The American health insurance system is a mess. Premiums have been soaring for years, and many Americans can’t afford them. There are also widespread problems with coverage, worthiness, and cost. The result is that many people can’t get the healthcare they need or are afraid to get care because of the cost. That’s not just a shame. It’s also a failure of our market-based system. After all, one of the most common arguments in favor of the current system is that it incentivizes people to protect themselves against unexpected medical costs by purchasing insurance before they need it. Yet the evidence shows this doesn’t happen as often as you might think, which has obvious negative consequences.
Why is the American healthcare system so messed up?
There are many reasons for this. One is that American healthcare is very expensive. The US spends much more on healthcare than any other country (roughly 18% of GDP versus 11% in the UK, 10% in Japan, and 9% in Germany). There are several reasons for this. One is that we pay doctors and nurses much more than other countries do. Another is the administrative costs of our healthcare system are much higher than other countries’. There are also higher costs due to a more fragmented system of healthcare providers that makes coordination much more difficult. Another reason healthcare is so expensive is that we use it much more than other countries. People in the US see doctors and get tests and prescriptions far more often than people in other countries. There are a number of reasons for this. One is that many people have health insurance, so they use it as a health savings account: pay as you go. Another is that healthcare is a very big and visible industry in the US, so people are constantly being convinced to seek the latest and greatest means of prevention or cure. In other countries, healthcare is less visible, so people use it less.
Why is health insurance so expensive?
Health insurance premiums are high for a number of reasons. First, there are administrative costs. Insurers have to hire people to process claims and monitor compliance with the terms of different policies. Second, as we saw above, there are also higher costs due to a more fragmented system of healthcare providers. Health insurance premiums are also higher in the US because of risk selection. In other words, people who need healthcare the most often choose not to buy health insurance. This has the obvious consequence of driving up the cost of insurance for people who do want it. Health insurance premiums are also higher because of adverse selection. This means that people who expect to have high healthcare costs are more likely to buy insurance. In other words, people who expect to have high healthcare costs are more likely to seek and obtain health insurance. This obviously raises costs for everyone who has health insurance.
Problems with coverage
There are many problems with coverage. One is that many people can’t find any policies they consider worthy of purchase. As noted above, the Affordable Care Act (ACA) has increased the number of people with health insurance. But many of these policies offer limited coverage and come with high premiums and deductibles. Another problem with coverage is that some policies have very high premiums. Other policies are simply not worth buying. Premiums are so high that people may not be able to afford them. In parts of the country where healthcare costs are very high, some policies may not be worth buying. There is also a problem with the number of people who are uninsured. The ACA has reduced the number of uninsured people significantly. But there are still too many people without coverage. Some people don’t want to be insured and choose not to be. But the majority of people without coverage would like to be insured but don’t have the means to purchase it. To be clear, the main issue here is that many people don’t have the means to purchase health insurance. The ACA has helped with this problem by expanding Medicaid to cover more people. But there are still many people who don’t have coverage in the US.
Problems with cost
Premiums are only one-half of the story. The other half is the cost of care itself. In the US, these costs vary widely from place to place and from one type of care to another. This variation is due in part to the fact that many healthcare providers in the US are paid on a fee-for-service basis. This means that a doctor or other healthcare provider is paid a fee for each test, procedure, or treatment they provide. Essentially, they are paid a lump sum per service. Theoretically, this system is supposed to encourage providers to find the most efficient and effective way to deliver care. In practice, it often doesn’t work that way. This is for a number of reasons. One is that doctors and other providers often have little incentive to minimize the cost of their services. Another is that many providers are not particularly cost conscious. In other words, many healthcare providers make more money when they provide more care. This is obviously problematic in a system where the providers of care are paid based on the amount of care they provide.
How are Americans supposed to navigate this mess?
The main thing Americans need to do to navigate this mess is educate themselves. The first step is to determine what kind of coverage you need. This may sound like a strange thing to say, but many people don’t really know what their coverage actually covers. Or they think it covers more than it actually does. Once you decide what type of coverage you need, you can start looking for health insurance policies that meet your needs. You should keep in mind that some policies are better than others. In other words, some provide more coverage for less money than others. After you buy a policy, you should examine it carefully to see what it actually covers and what it doesn’t cover. You need to know what your policy does and does not cover so that you can avoid getting taken by surprise. Unfortunately, many people don’t do this.
The Bottom Line
The American health insurance system is a mess. This is unfortunate for many reasons, not least because it hurts Americans who need care the most. Health insurance providers have also made a bad situation worse by overcharging many Americans for their policies. As a result, more and more people are struggling to pay their healthcare bills, a problem that has only worsened during the Trump administration. Fortunately, there are ways to navigate the current mess and protect yourself from the worst of it. The first step is to educate yourself on what health insurance actually covers and how to use your policy. The next step is to protect yourself financially, which means being careful to watch your spending.