Healthcare, oh healthcare. It has unified both sides of the political spectrum in believing that the current system isn’t working, but the two sides have polar opposite ideas in regards to how to go about fixing it. Fiscal Conservatives believes that the market will fix the current issues and that competition in the sector will drive down prices while Democrats believe the solution to be universal healthcare — the Sweden approach to healthcare, if you will.

The U.S. spends approximately 18 percent of its GDP on healthcare; out of these 18 percent, the majority is private expenditures, which is to be expected with the current system. What is, mayhap, a bit more alarming, however, is that the U.S. is also number one in terms of public spending on per capita healthcare in the world. Yes, that is right, the U.S. government spends more on per capita healthcare than Sweden, Germany, U.K., Denmark, and all other countries with universal healthcare.

To be fair, the U.S. is also richer than these countries, so it makes sense that healthcare would cost slightly more in the U.S. than in any other nation. However, the U.S. isn’t spending slightly more in healthcare, the U.S. is spending more than double of what the average developed nation spends on per capita healthcare; which begs the question, why is U.S. healthcare so expensive?

It would certainly not seem like the U.S. gets a lot of bang for their buck. Only 28 percent of Americans get their healthcare through government funded programs, the U.S. is ranked 31st in in the world in terms of life expectancy, and getting treated costs the patient a small fortune. Reasons commonly used to explain why U.S. healthcare is so expensive includes: doctors are scared of malpractice lawsuits, the population is obese and drain more resources in treatment costs, people get prescribed too many medications, people go to the doctor more, and the list goes on and on. Let’s have a look; are these the reasons why U.S. healthcare costs are so high?

Malpractice Insurance

It’s widely known that Americans like to sue for just about anything; your coffee is too hot? Lawsuit. Received too few napkins with your McDonalds order? Lawsuit. Needless to say, with healthcare, it is no different. Patients may make negligence claims if they feel as though they were not properly treated by their doctors. Of course, this makes sense in theory, as it incentivizes the doctors to provide the best care possible for the patients. Economically, it’s a bit more of a burden as it certainly does contribute to higher healthcare spending. As a result, the U.S. perform more CT scans and MRIs than any other nation in the world. However, it’s not as much of an economic culprit as one may think.



In Texas, Gov. Rick Perry signed a law in 2003 which is considered the most aggressive medical malpractice overhaul in history. The law put a cap on how much you could sue private physicians for and it was met with enthusiasm from doctors. Whether or not the law actually increased the number of doctors in the single star state is debatable, as the physician-to-population ratio remained the same both before and after the law was signed. Regardless, it gave some interesting insight into how much malpractice insurance contributes to the overall healthcare cost.

Did the law decrease the amount we spent on healthcare? Both yes and no. Overall healthcare costs did increase during the period of the time after the law was signed in Texas. That was, however, not due to the law. When accounting for variables, there was, in fact, a decrease in spending due to the new malpractice law — a whopping 0.1 percent decrease. Of course, that is an enormous number since the overall healthcare spending is so high. However, it accounts for a very small portion of the healthcare spending and does not help us explain why U.S. healthcare is so expensive.

Americans are obese

More than one-third of all American adults are considered obese, one in twenty are considered extremely obese, and three out of four men are considered overweight or obese. With these numbers, one would certainly expect that there are a lot of costs associated with treating obesity in the U.S. as obesity comes with a lot of health detriments including heart diseases and type II diabetes.

However, the notion that U.S. healthcare costs are so high due to obesity is simply not true. Healthcare spending that can be blamed on disease prevalence is extremely small compared to the overall cost of healthcare; even so, the U.S. is still considered very healthy by most standards. While obesity may be prevalent, U.S. alcohol consumption and smoking are lower than in most nations.

Why U.S. healthcare actually is so expensive

In the U.S., providers of medical supplies can charge pretty much whatever they can get away with, and the providers can get away with quite a lot; this is due to the economic principle known as inelastic demand. If a drug cost $5, but in turn would allow a person to live, one would purchase the drug. If a drug cost $155, but in turn would allow a person to live, one would purchase the drug. It’s very hard to put a price tag on life, and as such, producers can put a high price on their product without decreasing the quantity sold — gaining greater revenue.

In the U.K., the National Health Service (NHS) provides healthcare for all citizens. Interestingly enough, the U.K. also spends less than half of what the U.S. does on healthcare; there’s a very simple explanation for why this is the case — centralized negotiation. For example, when NHS is about to use a new product, they reach out to all different providers for that specific good. Because NHS is the central body to provide healthcare in the U.K., securing a contract with them is very lucrative as their product would then, in turn, be used all over the U.K. However, the NHS can then negotiate and drive down the price between the different suppliers and give a contract to the supplier who can offer the cheapest product that fulfills all the safety requirements. This is why a lot of procedures in the U.K. only cost a tenth of what it does in the U.S.



To conclude, a universal healthcare policy would most likely not require higher taxes as it is commonly believed. It would, however, quite certainly, drive down overall spending on healthcare. More importantly, it would give the citizens of the U.S. the decency they deserve; to be asked questions regarding their health as they get transported to the hospital for treatment of a gun wound, instead of being asked how they will finance their stay. It would make sure 643,000 people each year wouldn’t go bankrupt due to medical bills.



A broken system with a fix that makes much more sense from both an economic and humanitarian standpoint; get on with it already.

Sebastian Rothstein

Editor-in-Chief

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Rothstein@sbeconomic.com