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American Health Care: Problems & Needed Reforms

Updated on July 3, 2011

Problem of Rising Costs

I am not trying to argue either for or against the new health care bill. Like most Americans, I am not qualified to have strong feelings either way. (I don’t have time to read hundreds of pages of legislation.) Instead, I will point out some simple problems that make it very difficult to implement any effective, meaningful reform. If my simplistic analysis is misguided, I would appreciate any attempt to enlighten me.

There is general agreement that health care costs in the United States are way too high. (It is one of the few things on which everyone can agree.)  Roughly 17% of American GDP goes into health care, a number exceeding two trillion dollars. Of course, to the industries that are performing medical services and receiving much of this money - doctors, hospitals, the pharmaceutical industry, and medical technology companies - this high level of spending is not really a problem. After all, what private industry in its right mind would want spending on its services to decrease? It is therefore in the interests of each of these major players in the health care system to make sure that any reform measures do not cut too much into their piece of the pie. To some, this is an inevitable problem with a private health care system in which the various players are motivated by profit. Health care, they would argue, should be provided as a basic right, not as a privilege reserved to those who can pay for it.

To others, however, these notions of health care as a basic right and of the evils of capitalism are classic examples of naïve liberal idealism. Without the opportunity for profits, there would be no incentive to develop medical innovations and provide the best services possible. Like with all industries in a capitalistic economy, real competition between service providers, along with the basic rules of supply and demand, should keep prices in control. Just like any product, consumers have the opportunity to shop for the best price. And if prices get too high, a reduction in demand will lead to decreased profits and a natural price adjustment.

The problem is that health care is not like most products. If the price of the flat screen TV, car, or sweater that I really want is too high, I can settle for a lesser product or just do without for the time being. But if I am suffering from a major medical issue, doing without and/or accepting lower quality care is not a viable option. As time has passed, medical technology has advanced tremendously, keeping people alive who not too long ago would have died much sooner. These services, however, can have a very high price tag. But when a medical situation is serious enough, no cost seems too high. So even if all available medical services are priced out of the practical range of average people, they will still feel compelled to pay it.

Most Americans, however, do not pay these high costs directly. By and large, they don’t even know how much the services cost.  This is because their medical insurance companies have the actual responsibility of paying the tab. So unlike the other major industries in the medical “system,” insurance companies have an incentive to keep costs down. On some level, it would seem that they are on the side of the consumer. So why is it that consumers complain so often about insurance companies?

Problems and Inherent Weaknesses of For Profit Health Insurance

The insurance business in general can be extremely profitable, but the circumstances have to be right. First, you need to insure a large pool of people so that you can accurately predict how many of your customers are likely to make a claim over a given period of time. With a large sample size and an accurate set of statistics, you can get this down to a science. Second, you must try to avoid insuring risky people, and if you take on those who are risky, then you must charge higher premiums. By these standards, the most predictable and profitable enterprises seem to be auto and life insurance. Since it is unlikely that a rash of customers are going to die off or have car accidents at the same time, you can easily set things up so that you collect more in premiums than you dish out in claims. The main problem is the competition from those seeking to capitalize on this brilliant business model. Homeowner’s insurance is also a safe bet by and large. You could get in trouble, however, if you insure a bunch of homes in a disaster prone area. (Of course, if the disaster is bad enough, then the government might rush to the rescue.) On average, however, claims by homeowners are relatively rare, so you can rake in far more than you spend.

So how, if at all, is medical insurance any different? Like all forms of insurance, you can predict the likely cost of claims by insuring large numbers of people. However, you are likely to run into a couple of basic problems not faced by other types of insurance companies. First, your customers are likely to be far more demanding. They will often show up to the doctor when they do not have a real problem. Ideally, the doctors in this situation will deal with their patient’s “issues” with limited cost. Others, however, might be happy to perform unnecessary medical procedures in order to keep the patient happy, avoid future lawsuits, or generate revenue. And if heaven forbid a customer actually does get sick, they will demand all of the procedures, pills, and technology available to get them well. So what is an insurance company to do? If you refuse to pay for procedures that you deem unnecessary, too expensive, or possibly even harmful, then you are the bad guy. Unlike other products, the consumer will not get angry at the service providers for charging the enormous costs that few customers even see. When it comes to paying, the consumer only deals with the insurance company. But then again, if you keep the customer happy and dish out the cash too liberally, then you are out of business. And if you decide to pick a fight with the medical establishment in order to reduce the costs of the various procedures, they could get ticked off and become less inclined to continue working with you.

Customers of other types of insurance companies are not so demanding. A life insurance customer can only die once. Average drivers are likely to have a limited number of accidents. Houses don’t burn down very often. And if a company drops a customer, raises premiums so they are out of reach, or refuses to insure those that seem too risky, it is at worst a major inconvenience. Few would argue, after all, that people have a god-given right to life insurance, driving privileges, or home ownership. But if a health insurance company does the same, it might sentence that individual to death. Staying alive seems like a pretty basic right. Even those who insist that medical service is a commodity that must be bought and sold on the open market would be unlikely to let an uninsured, poor person bleed to death just outside the emergency room door.  (And since the emergency room is compelled to give care, then they will be forced to eat the costs, passing these on to insurers and consumers.)

This article so far sounds like a defense of insurance companies. I do recognize, however, that insurance companies are as motivated by profit as anyone; sustain bloated, inefficient, sometimes incompetent bureaucracies; lobby governments to protect their interests and limit competition; and have been known to commit outright fraud. But no matter how you look at it, something, or more accurately someone, has got to give. It seems clear that some player(s) in the health care system – consumers, insurance companies, or providers of health care services – will lose out if real reform were to ever occur. But then again, is it possible for everyone to win?

The Costs of the Status Quo

As with any complicated issue, it is easier to point out problems than to offer up solutions, and when in doubt, the safest path is to do nothing. Inaction, however, is not an actual option. Dodging an issue represents an effort to maintain the status quo, a proclamation that the current system is perfectly fine.

Maintaining the status quo can also be the safest path for politicians seeking votes. Change tends to make voters nervous, and the current system, in spite of its weaknesses, can seem more appealing than an uncertain future. And when you are potentially messing with people’s health, these natural fears of change can be even more intense. Fear, however, does not entirely explain the intensity of resistance to health care reform. The simple fact, apparently, is that many Americans are happy with their health care situation. Most Americans have health insurance, and they feel that this provides them with the best doctors and medical technology that the world has to offer. Their contentment with the system, however, is based partly on ignorance. Because the insurance company pays for services, consumers do not see the actual costs of their care, and since many Americans get their insurance through their employer, they are shielded from the actual cost of the insurance premiums. In order to provide this benefit, employers are forced to reduce the salaries that they might otherwise offer. Being shielded from the costs, therefore, can create the illusion that the system is both effective and affordable.

High costs, however, are not the only problem. Unlike other industrialized nations, tens of millions of Americans have no medical insurance. But is this really a problem? This question is at the core of the debate. For some, the fact that millions are uninsured is a moral outrage, and universal health coverage must be the top priority. The big problem, of course, is figuring out how to pay for it, a problem that becomes more daunting as health care costs rise. For others, the idea that the government should aggressively intervene in order to guarantee health coverage is the outrage. This will lead to high taxes, increasing deficits, rationing of care, excessive government control, and deterioration in quality of services. I understand these concerns, but they fail to address the question of what should be done when an uninsured person who cannot afford out of pocket expenses needs health care. In my experience, few of the people who rant and rave about the evils of “socialized medicine” would say that we should let people in need go without health care and potentially die. 

So we have two big problems: high costs and a large number of uninsured people. Which problem should take priority? On one extreme, you have people focused on using market forces to bring down costs. In theory, more people will then be able to afford insurance, but you will still have to contend with some uninsured citizens. On the other side, you have those who want government action to guarantee health coverage and force down costs. President Obama and the members of congress who voted for the health care bill seem to be in this category, but most analysts that I have heard argue that the new reform bill is weighted more heavily toward expanding insurance than cutting costs. This is partly because it is easier for government to hand out benefits than to manage complex economic forces. Whatever you believe, one thing seems clear: you cannot choose to tackle only one of these problems. If costs keep rising, it will come out of consumers’ pockets in one way or another, whether it’s in the form of taxes, insurance premiums, lower salaries, or direct payments to service providers. If we do not address the problem of the uninsured, then we have a choice of undesirable, ineffective, and/or inefficient options: let them do without, have government pay for their care, dump the problem on to charities, or have emergency rooms be their primary care facility. High costs make expanded coverage less affordable, and a large number of uninsured citizens can cause costs to rise even more.

Possible Improvements

Oops. I’ve gone back to listing problems instead of offering solutions. This is partly because I do not have a comprehensive solution to the problem. (I’m just a teacher / self-proclaimed writer after all.) Still, I have heard many ideas over the past several months that could bring some improvements. These ideas, however, are based on an assumption that some Americans will resist. In my view, it is a bad thing for too much of America’s accumulative wealth to be going into the health care sector. All Americans are potential consumers of health care – including health care professionals - and if we are all forced to spend increasing amounts in that area, then the rest of the economy will suffer. Of course, those who work in health care stand to benefit if health care costs continue to rise. To me, however, their interests are secondary. In the end, the interests of the whole must take precedent over those of any particular group. So if you accept this assumption, here are some possible courses of action, listed in no particular order:

1) Enough with the catch phrases and ideological arguments: Too often, political “discussion” is nothing more than arguments over general principles. But politics is ultimately about developing practical policies, not just making effective arguments and winning elections. So if a change seems likely to improve the health care system, I could care less if it came from a liberal or conservative source.

2) Malpractice reform: Many claim that doctors are forced to practice “defensive medicine.” In order to cover themselves and avoid potential lawsuits, they will perform expensive procedures that may not be necessary. Caps on the size of lawsuit payouts may be in order, as well as penalties for lawyers who push for lawsuits that are clearly “frivolous.” It will then be possible for doctors to pay less for malpractice insurance, potentially bringing down overall costs.

3) Move away from employer provided insurance: Relying on an employer for insurance creates all sorts of problems. People stay in jobs that may not be best for them (or the economy) in order to maintain insurance. The fear of losing insurance if you are fired or laid off can also create extra stress, feeding into potential health problems. Businesses may also struggle to compete against foreign companies that do not have this extra expense. The concept of a health insurance exchange that is included in the health care bill may be a good way to go, although I don’t know enough about the details in the recent bill to know if it will be effective.

4) End the system of “cost per service”: Medical specialists are paid on the basis of how many procedures they perform, not on the overall medical result. This creates an incentive to do more, even if these procedures are unnecessary and possibly even harmful. Given the enormous variety in the frequency of procedures performed at different clinics throughout the country, along with the wide range of prices charged by different places for the same services, it is clear that some national standards may be in order. With apologies to the opponents of “socialized medicine,” this may be a job for a government board of medical experts that can determine both the effectiveness and the real costs of standard procedures.

5) Provide government subsidies to help people get insured: Initially, this will lead to increased government spending. But if we accept the notion that the uninsured are not going to be left to die, then it is in all of our interest to improve the efficiency with which they receive care. Waiting for emergencies before one goes to the doctor, and essentially using the emergency room as a primary care facility, drives up costs for everyone. It may seem counterintuitive, but offering high quality basic services – something often referred to as preventative medicine - can ultimately lead to lower costs. Better basic care, by reducing the number of major health problems, ends up being cheaper.

6) States must be opened up to more health insurance competition: Because people throughout the nation often have limited companies to choose from, there is little incentive for insurance companies to reduce premiums, make operations more efficient, or provide better services. So if we are going to maintain this system of for profit, private health insurance, then consumers need the benefit of real competition.

7) Increase the age at which people receive Medicare benefits: This is not popular, and given the fact that the elderly are the most powerful people in the nation, it will be hard to make it happen. But if Medicare is left as it is, it will drive our federal government further into debt and/or force tax hikes. People are living and working longer, and this outdated program needs to reflect this reality.

8) Rethink end of life care: Huge amounts of money are spent on people during their last months of life, and this spending often does little other than extending the process of dying. Sometimes, the best thing that can be done for a person is to withhold care. The side effects of treatment can outweigh any benefits and make those last precious days a nightmare.

9) A lifestyle shift: Americans are often stressed out, overworked, and generally unhealthy people. We can complain all we want about doctors, insurance companies, and the government, but many of our problems are of our own making. Personal responsibility, and the idea that you cannot necessarily have everything that you want, need to make a comeback in our self-indulgent, overly materialistic society.

10) Err on the side of care: Sometimes, the goals of cutting costs and increasing access to health care will seem to be in conflict. Also, there will be times when the fiscal costs of an idea for increasing coverage are uncertain. In my mind, if a choice must be made between potentially improving coverage versus maintaining current costs, I will go with improved coverage. If more Americans are able to see a doctor when necessary, I can live with slightly higher taxes or insurance premiums. You would think that with all of the self-professed Christians on both sides of the political spectrum, they could all agree that we should err on the side of compassion.


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    • Freeway Flyer profile imageAUTHOR

      Paul Swendson 

      6 years ago

      OK. I don't have much more to say anyway. So long as health care is sold like any other commodity in the United States, the cost is going to keep rising. We should either create some sort of a national, single-payer plan or openly state that people who cannot afford health care do not deserve to have it.

      When I wrote this, I was mostly trying to describe the problem. And the flawed solutions I listed are merely attempts to make things slightly better. Since I know that few Americans want a national single-payer plan or want to admit that a purely private health care system will lead some to be left for dead, I tried to list things that might actually happen.

      If you have any solutions, I'm all ears. But given that you have never published a single hub, I get the feeling that you prefer pointing out problems to trying to come up with solutions. Yes, a system that truly seeks cures as opposed to one that seeks to generate income by performing health care procedures would be ideal. But how do we get there? Beats me.

    • ib radmasters profile image

      ib radmasters 

      6 years ago from Southern California

      I guess we are done, I won't be back to your hubs.

    • ib radmasters profile image

      ib radmasters 

      6 years ago from Southern California

      Freeway Flyer

      I didn't find any solutions offered here that would make a positive change to the healthcare industry.

      I won't go into the details of what I think would be better solutions because it would be the size of a hub.

      As I mentioned to you, the healthcare industry includes the FDA, Health care insurance companies, Pharmaceutical companies, and the healthcare practitioners. As long as the industry is one of For Profit participants, there is no incentive for cures. And since the FDA has been given the monitoring of the drug companies by congress, there have been no cures for major diseases.

      Yes, medical technology has improved, but it is only useful in mechanics like transplants, and surgeries. FDA approved drugs are as dangerous as ever, and that is evidenced by the law corporations suing these drugs.

      Adding thirty two million people to an already pathetic healthcare industry couldn't possibly improve the quality of care.

      You can't blame Medicare on the people, you need to start with the democrats and FDR, and Johnson. These entitlements are mandatory taxes on wage earners, but congress chose to squander the revenue. Had they used the same protected system that they use for government employee pensions, Medicare would be well funded.

      You should attack the expensive benefits bestowed on the government employees that tax the wallets of the taxpayers. Every government employee is a TAX LIABILITY. More employees is more liability, and less employees is less liability.

    • arb profile image


      7 years ago from oregon


    • Freeway Flyer profile imageAUTHOR

      Paul Swendson 

      7 years ago

      As long as health care is viewed as just one more commodity, we should not be surprised if some people are left by the wayside. And unfortunately, I fear that we may see a time in the not so distant future when water may be viewed in the same way. Market capitalism is the best system for much of the economy, but I'm not sure if it works for the basic necessities.

    • arb profile image


      7 years ago from oregon

      Well, took your advice and came over for a visit. Obviously a lot of thinking and reflection preceeded this work and as you, I do not have a workable solution. I think all of your points would move us in the right direction, but, I think it a bone to satisfy the troublesome dog. Greed drives capital side of this industry and its charges reflect a market which continues to pay what they ask. As long as we can pay then we and they shall play. What would happen to medical charges across the board, pharmaceutical, hospital and doctors if there was no such thing as insurance. Charges would fall to a market value established by the consumer.And we could shop until, literally we drop. As you say, no one knows what they are being charged because somebody else, who can, is paying the bill. What an utter absurtity. Imagine the price of water without regulatory commisions overseeing prices. Anyway, a fine work.

    • Freeway Flyer profile imageAUTHOR

      Paul Swendson 

      8 years ago

      I'm not sure if private health insurance can both provide quality care to all who need it and be profitable at the same time. Like other types of insurance, companies must be selective if they are to be profitable.

    • kimh039 profile image

      Kim Harris 

      8 years ago

      Thanks for your thoughts on the topic, Freeway Flyer. I especially enjoyed, "Customers of other types of insurance companies are not so demanding." I understand insurance companies make only a 3-5% profit, far less than most businesses. Of course 3% of a large number is bigger than 50% of a small number!

    • Freeway Flyer profile imageAUTHOR

      Paul Swendson 

      8 years ago

      I included number 11 when I talked about opening states to competition. Number 12 is a great idea, although insurance companies probably don't want the hassle of coming up with complex pricing options. They also like the idea of collecting for services that you don't want (like with cable TV). There are plans out there like number 13. I'm not sure if they will be an option in the insurance exchanges that the current reform bill will set up.

    • profile image


      8 years ago

      Paul, a very well written article. May I suggest 3 additional possible improvements?

      11. Change existing law, to allow a person in a state (e.g. Florida) to purchase insurance from a company outside of that state. Currently, the law requires that people in a state can only purchase health insurance from a company in that same state, which reduces competition (limits supply, and thus increases cost/demand).

      12. Change existing law, to allow consumers to purchase only those health coverage options that he/she wants. Currently, when one purchases health insurance, it's a "one size fits all", so that one must pay premiums for receiving contraceptives (e.g. vasectomies, birth control pills, etc), even if one doesn't want that service. Why not purchase health insurance just like car insurance, so that one can have payments options, such as whether to pay for uninsured motorist or liability coverage or collision coverage or comprehensive coverage

      13. Change existing law, to allow strictly catastrophic health insurance, say with a $20,000 deductible, similar to earthquake insurance. So that the consumer would pay out-of-pocket for simple things like broken bones or surgery, but would have insurance pay for very rare claims in the hundreds of thousands (say a major car crash or cancer).

    • Freeway Flyer profile imageAUTHOR

      Paul Swendson 

      8 years ago

      My understanding is that every industrialized nation on earth provides some form of guaranteed, national health care. In the United States, we still a strong individualistic, anti-government streak. So we want people to pay their own way (in theory). Unfortunately, this leads to a hodgepodge of a "system" that has all sorts of inefficiencies, and a lot of people are either too self-centered or shortsighted to consider changing it.

    • christopheranton profile image

      Christopher Antony Meade 

      8 years ago from Gillingham Kent. United Kingdom

      Thanks for a very well reasoned and compassionate article.

      Could the "workfare" idea be applied to paying for health insurance for those who cannot afford the cash directly. There must be a lot of useful things people could do that would help their communities, and they could get some form of healthcare credits in return.

      Of course people who are ill should be exempted.

      Just an idea.

      Here in the UK health care is provided for everyone by the state, so we dont have the same problems you have in the US.

      But then our population is less. That helps.


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