rule.

This final rule aims to improve patient and doctor access to health data. A recent analysis found that medical device interoperability – when medical devices and health care systems communicate and exchange information – could save the health care system more than $30 billion a year10.

The Advancing Education on Biosimilars Act of 2021.

Biosimilars are approved, highly similar versions of original biological products that can be manufactured when the original product’s patent expires. Increasing patient and provider education and awareness on biosimilars can lead to increased competition among prescription drugs, and as a result – lower prices. They can help save lives and lower health care costs, but currently many providers and patients are unaware about the option. That’s why education is important. The Advancing Education on Biosimilars Act of 2021 grants the federal government the authority to create and maintain a website to provide educational materials for health care providers, patients and caregivers. It is estimated that biosimilars can reduce direct spending on drugs by $54 billion from 2017 to 2026.

Centers for Medicare and Medicaid Innovation (CMMI) value-based care models.

Medicare is testing value-based care models nationwide to find out if they can reduce health care costs for people with Medicare coverage. Value-based care means that providers are paid for the quality of care they provide and their efficiency and effectiveness, instead of the traditional fee-for-service model, which pays providers for the number of services delivered.

Addressing social determinants of health in Medicaid and the Children’s Health Insurance Program (CHIP).

The federal government recently issued guidance to encourage state health officials to adopt strategies that address drivers of health in Medicaid and CHIP. Such strategies are expected to improve health outcomes, reduce health disparities, and lower overall costs.