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For starters, the $2.9 trillion we spend annually on health care—a whopping $9,200 per person—isn’t necessarily buying us the best care or ensuring good health. In fact, not only does the U.S. fare worse in terms of infant mortality and life expectancy than other developed nations, it also tops the list for deaths that are considered preventable with timely and appropriate treatment. What’s more, a hospital stay or common diagnostic tests, like MRIs, cost many times more in the U.S. than in countries like Germany or Japan.
These high costs place a heavy burden on government, which funds Medicare, Medicaid, and other public insurance programs; on employers, who help pay for the health coverage of workers and their families; and on American households, who feel the pain in their pocketbooks, through higher taxes and reduced wages.
GETTING AT THE ROOT OF THE PROBLEM
Before we learn about these new approaches to paying for health care, let’s take a closer look at where costs really pile up.
Paying for More Doesn't Always Get You More
Many experts point to the way health care providers in the U.S. are typically paid for the services they deliver as a major culprit in driving our out-of-control costs. Under our fee-for-service system, most physicians, hospitals, and other providers receive a payment for each service, be it an office visit, lab test, or medical procedure—regardless of whether or not they help (or harm) the patient. In other words, provider payment is based on the quantity of care provided, rather than the care actually needed by the patient, or the effectiveness of the treatment.
Providers usually don’t feel pressure to limit themselves from prescribing services that may not be necessary. And physicians’ fear of malpractice lawsuits may actually contribute to the problem by encouraging the practice of “defensive medicine.” Likewise, since most patients are shielded from the bulk of costs by their health insurance coverage, they may be inclined to welcome any medical service that has even the slightest chance of doing some good.