Why health care in the US is so expensive

Why health care in the US is so expensive
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If only salaries were rising as relentlessly as health-care costs. National health expenditures in the United States grew 5.3% to reach $3 trillion in 2014—or $9,523 per person. In a global context, this number is completely off the charts. The US spends roughly 50% more on health care as a percentage of GDP than France, the world’s next biggest spender, and almost double that of Great Britain. From now until 2025, US health care spending is expected to rise 1.3 percentage points faster than GDP, which means it will command an ever-larger share of Americans’ budgets.

But why is US health care so expensive? And how can costs be contained without sacrificing quality? Health care is complex; and while at its most basic, health spending boils down to the price of services multiplied by the number of times they are used, there are numerous factors driving up the cost of medicine.

The fee-for-service system

In the US, medical providers are reimbursed for each test, procedure, and visit. This system incentivizes the frequent use of expensive medical services, even though more procedures and tests may not necessarily mean better outcomes. In fact, some say it encourages unnecessary overtreatment.

Lack of cost transparency


From technological inefficiencies to price disparities across hospitals, consumers often don’t have access to all the information they need to make an informed decision about treatment. How much does each option cost? Which provider offers the best care for the best price? Given the complexity of the system, this data can be difficult for the average consumer to track down.

The high price of drugs and medical devices

The prices of drugs and medical devices in US are among the highest in the world. These prices are due, in part, to high R&D costs and huge marketing budgets. As a result, many new treatments are more expensive than the ones they are replacing, and their aggressive branding efforts may encourage the subsequent overuse of medical services.

Over-reliance on specialty care


The United States has an estimated shortage of between 15,000 to 35,000 primary care physicians. This deficit forces patients to rely on more expensive specialists, who may in turn request a battery of pricey tests as they hunt for less common diagnoses. The fee-for-service model exacerbates this situation—it provides little incentive for specialists to coordinate with each other to provide the most cost-efficient care.

Malpractice costs

Doctors are human, and mistakes sometimes happen. But lawsuits, jury awards, and malpractice insurance can all be very expensive. To protect themselves and safeguard against mistakes, many doctors practice defensive medicine, ordering tests and procedures that may be unnecessary simply to cover themselves in case of a lawsuit.

Moving forward

Some companies are thinking creatively about how to tackle the tangled web of medical costs and design a more efficient health system. Start-up insurance company Oscar, for example, uses technology and data in a variety of ways to streamline care. Oscar members can search for a doctor by gender, language, or area of specialty. Over time, members’ health history accumulates in their timeline, which doctors can draw upon to help craft better treatment plans. Oscar’s customers can also talk to a doctor on the phone for free anytime 24/7 for minor issues, like a prescription refill, to avoid paying for an in-person visit.

Oscar is also working to help fix the health system through strategic cost reduction solutions, such as its network design. By partnering with carefully curated groups of doctors and specialists, insurers like Oscar are able to negotiate deeper discounts for patients while empowering network physicians to more effectively coordinate and manage patient care. In doing so, Oscar is taking up the role of an informed health care guide, making treatment information more accessible and the health-care system less daunting to navigate for all involved.

Learn more

about how Oscar is working to make health care more efficient, cost-effective, and customer friendly.

This article was produced on behalf of Oscar by Quartz creative services and not by the Quartz editorial staff.