U.S. spends more on healthcare, no easy answer why

How is the U.S. spending so much money on healthcare when people pay for their medical bills with health insurance?

Home Economist

Dear Home Economist,

If your question is about why the U.S. (federal) government spends so much money, then the answer is four-fold: 
1) Medicare 
2) Medicaid 
3) Federal government employees 
4) Military members and families 

Altogether, the federal government pays for medical care for tens of millions of people.  We could include  research spending also, which would boost the total even more.  

This just describes where the money is going, not why it is so high.  There are many theories about why the United States spends so much more than other countries.  Theories range from high R&D costs for drugs and new technology, to profit-seeking enterprise, to cultural expectations and norms.  

Simply the fact of having health insurance will spur a person to use more medical services than he would otherwise.  The “better” the insurance, the less motivation a person has to conserve on medical care.  This also drives up consumption and therefore how much is spent.  Other countries have insurance too, but their cultural norms are different and high consumption is less of a problem (though becoming more so in some countries).  

In short, there are many ways that medical costs burden everyone beyond the cost of his or her own health insurance.

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Linda Riddell

About Linda Riddell

A published author and health policy analyst with 25 years’ experience, Linda Riddell's goal is to alleviate the widespread ailment of not knowing what your health plan can do for you.