Roosevelt Institute | Cornell University

Most Expensive Yet Least Effective Health Care System

By Amy KimPublished November 2, 2015

The U.S. health system is often described as the most inefficient, heterogeneous, fragmented, and advanced system of care in the world. The United States currently spends more money per person on health than any other developed country; however, health outcomes are among the worst. For every $1 spent on medical care, $0.30 is wasted, which translates into an annual $750 billion waste. Excessive administrative costs, unnecessary services, and inflated prices of drugs and medical services are among the many factors that contribute to the inefficiency of a fragmented health care system in America. While the goal of the Affordable Care Act of 2010 is to address some of these problems, it is still too early to be able to draw definitive conclusions.

The United States health care system is both unproductive and inefficient. As of 2013, the United States spent 17.7% of GDP on health care, but has been consistently lacking, ranking behind most developed countries on measures of health outcomes. We spend so much yet reap little benefits because the investments are being diverted away from patient care toward wasteful, practices like excessive profits for businesses, institutions, and individuals. There are significant health care and wealth disparities as evidenced by the high Gini coefficient, a mark of inequality. Health care in this country is dominated by nonprofits that receive tax breaks from the government. Hospitals, drug and medical device companies, interest groups, insurance companies, and physicians sometimes benefit at the expense of patients who need the care but cannot afford it. The extensive use of medical technology in the United States does not help alleviate the high health sector prices. The advancements in diagnostics and therapeutics come with an expensive price tag. And how to prioritize and pay for these advances has been an ongoing challenge. Medical impoverishment, unheard of in other industrialized countries, is not a rare occurrence in this country where 37% of Americans are not seeking a physician's help when sick because of the grossly overpriced charge. 
The Affordable Care Act of 2010 provides provisions regarding the delivery-system reform through changes in the way government pays for health care, the organization of health care delivery, workforce policy, and nimbleness of the government. Even with the "three-legged stool" at the basis of health care reform in the ACA, which includes banning discrimination in the insurance market, the individual mandate, and provision of low-income subsidies for insurance purchase, results from the extensive list of ACA initiatives are yet too preliminary to be able to draw definitive conclusions about the effectiveness of the program. Some American consumers have purchased marketplace insurance plans with substantial deductibles in order to minimize premiums. This could leave them with large out-of-pocket payments and limited access to necessary care. Ex-post analysis indicates that employers are shifting the costs of health insurance onto their employees through deductibles.
There have been a number of solutions suggested by policymakers and government officials to eliminate waste and reduce administrative costs and the ACA has already taken the initiative to reduce costs by reducing Medicare readmissions and hospital-acquired conditions. There is wide support for a transition to a value-based care system to control and reduce costs, improve outcomes, and obtain more value for each dollar spent. The Pay-for-Value Programs for Hospitals and Physicians  of ACA creates incentives for hospitals and physicians to improve their performance based on a number of quality and cost metrics; the effects remain to be assessed. Accountable care organizations (ACO) serve to promote integration and coordination of ambulatory, inpatient, and post-acute care services and many experts see this as a bridge from fragmented fee-for-service care to integrated health care systems.
Individuals depend on society and government for health, and in the coming years policymakers must be able to address the quintessential question: Would it be possible to eliminate health care spending without reducing the quality of care? And the issue is too complex to be solved by a single reform program.