Healthcare Research

THE QUESTION OF ADMINISTRATION AND PAYMENT: IS THE US AS EFFICIENT AS COMPARABLE COUNTRIES?

There are several reasons that the US spends more on health care compared to other countries, all of which we will discuss here. The most significant, however, is health care administration and payment in the US. This can be broken down into two major factors:

Private insurance company delivery: Unlike most other developed countries, the US administers non-Medicare and Medicaid payments for health care through a system of private, for-profit health insurance companies. The insurance company has several responsibilities in this system: underwrite (meaning choose whom to insure and whom not to); review claims and determine which to pay or deny; negotiate prices with caregivers, hospitals, and drug companies; and make a profit. When you take all of this expense into consideration, the average insurance company pays out about 80% of the premiums that it collects. This compares to 97% for Medicare, with administrative costs of 3%, about the same as in countries like Germany and France.   

In 2023, US health insurance companies were generally required to pay out at least 80% of the premiums they collected toward medical care and quality improvement activities under the Medical Loss Ratio rule, commonly referred to as the “80/20 rule.” This rule applied to individual and small group plans. For larger groups, insurers were required to allocate at least 85% of the premiums to these areas, with the remainder going to administrative costs, marketing, and profits. If insurance companies fail to meet these targets, they must issue rebates to policyholders.  

Presence of complexity: The US payment system is highly complex, given the presence of Medicare, Medicaid, the Veterans Administration, myriad private insurance companies, public service insurance, etc. Managing this complexity represents an enormous cost to physicians, hospitals, and other care providers. This factor is the largest driver of the cost of the US system.

To quote T. R. Reid in The Healing of America, “The administrative monstrosity we have built costs us a lot of money—by far the highest administrative costs of any health care system on earth. The US Government Accountability Office concluded that if the country could get the administrative costs of its medical system down to the Canadian level, the money saved would be enough to pay for health care for all the Americans who are uninsured.”

Other characteristics of our system contribute to higher costs, but in a smaller way:

Provider compensation: According to the same “Mirror, Mirror 2024” study referenced above, the US had higher provider health care compensation than the comparable 10 countries. Generalist compensation in the US in 2024 was $233,903. In 2023, average compensation for health care generalists in other countries was significantly lower. For example, in Germany, generalists earned around $183,000, while in the United Kingdom, the average was about $138,000. In France, generalists made around $98,000, and in Italy, they earned approximately $70,000. Compensation for specialists and nurses followed a similar pattern.

Drug prices: Any number of studies demonstrate that the US spends more per capita on prescription drugs than comparable countries do. In order to ensure that comparisons are accurate, studies also examine utilization. The US is not an outlier in the volume or types of drugs consumed; the primary driver, therefore, is higher prices. The US relies on the competitive marketplace to set drug prices, whereas countries with single payers negotiate prices at the national level. In the US, Congress specifically forbade Medicare from negotiating prices. As a result, US consumers literally subsidize the drug prices offered to the rest of the world.

Testing and prices for services: Comparison studies also find that the prices of services, tests, surgical procedures, and hospital stays are higher in the US than elsewhere. In their 2025 article “How Does Health Spending in the US Compare to Other Countries?”, Emma Wagner, Matthew McGough, Shameek Rakshit, and Cynthia Cox of the Kaiser Family Foundation examined and illustrated this across several relevant metrics.

Litigation: Studies show that the cost and frequency of medical malpractice litigation in the US are greater than in other comparable countries. As a result, doctors pay considerably more for malpractice insurance, expect to be sued multiple times during a career, and charge more for their services accordingly. Insurance costs for all consumers are higher as a result. A 2010 study at the Harvard School of Public Health found that medical liability costs added 2.4% to total medical spending in the US. Finally, the US Chamber of Commerce reports that Americans spend far more per person on the costs of litigation than any other country in the world.

Medical School Bottleneck: The “graduate medical education bottleneck” or “residency bottleneck” refers to a convergence of policies that limits the number of new physicians despite rising demand for health care. While medical schools are competitive, accepting only about 40% of applicants, the bigger choke point is residency training, which is required for independent practice. The number of residency positions is largely capped by federal Medicare funding limits set in 1997, and this cap has barely grown, even as medical schools have expanded class sizes. This mismatch means some graduates can’t advance, worsening physician shortages, especially in primary care and rural areas. The shortages contribute to long wait times, overworked doctors, and gaps in essential services. Fixing the problem requires increasing medical school capacity and funding more residency slots, but policymakers worry that simply adding doctors without reform could further raise health care costs.

HOW IS HEALTH INSURANCE PURCHASED AND PAID FOR IN THE US?

As indicated above, private insurance companies are the primary method of administering non-government-provided health care. As a result, the appropriate question is, “How is insurance purchased?” As of 2023, according to census data:  

·      53.7% of the US population obtained health insurance through their employer.

·      10.2% had private health insurance outside of employer-sponsored plans.

·      3.6% of Americans were covered by military or Veterans Administration health insurance.

·      8% of the population remained uninsured.

What do we know about the 8% of Americans who have no health care coverage?

When surveyed by the Kaiser Family Foundation in 2023, Americans without health insurance cite the following reasons:  

·      Cost is too high, 64.2%  

·      Lost job or changed employers, 22%

·      Lost Medicaid, 11%

·      Employer does not offer coverage or employee is ineligible for coverage, 8.5%

·      Family status change, 4%

In 2023, 26.1% of uninsured Americans cited “no need for health coverage” as a reason for not having insurance.

Of those who do not have insurance, 13% are unemployed, 77% have at least one full-time worker in the family, and 10% have a part-time worker in the family.

WHAT ARE THE CONSEQUENCES FOR THOSE WITHOUT HEALTH INSURANCE?

First, Americans without health insurance obtain less preventive health care and may incur greater costs in the long run.  

Second, Americans without health insurance rely on emergency room visits for general health care, which is an expensive and inefficient way to provide care.    

Third, Americans without health insurance struggle to pay bills for the care they do receive. The Kaiser Family Foundation article by Wagner et al. quoted above estimated that in 2015, one million adults declared bankruptcy as a result of outstanding medical bills. They also found that 22% of Americans between the ages of 18 and 64 struggled to pay medical bills. Health care providers expend considerable effort collecting payment and managing write-offs, thereby raising the cost for all.  

WHAT IS THE HISTORY OF HEALTH CARE REFORM EFFORTS?

For decades, many US policymakers and public officials have made efforts to ensure that every citizen has access to health care.

During the Great Depression, President Roosevelt was deeply concerned about the state of American health care. He hoped to include nationalized health care in the Social Security Act, but retreated in the face of opposition from the American Medical Association.   

During World War II, the government froze wages and prices to facilitate the war effort. Unable to compete for employees based on wages, employers began to offer health insurance as a benefit not subject to price controls. As employer-provided health care developed and health care costs increased, retirees were increasingly unable to afford care. Those working in low-wage professions also struggled, as typically such employers did not provide coverage. As a result, President Johnson proposed and passed the Medicare and Medicaid programs in 1965 to provide coverage to retirees and low-income citizens.   

Ever since, policymakers have struggled to standardize health care for US citizens. In 1971, Senator Kennedy proposed a form of universal health care. President Nixon also had proposals in process, but these were derailed by Watergate. President Clinton tried again unsuccessfully in 1992. Finally, in 2010, President Obama passed the Affordable Care Act (ACA). As discussed below, however, the ACA did not provide single-payer universal coverage, but settled for expanding access to Medicaid and private insurance.  

WHAT WAS THE ACA AND HOW DID IT WORK?

In America’s Bitter Pill, Steven Brill articulated the elements of the health care debate that resulted in the 2010 passing of the ACA. Brill wrote that generally, policymakers recognized two broad challenges in the US health care system: cost and access. First, Americans pay considerably more for health care than other countries. Second, a significant portion of Americans lack access to health care for reasons that include cost, pre-existing conditions, and loss of employer coverage.

Policymakers also recognized that the US could not afford to provide insurance to all Americans at 18% of GDP. But, if we could reduce costs to the levels seen in other countries, we could provide health care just as they did. Standing in the way of cost reduction, however, was a host of special interests, including the AMA, the insurance industry, the bar association, medical equipment manufacturers, and pharmaceutical companies.   

Concluding that significant progress on the cost front was unrealistic, the Obama administration settled for a complicated mix of small cost concessions from the major special interests, increasing taxes on individuals and equipment manufacturers, adding a pre-existing condition exclusion, creating a national exchange, and expanding Medicaid.  

More specifically, the ACA did the following:

·      Required individuals who did not receive health insurance benefits through their employers to purchase coverage or pay a penalty. The theory was that if everyone (including the relatively healthy) purchased insurance, the average cost for everyone would decline.

·      Created subsidies to help low-income families pay for health insurance.

·      Implemented strict guidelines for insurers: they could not cancel policies when a policyholder became sick, place a lifetime monetary limit on benefits deemed "essential" in new policies, deny coverage because of pre-existing conditions, or enforce higher premiums within the same age/geographical group because of gender or pre-existing conditions (besides tobacco use).

·      Created the Health Insurance Marketplace, which provides easier access to plans for both businesses and individuals.

·      Expanded Medicaid eligibility to those earning 133% of the federal poverty level.

·      Prohibited employers from making their employees wait more than 90 days for health insurance eligibility.

·      Implemented a penalty of $2,000 per employee on employers who did not provide health insurance for those who already had coverage before the ACA.

·      Required coverage of certain types of preventative care at no additional cost to the patient.

·      Prohibited annual and lifetime dollar limits on care.   

WHAT WERE THE OVERALL OUTCOMES OF THE ACA?

A Commonwealth Fund report discusses immediate outcomes in the years after the ACA was passed. By the end of the 2016 enrollment period, 12.7 million Americans were covered under state and federal exchange plans, and the percentage of uninsured Americans declined by about 5%. The probability of people not receiving necessary medical care decreased by 20-25%, and the probability of people having a usual place of care increased by 47.1-86.5%.  

While the ACA successfully expanded access to health care, however, it fell short in reducing cost. The primary reason for this was that major providers did not provide reasonable concessions. Another reason is that the minimum viable policy of the ACA was more expensive than policies people had access to prior to the ACA.  

What is the current state of the ACA?

In July 2017, the Republican Party attempted but failed to repeal the ACA. Since that time, they have passed a provision repealing the individual mandate in an effort to weaken the program.

In his first term, President Trump signed an executive order asking federal agencies to make new rules for cheaper, bare-bones health plans. He also reduced (where possible) government subsidies known as “cost-sharing reductions,” which reimburse insurers for discounts they give to policyholders with incomes under 250% of the federal poverty line (or about $30,000 in income a year for an individual). These discounts shield lower-income customers from out-of-pocket expenses such as deductibles and copayments. These subsidies have been the subject of a lawsuit that is ongoing.

The first Trump administration’s impact on the ACA also included eliminating the Small Business Health Options Program (SHOP) marketplace, shifting responsibility to the states to offer provider networks and access to community providers, eliminating agreed-upon compensation to insurers for subsidized individuals, and an effort by the Department of Justice to legally invalidate the pre-existing condition exclusion.

What is the mix of private versus public funding in the US versus other countries?

Another way to look at health care spending in the US is to review how the mix of public and private spending compares to other countries. According to the Kaiser Family Foundation article referenced above, public health care spending in the US was 16.4% of GDP in 2022—roughly equal to public health care spending in Germany, the United Kingdom, France, Belgium, Austria, Canada, and Switzerland. The difference is that public spending in these countries enables coverage for all citizens. In effect, the private sector in the US makes up the amount by which US total health care spending exceeds that of comparable countries.