The U.S. spends roughly twice as much per person on health care as any other developed country. The total bill in 2018 was $3.6 trillion. There are lots of reasons for this but one of the major drivers is that people who use health care – that’s us – don’t know what it costs and in most cases are prevented from finding out.
This is no accident. Over the past several decades, health care providers – hospitals, doctors, drug companies, and medical equipment providers – have done a terrific job of hiding the true costs of their charges. They have been aided in this effort by health insurance companies, which wind up paying for this stuff.
Here’s a more detailed look:
About half a trillion in health spending is involved in research and other charges that don’t directly affect consumers. Of the nearly $3.1 trillion spent on personal health care, you might notice, only about one in every eight dollars comes directly out of our pockets. The rest is paid by either private or government insurance programs.
Health provider bills often are grossly inflated and bear little relationship to the costs of providing care. Insurers negotiate final payment rates, but have lots of reasons for not driving a very hard bargain. They often have favored business relationships with key providers and, in some cases, may even own the providers’ businesses!
Spend a few minutes with these numbers, and you’ll be able to see where insurance helps and where it doesn’t. For example, consumers spent almost nothing out of pocket for hospital care, which cost nearly $1.2 trillion in 2018, and they directly paid for only about 8 percent of their nearly $700 billion in doctors’ bills.
On the other hand, out-of-pocket spending on dental services is more than 40 percent of total spending. And consumers pay nearly all the costs for non-durable medical supplies, which include over-the-counter medications, health aids and other items generally not covered by insurance. The ability of health providers to hide true medical costs has increased over time. Look at this graphic of research from the Kaiser Family Foundation, a leading provider of solid health care information.
Direct out of pocket health spending has fallen precipitously during the past 50 years. Because we pay for such a small share of their health care, we have not cared much about what that care really costs. Many health care experts have adopted a similar view, saying that providing real price information to consumers may not affect how they consume health care.
These attitudes are changing. The introduction of high-deductible health plans and other health insurance “light” products have made millions of consumers very conscious of health care costs. Surprise medical bills not covered by insurance have also alarmed consumers.
Yet in most cases, when consumers do take the time to try to find out what their care costs, they often hit dead ends. Beyond office co-pays, even many doctors and health care professionals have only a loose idea of the real price tag for their services. In many cases, there is no “real” price. It varies depending on where the care is provided– hospital vs. office—and who is paying for it–commercial insurance vs. Medicare vs. no health insurance.
Slowly, however, transparency is coming to health care prices. The Trump Administration issued rules requiring hospitals to disclose their actual prices. The industry has sued but early court rulings have supported implementation of the new rules.
Most large employers are self-insured and use health insurers to administer their employees’ plans. They wind up paying all the bills and have the potential to see what providers charge and what insurers wind up paying for care. Increasingly, they’re using this information to drive down costs and identify higher-quality care providers.