Rip-Off: How Private-Sector Health Costs Are Killing the American Dream

  • submit to reddit

Part one of this series, “The High Cost of Low Taxes,” noted that while Americans enjoy a tax burden lower than that of other wealthy countries, we also pay four times as much as they do, on average, for out-of-pocket “social costs” in the private sector – on health care, retirement security, disability and unemployment insurance, and the rest of the safety net. When you add up what we pay in taxes and what we pay out of pocket, the US spends about the same amount on social costs overall as some of the most generous, heavily taxed social democracies, but we get a far less secure safety net in return.

The federal government doesn’t have a deficit problem. Its fiscal issues are entirely related to the bloated cost of American health care. If we paid the same amount for health care per person as people do in other wealthy countries with longer average life expectancies, we’d have a balanced budget now and surpluses projected for the future.


But those are just numbers on a spreadsheet. Fran and Randy Malott understand those costs more viscerally. The Whittier, Calif., couple aren’t living the American dream right now. They haven’t for a while. They were slammed when Wall Street’s house of cards came tumbling down, and now they’re feeling the squeeze of the Great American Rip-off.

Fran lost her job as a customer service representative in 2009, at the height of the Great Recession. “A lot of companies are getting rid of customer service these days,” explains Randy. He lost his job managing a temp agency a year or so later. The Malotts are two of what Paul Krugman called “the forgotten millions” – the long-term unemployed who face unique barriers to reentering the workforce, including discrimination by potential employers just because they’ve been out of work for an extended period. “And our age doesn’t help either,” says Randy. He’s 59 and she’s 60. “There was unemployment for a while,” Randy says, “and now we’re getting by on savings.”

He tells Moyers & Company, “we live pretty frugally,” but the $1,600 a month they’re forking over for health insurance represents about half their total spending. The Malotts are a healthy couple, yet they’re watching their life savings drain away, in large part due to their health insurance company. The $140,000 the Malotts had socked away for retirement is now down to around $45,000. “We’ve got quite a ways to go before Social Security and Medicare kick in,” says Randy.

The Malotts are in a tough spot, like a lot of people who find themselves in similar circumstances. Studies have shown that long-term unemployment causes stress and illness. In the rest of the world’s highly developed countries, the Malotts’ health care would be covered by their government – the risk of long-term unemployment would be spread across an entire society – which means they’d have one less serious stressor, and around $45,000 more in the bank than they do today.

When Competition Drives Up Costs

The US system is a stark testament to the fact that, at least when it comes to health care, more competition doesn’t lead to lower prices or better outcomes.

Three facts are indisputable. First, the $8,500 we spent per person on health care in 2011 was around $5,000 more than the average among developed countries in the Organization for Economic Cooperation and Development (OECD) — and almost $3,000 more than the average in Switzerland, which was the next highest spender.

Second, multiple studies have found that we have significantly poorer health outcomes than most developed countries (see here, and here) – by some measures, we rank dead last. And it’s not just because we have higher rates of poverty and inequality — a study conducted by the National Research Council and the Institute for Medicine accounted for those factors and found that, as Grace Rubenstein summarized for The Atlantic, “even white, well-off Americans live sicker and die sooner than similarly situated people elsewhere.” (American men are also becoming shorter relative to men in other highly developed countries – the average height of a population is a proxy for the quality of prenatal health care and nutrition.)

Finally, we rely much more heavily on the private sector to finance our health care than any other wealthy country. Every developed state finances health care through a mix of private and public spending, but the balance between private and public health care in the US looks different from the rest of the wealthy world. Across the OECD countries, governments pick up 72 percent of the tab for health care, but our government finances just under 48 percent – only the Chilean government covers a smaller share (XL). (In the eight social democracies with the highest tax burdens in the OECD — Denmark, Sweden, Norway, Belgium, Italy, France, Austria and Finland — 79 percent of health costs are financed through the public sector.)

There are several reasons why our outsized reliance on the private sector ends up costing us so dearly. The first is a simple matter of scale. In 2009, at the height of the debate over Obamacare, economist Josh Bivens wrote that “health care is an area where the more costs are loaded up on the federal government, the more efficiently care tends to be delivered overall.” This is a big reason why costs in America’s public health care programs, with their purchasing clout, have grown more slowly than they have in the private sector.

When a single-payer system covers a vast pool of people, it has more bargaining power to negotiate with providers. It needs significantly less administrative overhead to figure out who will pay which bill (a question which is regularly litigated). A 2003 study published in the New England Journal of Medicine found that three out of every 10 health care dollars spent in the US goes to administrative costs rather than care.

And in health care, competition often drives costs up rather than down. According to Adam Linker, a policy analyst with the Health Access coalition, Medicare costs are highest where there are the most treatment facilities competing for patients. He writes:

More competition drives up the cost of care because when several hospitals are competing for patients and doctors they feel more pressure to build more beds, provide more amenities, and purchase the latest expensive gadgets. Instead of focusing on patient preference and improving care, hospitals are in an arms race to gain market share. That makes health care more expensive for everyone.

A 2011 study by the Robert Woods Foundation found that new medical technologies are the number one driver of US health care costs. When it comes to purchasing the latest gadgets, our providers are close to the top of the heap: In 2009, only Japan had more MRI machines and CT scanners per million people than the U.S. And we use them, too, getting twice as many MRIs and CT scans per person as the OECD average.

Health Care as a Commodity

All of these differences in how we pay for health care may pale next to a more fundamental one: We view health care as a commodity and allow providers to set prices as high as the market will bear. The problem with that is that health care is a market in which we often don’t have enough information to shop and choose, and because most of us have a good chunk of our costs picked up by a third party – an insurance company – the market often ends up bearing ludicrously high costs.

It may sound obvious, but the biggest reason we spend so much on health care is not only because insurance companies take out profits and overhead — it’s that health care costs us more than citizens of other wealthy countries. Everything from pharmaceuticals to surgical procedures to tests costs us more than citizens of other rich countries (the linked study found only a single exception: cataract surgeries cost more in Switzerland). Even a basic checkup is more expensive here than in other highly developed states.

A big reason for that is that government cost controls – both soft and hard – are common in the rest of the world. Pharmaceuticals provide a good example. We paid $947 per person for prescription drugs in 2009, on average, which was almost double the $487 per person in the OECD as a whole, but we don’t take twice as many pills. We just let big pharma charge whatever it can get away with.

Some other countries only approve drugs at a price that’s in line with what those medications cost in other countries. Many countries evaluate new drugs not only on safety and efficacy, but also on whether they provide better value than existing medications. The U.K. has a board that sets the amount that its National Health Service will pay for a drug and limits how much profit drug companies can make from the British public.

As Jonathan Wolff, a professor at the University College London described it:

Each year pharmaceutical companies have to open their books to the [National Health Service] accountants and if the profits they make are above a certain level then there is a ‘clawback’. Furthermore, the agreements have to be renewed every few years and each time price cuts are negotiated as part of the contract. Hence although it appears that drug companies can charge what they want, in practice there are both price controls and profit controls, enforced by the government.

US big pharma, like other providers, argues that it needs to charge high prices to pay for innovative new research. But a 2006 study by the Congressional Budget Office found that the pharmaceutical industry already benefited greatly from government-sponsored research: Much of the $25 billion the federal government spent on basic scientific research accrued to an industry that itself spent $39 billion on research and development. And, as economist Dean Baker has argued, there are other, more efficient ways to finance drug research, but they would also require more, not less, involvement by the government.

Shackled by Private Health Care

Our sky-high health care costs place a huge burden on American families. Medical bills are the leading cause of bankruptcies in this country, ahead of credit card debt and unwieldy mortgages. Rising costs for health benefits are a big reason for flat wages: What employers pay in total compensation, including health benefits, has grown a lot faster than wages in recent years.

Conservatives believe that more government involvement in health care will lead to less freedom and personal liberty, but when it comes to health care, the opposite is true. Why? First, because private insurers aren’t in the business of liberty. They set rules on what they’ll cover and give you lists of doctors you can see without paying extra out-of-network costs. Until new regulations were enacted under the Affordable Care Act, they shopped for the cheapest customers, denying coverage for people with preexisting conditions and using fine print to deny payments to those they did cover.

But on a more fundamental level, millions of Americans are trapped by high private health care costs – stuck in dead-end relationships or jobs that they hate because leaving would mean shouldering the entire burden themselves. It’s not only a rip-off, but a big part of the high costs we end up paying to keep taxes low.

Next in the series: How our low tax burden makes the financing of our social welfare system less fair for average working people.

Joshua Holland is a senior digital producer for He’s the author of The Fifteen Biggest Lies About the Economy (and Everything Else the Right Doesn’t Want You to Know about Taxes, Jobs and Corporate America) (Wiley: 2010), and host of Politics and Reality Radio. Follow him on Twitter or drop him an email at hollandj [at] moyersmedia [dot] com.
  • submit to reddit
  • Abimael Chavez-Hernandez

    Great piece! But let’s not forget that part of private health insurance is partially paid, or in large part, by government at all levels. Through tax expenditures, health benefits for government employees, and other sponsorships government finances European levels of public health spending. This is evidenced in the CMS data analyzed by the Congressional Research Service.

    The report doesn’t fully analyze all sources of public sponsorship but things like the tax expenditure for employer-sponsored health insurance make us closer to Europe on health spending than raw data would allow us to see. Take into account excessive private health insurance administrative costs contribution to our inflated and indirect welfare state and we are even closer to Europe. Essentially, we are paying for a European level funded of health care but not getting it.

  • NotARedneck

    The reasons for the disparity:

    1) Nearly a quarter of insurance goes to executive compensation and shareholders. (1.5% of GNP)

    2) Additionally, a lot is spent on administration of insurance (discussed in article) and the insurance bureaucracy denying people care. (1.5% of GNP)

    3) There is an incentive to over deliver “care” to the small percentage with good health care insurance or great wealth. These people usually don’t benefit and often are worse off. (2% of GNP)

    4) People with poor coverage cost A LOT MORE when they finally get care and the system pays for it. Cheap prenatal care vs dealing with the expensive consequences of premature birth is an example – but there are many (2% of GNP)

    5) The profit motive leads to padding bills, unnecessary procedures and LOTS of outright fraud. (3% of GNP)

    There are other items but these add up to 10% of GNP and health care costs 17% of GNP sot it is no wonder that the US gets care that is far worse than those economies that spend 8 or 9% of their GNP on it. They spend all this and probably get the effect of about 5% of GNP spending!

  • NotARedneck

    What is worth noting is that the US governments pay more than most others and as much as any and get not only relatively poor results but coverage of only half the population! The politicians who allow this (mainly nearly all RepubliCON scum but many right wing Democrats too) really are criminals of the worst sort. They should all be in prison serving AT LEAST 10 years, most life with no parole.

  • Solid State Max

    As usual, Holland gets it that this country’s health care is screwed up but conveniently overlooks the fact that ACA does nothing to fix that but only compounds it.

  • Jeanne (clearhealthcosts)

    Nice piece! I’m always interested when the idea of price controls comes up, because we seem to have voted emphatically against price controls in this industry, as in many others — reflecting, to a degree, who we are as a nation.

    What puzzles me, though, is why we can’t do more to bring openness and transparency to the question of health-care pricing, or why we have as a nation acquiesced for so long in the construction of an opaque health-care marketplace, characterized by huge information asymmetry.

    Seems to me that with good information about pricing (a $400 MRI or a $4,000 MRI? paying $15 for a prescription or $62 across the street?) people will make very different choices. Well, some people will. Change may be gradual, but it will come.

  • Anonymous

    Well that’s the major big disappointment about the man.

  • Anonymous

    Yes, and why isn’t this simple math not registering with the people? Answer: it’s not about the people, stupid, it’s about Washington and corporatism.

  • Change Monger

    It might be seen as the first step in a long fight toward a single-payer system. The information that is coming out about the ACA, both positive and negative, is drawing attention to the corporate rip-offs in the insurance, and pharmacy industries and the American system of healthcare in general. There are people who are able to get coverage now that were not able before. There is no dis-qualifier for preexisting conditions. Kids can stay on their parent’s plan longer. Many of the people who are complaining are either Obama haters, or the advantaged class who will have to pay more. My friend who sells real estate in Honolulu, million dollar homes, is complaining that her premiums will go from 400 to 600 per month. New BMW, country club membership, condo in downtown…..sorry, I’m not sympathetic.

  • Solid State Max

    I used to debate him on the issue of ACA. Both he and I agree on what we should have gotten but differ on strategies. As I read his latest article, I can’t see him defending ACA as “better than nothing” compared to last year and before. I understand that reform can take time but the timing on parts of the ACA starting and the ongoing fallout doesn’t look good at all unlike prior reforms such as the passing of Social Security and Medicare at different times in the 20th century where it didn’t get off to a rocky start let alone a disastrous one.

  • The Thinker

    This is an excellent piece. The explanation for higher prices in competitive markets escaped me until it was so clearly stated here. So the final end point in the competitive markets is not only over supply and over use, but eventually collapse of part of those services. If ACA succeeds in transitioning care away of critical care centers, this will be a VERY bad event for those competitive markets. The bigger they are [especially relative to market demand] the harder they will fall.

  • Solid State Max

    Holland’s article pretty much contradicts that usual rosy bs about Romneycare/Obamacare/ACA even if he doesn’t call out that package for being the fraud that it is. Sorry.

  • Kirk Anderson

    I wish you had mentioned the McCarran-Ferguson Act, which exempts the insurance industry from federal anti-trust law, on the argument that insurance is not ‘commerce’. Or so said a majority of the Supreme Court in 1944.

  • Jeffrey William Lynch

    This is a well-written and researched piece. When I really think about the facts that you have presented here, I realize that the government mandated ObamaCare legislation won’t do much to solve the real problems. In fact, the way this legislation is written with all it’s complexities and loop-holes and hidden agendas, (and the way it is being set-up), it appears that this good idea on the surface, will do more to harm than help the American people that are being forced to buy it.

    The lobbyists for big medicine including the Pharmaceuticals, the Insurance Industrial complex, Hospitals, Doctors and the rest of those who are ripping us off, have complete control over the entire process. They pretty much write the legislation, (including ObamaCare), and they know how to protect their interests.

  • Pierre Curtis

    Good article, clearly describes the real reasons the US Health System benefits fewer people, with similar or worse results, albeit at more than double the cost than in all other developed nations. This is one of the areas in the US where capitalism and the private sector, via their lobbyist has had it’s run and proved totally untrustworthy to uphold the public good, as such the system is unmasked as a total and abject failure. SIngle payer is the way and it just makes good sense.

  • Michael McGuire

    Nice article Joshua. But hey at least here in America we have the richest rich people, I mean that must be worth something; right…….oh well I guess if your one of them it must be worth quite a bit.

  • Anonymous

    Are these folks not eligible for subsidized coverage under ACA – it is not clear. But if 1600 is half for 3200/mo they are well within the income range. However, to be 55-56 with only 140K in a 401K seems way under saving. My MBA research on portability in pensions suggested that if you wanted retirement income of 75% of high five year average you needed to be setting aside 10% and getting 7.5% return for a 40 year work life. That lasted about 15 yrs. Also 7% is not readily achievable – more is needed like 15% of the gross. SS will replace some income & real.attention is needed to get 401K returns – can’t leave it to others.

  • Anonymous

    I hope we can move in that direction people knowing exactly what an MRI of a shoulder w/o contrast runs by plan. People will shop for value if it is reasonably strsightforward to do it.

  • Brenda Duffey

    The reason we pay more for less is because the medical system only treats diseases using expensive, health destroying treatments instead of focusing on preventive care, nutrition and clean air and water. Case in point, forcing Americans to pay for “preventive” treatments that only diagnose cancer and then when diagnosed go in with radical surgeries and poison to “cure.”

  • VVale

    Affordable Care Act is a move in the right direction. It was a way to get Congress to approve it. It will take time to get to a single payer system but it will happen. Especially, if people vote in a better group of congress people.

  • dlouis

    Another factor is that corporations are able to get tax deductions for the health care they provide employees. Which is huge.

  • AnnaFrieda

    One point never mentioned is that single-payer universal healthcare and private health insurance can co-exist. They do in Germany for example. Everyone there can get government sponsored health care, kind of like Medicare. Or they can choose to buy their own health insurance from a private company, most rich people do that and usually go to physicians who only take private insurance (so they can sit in a nicer waiting room and don’t have to associate with us common folks). The private care is not any better than the universal one, actually a study a couple of years ago has shown that universal tends to perform better because those doctors, being paid by the government, are subject to tighter controls from the government. I don’t understand why we can’t have this here, it seems so simple and should please everyone.

  • Jeanne (clearhealthcosts)

    We have cash or self-pay prices on our site for 30-35 common procedures, in seven U.S. metro areas. Tell me what you think!

  • Solid State Max

    Too bad the last 4 years of fallout from ACA with more damage to come is proving otherwise. I do agree that people for single payer need to get voted in.

  • Gary Zimmerman

    There is yet one more reason we Americans pay so much. Time magazine’s article “Bitter Pill” and the Economist’s article “Prescription for Change” both point out that there is no pricing transparency like other goods and services we consume. The Economist said “…the health market has the [pricing] transparency of a concrete bunker…” Medicare is the only force in the US that keeps the system honest. Medicare needs to publish the payments it allows for different services. That would keep the providers a lot more honest and competitive.

  • Anonymous

    Well you may be right, Max, but I think it’s still going to be up to the future executive branch to sort this one out by improving it, even if only chock-a-block. I agree that this 100 percent private with only some regulations is not going to reduce costs, a crucial factor in our economy.
    Also, how do our corporations compete with other nations when they don’t have to pay for health care–the state does in most cases.
    In Holland and Switzerland, medical is 100 percent private, but it is highly regulated–and popular! So there are different ways of doing this.
    In France the doctors make house calls! Can you imagine that here? (As a kid in the 1950s I remember the doctor did come to our house when my mother was sick with a gall bladder. Wonder what happened to that? Fancy medical status?)

  • Anonymous

    They must have their pound of flesh from the corps.

    Election reform first–this will require a constitutional amendment–that means three quarters of the states (75 percent of them) plus Congress.

  • JonThomas

    And, if we could go straight to Universal Care we could get rid of the parasitical mindset that treats care as a market!

    People get sick and they die, that is a tragic aspect of life that requires empathy and compassion. It is NOT an opportunity to make profit!

    Anyone looking to make profit from disease is a death-loving sadist!

  • Solid State Max

    Perhaps true that a regulated capitalism might be all it takes. The US was just that in the 1970s so the flaws of privatized health care weren’t noticeable until it became unregulated capitalism that would expose the lack of accountability weakness.


    There are multiple models for universal care in the world, each tailored for the different needs of the countries where it exists. The idea of universal care needs to be accepted because it is being enacted all over the world right now, proving that it is not a population problem, it is a political problem. Taiwan recently started universal care and looked at systems that were already in place all over the world, found the best elements of those for their country, hired a team to create the logistical parts and now it exists. It really can be done.

  • vroom

    Your couple (Mallotts) need to lower their job expectations and go to work. Been there before and done it. There is some job out there that they can perform. This is not a welfare state and they expect the government to take care of them. Liberals have educated people to be dependent on the government and ACA is a prime example.

  • Freedom

    You are void of the facts. I find it interesting how the republicans have turned the middle class against the poor while they give billions of our taxpayer dollars to big oil, and corporations who do not need it. You should turn your wrath on them not the working poor, our veterans, the disabled and seniors.

    You have been duped. Where is your proof? Have you ever volunteered? Actually know any of the working poor. They work for Walmart, McDonalds, and we the taxpayers are subsidizing these huge corporations because they will not pay these people a living wage.

  • Anonymous

    The fact is that this really is a welfare state that provides massive subsidies for the weapons industry, for banks, for drug companies, oil companies and a variety of other large corporations that have been exporting jobs to foreign countries.

    Government economic policies are too often at the service of these big international corporation that in many cases pay no taxes whatever to this country but instead demand costly services. All of this largess is quite foolish of course and in the end, if not reversed, will destroy an economy that was once the envy of the world.

    Government policies have created difficulties to the Mallotts and to many other ordinary citizens. It’s time the government comes to understand it has responsibilities for its citizens and not only for the giant corporations that no longer even consider the U.S. to be home.

  • Anonymous

    The problem is ideological purity that insists that a free market is the solution to any economic problem. It is an odd kind of ideology that fails even to understand its own doctrine ( a free market is one where prices are free to adjust to balance supply and demand, not one where there is no regulation in the public interest ).

    But there are instances where a free market just is not appropriate and health care is such a case. There is an imbalance of information and knowledge that makes it impossible for the average person to weigh alternatives sensibly. When people have to depend on expert opinion the basic assumptions of a free market are violated. A free market is not always the best kind of market; banking and health care are important examples.

  • amtak

    To Debby Wapner: How do you know that? Something you wish were true, or ideological conjecture? Given that it has never been tried here, where are the date that would support your theory? Why do you think homogeniety is a factor? England, with a large and increasingly heterogeneous population. continues to provide very good coverage too ALL its residents at much lower cost than we do, and with only a single insurer. Having spent two years there researching its system, I can say with some authority that we would do well to have such a system here. At the same time, I admire the Scandinavian systems even more — and given their “equal access” legislation over half a century ago, one must consider all Scandinavian countries nearly a single entity in regard to health care. .

  • Charles Shaver

    Joshua, I believe you have covered one locomotive of a downhill runaway multi-engine train well but you missed the most important couple of drivers of all; misinterpretation of the ‘supreme Law of the Land’ and the promotion of chronic illness by criminal, if not treasonous, federal policy.

    First, based on a rather strict literal interpretation of the text of the Preamble, minimally, the Founders prescribed America to be a peaceful prosperous moderate secular socialist nation state, not the warring bankrupt extremist Judeo-Christian capitalist disaster it presently is. There is no mention of capitalism, a two-party political system, globalism or insane wealth coexisting with abject poverty in the U.S. Constitution; illegally contrived and instituted for two centuries by advantaged special interests.

    Furthermore the U.S. Food and Drug Administration (FDA) has been rather systematically introducing harmful GRAS (Generally Recognized As Safe) additives, allergens and toxins to our growing variety of ‘pseudo-foods’ and promoting bad diet since at least the early seventies (e.g., soy treated with hexane; hydrogenated soy oil [1976]; high fructose corn syrup [1978]; MSG [1980]; aspartame [1981]; etc.). I personally became mysteriously (to my doctor), seriously ill in 1981 and learned of an allergy/MSG connection much later, now spending only a few hundred medical dollars a year on mostly check-ups. The current FDA clamor about trans fat makes me wonder what must be healthful about the trans fat I grew up on that never caused me problems like MSG.

    Finally, three more engines that are adding downhill momentum to that train of economic and healthcare woe: 1.) battlefield injuries, disabilities and deaths from decades of unnecessary war, 2.) work related illness, injury and death and 3.) so-called ‘sports’ injuries, disabilities and deaths. I could break it down farther but to what end? Most Americans are too apathetic, distracted or busy surviving to vote the genocidal members of the two ruling crime families out of office on election day, election after election after election; one cure for many ills. More detail upon request.

  • VVale

    ACA is not doing as badly as the media report!

  • Anonymous

    Corporations get massive amounts of welfare paid for by the U.S. individual taxpayer.