The next time you pay for your healthcare insurance premium, you should deduct about 25% of the cost. That way, you will save your private health insurer the trouble of throwing it away.

And that is what American healthcare insurance does.  According to a study in a 2019 edition of the Journal of the American Medical Association (JAMA), at least 25 to 30% of the healthcare dollar in the US is useless, even dangerous.

Where is the waste?

In 2022, American expenditure for healthcare was about 17.3% of the GDP.  Up to $945 billion was wasted.  For example, inefficient spending and/or mistakes in clinical care were rife: clinical failings such as postoperative infections, inadequate use of preventive measures like vaccines and monitoring of cholesterol, and redundant ordering of tests due to inability to get results of the same test from another venue.  And many more.  This category amounted to a waste of about $166 billion.  

Another major category of waste is fraud: up to $84 billion was the cost for services that were never provided or for services the value of which were vastly inflated.

It goes on and on, but the most notable category of waste involves administration, to the tune of $266 billion in 2022.

Waste Due to Administrative Complexity

David Himmelstein, a respected physician and healthcare expert, published an article that explored this issue.  He compared administrative costs in the Canadian healthcare system to those in the US.  

The Canadian system as we know it was started in 1984 and reached maturity at the turn of the century.  The most salient point is the percentage of administrative expenses between the two systems.  

Prior to 1999, administrative costs for healthcare in both countries were similar.  However, after 1999, administrative costs in American healthcare accounted for 31% of healthcare expenditures, while the comparable figure In Canada was 16.7%.  Another way to put it: based on data from 2017 (the last year for which comprehensive data were available), each American paid $2,497 for healthcare administration, while Canadians paid $551 per capita.  The estimated time spent dealing with bills and related matters was worth $68,000 per physician. 

Is It Worth It?

Does all this administrative encumbrance result in a better product?  

Life expectancy in selected  countries, in years

Canada 82

United Kingdom 81.3

Germany 81

United States 78.6

Perhaps an aging population accounts for the difference?  No.

Percentage of people over the age of 65

Canada 17.5

United Kingdom 18.5

Germany 21.5

United States 16.5

Cost of healthcare per capita

Canada $5,418.30

United Kingdom $4,653.06

Germany $6,645.76

United States $11,071.72

In contrast to all other developed countries, the US has tens of millions of people without health insurance.

Nothing New

Data like the above have been available for years.  When I first encountered them, I was aghast.  Now I am simply in a constant state of exasperation.  And things are not getting better.

In 1960, the total national healthcare expenditure was $27.12 billion.  This figure increased steadily and by 2000, it was $1.366 trillion.  In the last year for which figures are available (2022), spending on healthcare rose to $4,464.57 trillion.  

The Future

Except for determinedly obtuse politicians, anyone can see that our healthcare system as constituted is not sustainable.  Some healthcare economists look to the single payer Canadian model, with its universal coverage and beguilingly lower administrative burden.  If there is magic in that system, it is that citizens do not pay anything for healthcare up front.  Of course they pay taxes, but individuals never pay providers explicitly.  All financial transactions are between providers and the government.  This is one reason administrative expenses are so much lower than in the US.  

Too many powerful forces are financial winners in our healthcare system.  They have no incentive to see the system change and they stage formidable lobbying efforts to keep the system intact ($713.6 million in 2020, representing 20% of the total lobbying expenditure).  Eventually, something has to give.

*Obamacare was passed in 2010 and fully implemented in 2014.  Though the national cost of healthcare has steadily increased by about 4% per year since 2010 (on a par with recent historical trends before 2010), the rate of increase has not changed, even though tens of millions of previously uninsured people now have health insurance.