Healthcare costs in the U.S. have soared from $240 billion in 1980 to $3.5 trillion in 20171. The 10% CAGR in spend has shot far above economic growth and has eaten into wage growth, as employers struggle to fund health plans for their workers. Today, healthcare accounts for 18% of U.S. GDP and costs about $10,000 per capita in PPP terms – approximately double the OECD average.
Unfortunately, the additional investment is not rewarded with superior health outcomes. The U.S. has one of the highest rates of obesity among Organisation for Economic Co-operation and Development (OECD) countries and double the infant mortality rate of the OECD average.
The entire system is bloated, but health insurance is the category whose share of total spend has spiked most significantly. Inevitably, this has made the insurance industry the focal point for finding efficiencies and driving down costs in the system overall.
Although the situation is particularly severe in the U.S., healthcare costs have risen globally whether the system is nationalized (e.g. U.K. and Japan), self-pay (e.g. Brazil), or a hybrid of public and private insurance (e.g., U.S.). Besides demographic shifts – either aging in many developed nations or high birth rates in some developing economies – healthcare costs careen toward crisis in countries that violate three principles of efficient healthcare delivery:
Promoting Prevention and Healthy Lifestyle Through a Focus on Robust Community Healthcare
Emerging countries such as Thailand have achieved comparable or superior outcomes to the U.S. by spending as little as $220 per capita in PPP terms2 (4% of GDP). Their efficiency stems from using low-cost primary care resources, such as GP practices, nursing facilities, diagnostic centers, pharmacists, and minor surgical clinics to address 80-90% of healthcare needs – often catching diseases before they become more acute. In many developed countries, such as France and Japan, health systems are shifting their center of gravity to community healthcare to reap similar efficiencies.
Standardization of Protocols and Costs
It may seem like common sense that two patients presenting with the same symptoms and similar medical history would follow a similar protocol of diagnostic testing and therapy, with each step costing a similar amount. This is far from the case in the U.S. Standardization of medical protocols lags far behind most nationalized health systems and deviations in cost are staggering. For example, the cost of an appendix removal can range anywhere from $1,500 to $183,000 depending on the insurer. Worse still, it is often unclear how much a patient will pay out-of-pocket upfront once ancillary services are added in.
Incentivizing Healthcare Providers to Deliver High-Quality Outcomes
Any system based on fee-for-service, without controls on quality of care, is set up for abuses of over-treatment. For example, until recent legislative changes in the U.S. that reward lower readmission rates, hospitals stood to make more money if patients returned to be treated for complications following a procedure.
Most health systems fall short of these three ideals, but the dysfunctions in the U.S. model are particularly egregious. Over the previous decade, most “innovations” in U.S. health insurance have simply tried to shift the cost burden from employer to employees in the form of higher deductibles and copays. These schemes have often backfired by encouraging consumers to forego preventative care, only to pay more for acute treatments once their condition deteriorates. The market is crying out for new health insurance tech solutions that address more fundamental flaws in the system.