Healthcare cost…

health-costs-stockHealthcare costs money.  Although Medicare/Medicaid in the US is virtually free for qualifying people, taxpayers still have to foot the bill.  The United States is one of the forerunners in healthcare.  We have some of the highest skilled doctors, the most advanced techniques and state of the art technology.  We also excel in healthcare expenditures.  The US is number one when it comes to spending on healthcare.  However, we do not have to highest life expectancy (78 years old on average).  This post will answer the question: is more spending on healthcare associated with better health?  I will also compare and contrast the US health status and healthcare expenditures with Japan (who has the highest life expectancy of 83 years old) but spends less than half on healthcare than the US does and conclude with my thoughts on the economics of healthcare reform.

healthcareWhile government healthcare spending could lessen, healthcare costs might still continue to rise in the US.  Of the 34 OECD countries (Organization for Economic Co-operation and Development) there were three that spent the most on healthcare per person and still had a high life expectancy.  The US ranked the eighth lowest on the OECD list of nations (Sauter & Stockdale, 2012).  We have spent an average $8,402 per person on healthcare in 2012 compared to Germany in second place at $3,669 per person.  The total spending on healthcare in the US in 2012 was $2.6 trillion, which accounts for 17.9% of the GDP (The Week, 2012).

One would think that because we spend the most money on healthcare, we would be the healthiest nation, have the greatest quality of healthcare, the most satisfied consumers/patients and the best system.  Usually goods that cost more are of higher quality and normally a consumer has to spend more money for a better service.  However if quality health is measured in how long one lives (the United States is ranked number 38th in the world just under Cuba), extra spending on healthcare does not account for better health.  Matthias Rumpf, chief media officer for the OECD, mentioned that just because a nation spends on healthcare does not make them healthier.  Usually in a nation that spends more, the people will choose more expensive tests and procedures which makes things more expensive.  In Germany, for example, people are penalized if they go see a specialist rather than consult their regular doctor (Sauter & Stockdale, 2012).

87168769There are several different conditions that influence healthcare spending.  How patients utilize healthcare greatly affects healthcare costs.  Constant MRIs or X-rays or other corrective procedures drive costs up.  Other factors are frequent visits to the doctor for issues that could have been prevented.  Pharmaceuticals are another factor that raises healthcare costs.  In the US last year, $950 was spent per person on drugs.  Most of the drugs sold in pharmacies throughout the nation are to treat symptoms and not cure illnesses.  They are used for convenient sake instead of to treat life-threatening sicknesses (Sauter & Stockdale, 2012).

Healthcare expenditures come from health insurance (gathered money from many people) and assistance from the government.  The limitation that matters is not how much someone makes per paycheck but how much all people make that contributes to health insurance as a whole for everyone who uses it.  There has to be someone who saves and can temporarily give the user money.  Unless there are people with money to contribute, patients/consumers (or countries for that matter) who don’t have the funds can’t spend them.  Usually wealthy countries do not save a bigger amount of their revenues than poor nations do.  They both equally save the same percentage of revenue.  Also, when GDP increases over the years, there is no inclination for a larger amount of national revenues to be saved.  Total national expenditure is limited by how much a nation makes each year and consequentially adapts to correspond with national income.  A society’s willingness to pay also determines how many resources will be provided (supply and demand).  Because everybody is able to use the same amount of a good, personal assets are meaningless besides their offering to taxes.  One person’s total earnings are not a fixed budget limitation.  It is possible to spend more money on a knee replacement than someone can earn in several lifetimes.  So, the means available to consumers overall comprise the average level of spending by a country (Getzen, 2010).

A Japanese Neurosurgeon with nurses

Why does Japan spend less than half on healthcare than the US does but still has the highest life expectancy in the world (78 years old for the men and 85 years old for the women)?  The use of technology is the same in both nations; however Japan’s flow of funds and government organizational structure is very different than it is in the US.  This greatly influences the quality and regularity of healthcare use, which also lowers healthcare costs (Getzen,2012).

Japanese people are free to choose any doctor or hospital they wish but they receive only one bill instead of three or four as they do in the US (Coats, 2012).  There is no pre-authorization for surgery or need for second opinions in Japan as there are in the US.  Their hospitalizations also tend to be much longer than they are in the US because they focus more on illness prevention rather than acute care.  The structure of Japanese health insurance allows for equalized healthcare buying availability to all people.  Differing from the US, Japanese insurance money is reimbursed with very little worry about what type of facility was used, the acuteness of the sickness or the difference in quality.  The charges related to healthcare spending are bureaucratically adjusted provider payments not “costs” and are accommodated in agreement to government bargaining not supply and demand changes.  All Japan’s insurance payments are organized in agreement to a single balanced payment schedule that determines how many procedures, surgeries and medications will be paid.  All insurance providers have the same low copayment plan rather than a large deductable.  If a certain medical practice becomes popularized, the costs are usually lessened in order to avoid further increases in cost.  Because of this, there is a vast difference in the number of surgical procedures in Japan than there are in the US (Getzen,2012).

A surgeon in Gekai, Japan

Japan’s very complex standardized healthcare system has remained very successful because of their rigid cost controls, continuing growing economy and young population.  Japanese healthcare has been able to reach an equal balance through agreements between insurance providers, healthcare companies and the government as opposed to the extensive differences of healthcare and insurance companies in the market based system here in the US.  Now in an ever changing worldwide economy, Japan is faced with decreasing funds.  With this new dilemma the world will be watching how they adapt their healthcare system in today’s declining economy (Getzen,2012).

Healthcare reform in the US has been a topic that of much discussion lately.  Our market based system is driving up costs because of the demands for too many unnecessary procedures.  The current decision by the Supreme Court to uphold governmental taxation and strict regulation on healthcare for every person living in the US will have lasting effects on the quality of our healthcare.  However, this decision is not addressing the root issues and problems with healthcare in the United States.  49% of our healthcare is spent on just 5% of the population.  They are the sickest, the poorest and are either underinsured or non-insured.  There is a lifestyle in the US that says, “I’m sick, therefore I will go to the doctor and get better,” This mindset is crowding up emergency rooms, operating rooms and hospitals and causing an unneeded demand.  The American people are more focused on acute care of illnesses rather than prevention of illnesses.  Our mindset should instead be, “I will live a healthy, illness preventative lifestyle so I won’t have to make as many visits to the doctor.” (Vaughn, 2012)

This isn’t just a problem with consumers/patients but also with restaurants and grocery stores that charge more for healthier food and less for the average high fat-high cholesterol foods.  It is a deep rooted issue with insurance companies that won’t cover costs for preventative procedures like mammographies or colonoscopies.  The American healthcare system needs to stop looking at treating chronic and acute illnesses and move into an area of preventative care.  That includes educating the public, a major reorganization of many systems, more people living illness preventative lifestyles, and parents eating better and being examples to their kids (Vaughn, 2012).

Healthcare reform in the US will not take place through strict governmental control and throwing money at the problem with increased taxes.  The healthcare system needs to fix itself through an entire different outlook and mindset on preventative measures.  There is also a problem with healthcare in America with too much paperwork.  Doctors are spending 40% of their time on writing prescriptions, referring specialists and filling out unnecessary legal forms when they should be with their patients more.  The bureaucracy of paperwork and patient records is too extensive and should rather be uniformed and standardized throughout the entire system.  Physicians are also spending a lot of money on attorney fees for fear of malpractice lawsuits.  However, like any cost increase in a business, they turn around and charge more to their patients.  All these practices need to come to an end if the US is going to lower healthcare spending and increase the quality of healthcare (Vaughn, 2012).

These are all huge issues that affect many lives in the US.  We spend far too much money on procedures and quick fix methods when the underlining problem is staring us in the face.  We are not the healthiest nation in the world just because we spend the most money on healthcare.  Japan’s model of uniformity in hospitals, insurance plans and coordination with the government has set a standard for many other nations to follow.  Healthcare in the US needs to be reformed but I believe we are headed in the wrong direction with increasing taxes which will lead to even more spending on healthcare.  If we are to become a leading country when it comes to living longer and preventing illness, we need to head in a different direction.




  1.  Getzen, T. (2010). Health economics and financing. (4th ed.). Hoboken, NJ: John Wiley & Sons INC.
  2. Sauter, M., & Stockdale, C. (2012). Countries that spend the most on health care read more: Countries that spend the most on health care – 24/7 wall st.
  4. The Week. (2012, March 30). The skyrocketing cost of U.S. health care: By the numbers. Retrieved from numbers

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