The source of the huge costs in medical care are the way medicare/medicaid completely dominate the market with their hair-brained payment schemes.
Medicare and Medicaid appear to be similar to the systems that most other countries (e.g. Britain, Canada) have in place to pay for healthcare (except that in most other countries everyone is covered). How do you explain that, in those other countries, the per-capita costs of healthcare are lower than in the US?
The way doctors are reimbursed is based on a formula that ranks the amount of effort the doctor has put in and not on the actual value they are providing. This means that specialists, tests, and other advanced areas receive the bulk of the money regardless of the actual impact on the patient. This leads doctors ordering unnecessary tests and a lack of general practitioners and an abundance of specialists.
I don't recall exactly how Britain and Canada do it, but I'm pretty sure it's not the same way.
Here's how it works:
The RBRVS Fee Schedule.[6]Medicare uses the resource-based relative value scale (RBRVS) to pay for physician services. Under this formula, Medicare officials compute the “objective value” of an estimated 7,000 procedures.[7] Each component of a medical service is assigned a weighted value that is calculated by using social science measurements of the time, energy, and effort required to perform a given procedure, including resource inputs such as medical equipment, malpractice insurance, and administrative costs. These weighted “values” are then converted into dollar amounts and used to determine the fees that Medicare pays to physicians for those services.[8] The diagnosis related group (DRG) system reimburses hospitals using a similar strategy.[9]
Most other countries are poorer than the US; the US has a GDP per capita 50% higher than the EU and (for example) 40% higher than France. Since a medical procedure takes the same amount of time in either place, the cost will be proportional to wages.
Additionally, the US is far more unequal than most other countries. At the top of the skill chain, the gap increases significantly [1]. The US costs more simply because doctor's salaries need to be competitive with banker and programmer salaries.
[1] I know a few FOB Indians who had multiple jobs/offers, they say the US can often pay double what the EU does.
Medicare and Medicaid appear to be similar to the systems that most other countries (e.g. Britain, Canada) have in place to pay for healthcare (except that in most other countries everyone is covered). How do you explain that, in those other countries, the per-capita costs of healthcare are lower than in the US?