One reason the federal government spends so much on Medicare and Medicaid (M&M) is that the entire US healthcare system is expensive, no matter who pays the bills. The providers and suppliers are pretty much the same, whether the payer is private or public. Sure, the feds have some pricing power, but squeeze too hard and healthcare service providers will simply say thanks but no thanks.
As it is, the US spends almost 17% of the GDP on healthcare - much higher than in other developed countries:
Why is the US spending so much more than comparable countries? The Commonwealth Fund explored this very question and this is what they found:
Full Reference: Ani Turner, George Miller, and Elise Lowry, High U.S. Health Care Spending: Where Is It All Going? (Commonwealth Fund, Oct. 2023). https://doi.org/10.26099/r6j5-6e66
And a brief explanation of categories:
Higher administrative costs: These are mostly associated with health insurance tasks, such as determining eligibility, coding, submission, and resubmission.
Higher administrative burden on providers: For example, medical record review and documentation, online communications with patients and others, and compliance tasks to meet human resources and accreditation requirements.
Higher prescription drug costs: U.S. prescription drugs are two to three times those in other OECD countries, partly because many European governments have negotiated lower drug prices and pharmaceutical countries recoup funds by charging more in the U.S.
Higher Physician and RN Pay: U.S. Physicians earn about twice as much and registered nurses (RNs) 1.5 times as much physicians and professional nurses in comparable countries.
More investment in medical machinery/equipment: America’s market for medical devices is the largest in the world and is less regulated than the European market, allowing technology companies to charge higher prices for their products. This attracts a lot of capital investment and leads to greater innovation.
Other: Other possible components of excess U.S. spending on healthcare include higher labor costs for other healthcare workers, as well as low-value care and fraud. Studies have found that up to 25% of health care spending in the United States pays for low-value services, defined as unnecessary or ineffective procedures, tests, scans, and medications.
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Next: How to save on physician pay without igniting a firestorm of resistance.
Reference: Ani Turner, George Miller, and Elise Lowry, High U.S. Health Care Spending: Where Is It All Going? (Commonwealth Fund, Oct. 2023). https://doi.org/10.26099/r6j5-6e66