Health care in the US is technologically advanced but expensive, costing about $2.6 trillion dollars in 2010. For decades, health care spending in the US has increased more than the rate of growth for the overall economy; it increased from about 6% of the gross domestic product (GDP) in the 1960s to 17.6% in 2010. The percentage of GDP spent on health care in the US is significantly higher than that in any other nation. The next highest are 12% for the Netherlands, 11.6% for France and Germany, and 11.4% for Switzerland and Canada.
Also, the amount of money spent per capita on health care in relation to GDP per capita is also higher than that in other countries (see Fig. 1: 2009 health care spending per capita compared with gross domestic product (GDP) per capita.). The absolute amount and the rate of increase in the US are widely regarded as unsustainable. Consequently, US health care is currently in flux, as the government attempts to find ways to provide universal health care and reduce its costs.
The US spends $8,233/yr per capita, which is 2 1/2 times more than the Organization for Economic Cooperation and Development (OECD) average health expenditure per person and twice as much as that of relatively wealthy European countries such as France, Sweden, and the United Kingdom.
|2009 health care spending per capita compared with gross domestic product (GDP) per capita.
Dollar values are expressed as purchasing parity power in dollars (PPP$), which adjusts for the differences in purchasing power of different currencies for real goods and services. The data points in the graph represent 24 developed countries from the Organization for Economic Cooperation and Development (OECD). Health care spending per capita varies greatly among these countries. But there is a strong linear relationship between the ability to pay (GDP per capita) and per capita spending, except for the US outlier.
The US spends so much more than other countries partly because of the following:
More widespread use of costly equipment and procedures
Higher costs for the same goods and services
Higher administrative costs
|Adapted from Organization for Economic Cooperation and Development (OECD) Health at a Glance 2011: Why is health spending in the United States so high? Available at OECD Health at a Glance 2011. Accessed April 15, 2013.
Consequences of increased US spending on health care include the following:
Even though US health care spending per capita is the highest in the world, about 48 million people in the US do not have health insurance, whereas other developed countries, despite lower per capita expenditures, ensure universal access to health care. Furthermore, the high spending may not lead to correspondingly superior outcomes; the US ranks comparatively low on many health care outcome measures, such as the following:
Health care providers in the US are paid by the following:
In addition, the government directly provides some health care in government hospitals and clinics staffed by government employees. Examples are the Veteran's Health Administration and the Indian Health Service.
Private insurance is purchased from for-profit and not-for-profit insurance companies, which are accredited separately in each state. Although there are many health insurance companies in the US, a given state tends to have a limited number.
Most private insurance is purchased by corporations as a benefit for employees. Premiums are typically shared by employers and employees. But because the cost of employer-provided health insurance is not considered taxable income for the employee, the government in effect provides some subsidization.
People may also purchase private health insurance themselves. However, unlike in employer-provided policies, applicants for privately purchased policies typically undergo extensive evaluation (underwriting) to identify and reject applicants likely to require costly care, including those with preexisting conditions or a high likelihood of developing disorders. Many applicants are denied policies. Some cannot purchase private insurance at any price. For applicants who do qualify, costs can be much higher for a given policy than when it is purchased through a company or another large group, partly because individual purchasers do not have the negotiating power and ability to pool risk that large groups do and partly because administrative costs of writing and managing numerous separate policies are higher.
Private insurance in the US typically has high overhead. In many cases, about 20 to 30% of premiums are spent on administrative costs, compared with about 2% in the government Medicare program.
The Patient Protection and Affordable Care Act (PPACA, or Affordable Care Act [ACA]) is US health care reform legislation intended, among other things, to increase the availability, affordability, and use of health insurance. Many of the ACA's provisions involve an expansion of the private insurance market; it creates incentives for employers to provide health insurance and mandates that nearly all individuals not covered by their employer or a government insurance program (eg, Medicare, Medicaid) purchase private health insurance (individual mandate). To enable risk pooling and minimize overhead, the ACA requires creation of health insurance exchanges within each state. These exchanges are government-regulated, standardized health plans that are administered and sold by private insurance companies. States may join together to run multistate exchanges. The federal government may establish exchanges in states that do not do so themselves. There will be separate exchanges for individuals and small businesses. To qualify for listing on an exchange, a plan must provide a defined minimum level of coverage (as well as higher levels of coverage). Subsidies may be available to individuals on a sliding scale depending on income.
The ACA requires that private insurance plans, including those available on the exchanges, do the following:
Government insurance programs:
The main government insurance programs include
Other government programs include
Overall, about 30% of the population is covered by government insurance or government-provided care. The ACA expands the eligibility criteria for Medicaid and provides federal funding assistance to state Medicaid programs. However, states cannot be penalized for not complying with the new criteria, so it is uncertain how many additional people will be enrolled.
Out of pocket:
People pay for care not covered by other sources out of their own funds, often using their savings for small expenditures and borrowing (including using credit cards) for large expenditures.
Flexible spending accounts (FSAs) are offered by some employers. Through these accounts, employees can choose to have a limited amount of money deducted from their paychecks to pay for out-of-pocket health care expenses. The money deducted is not subject to federal income taxes. However, the account does not earn interest, and any unused money is forfeited at the end of the year.
Health savings accounts (HSAs) can also be used to pay out-of-pocket expenses; these accounts earn interest, and unused balances need not be forfeited. Most people who are eligible for these accounts are eligible because their health insurance plans limit their reimbursements enough to be classified as high-deductible health plans.
About 17% of health care costs in the US are funded out-of-pocket. Charges for health care services tend to be much larger for individuals than for large payors such as insurance companies that can negotiate discounts. Thus, individuals paying out-of-pocket charges that are not covered by insurance can have particularly large bills; these bills may be so large that expecting an individual to pay them is unrealistic. Out-of-pocket expenditures for health care contribute significantly to a large number of bankruptcies in the US.
The ACA requires that nearly all individuals have some type of health insurance coverage. However, the penalties for no doing so are only financial and are less costly than purchasing health insurance, so a significant number of individuals are thought likely to remain uncovered and to continue to pay out of pocket for health care.
Last full review/revision July 2013 by Amal Trivedi, MD, MPH
Content last modified October 2013