According to data from the World Bank, the average American spent a staggering $9,403 on healthcare in 2014. That figure landed us in third place worldwide, putting us just behind Norway and Switzerland in terms of per-capita healthcare spending.
For context, the World Bank's data shows that the average country spent just over $1,061 per capita in the same year. However, this figure varies from as low as $14 per capita in Madagascar to as high as $9,674 in Switzerland.
Perhaps a more meaningful point of comparison is that the average high-income country spent $5,251 per capita in 2014. This figure suggests that the average American paid nearly 80% more, on average, than a person in a typical high-income country. What's even more amazing is that Americans paid more per capita in 2014 than the 85 cheapest countries in the world combined!
Why does our healthcare cost so much?
Given the political attention surrounding the surging costs of prescription drugs, you might assume that this factor is the biggest reason why Americans pay so much for healthcare. After all, many of the world's largest drugmakers are based in the U.S. -- think Pfizer, Johnson & Johnson, Gilead Sciences, Amgen -- and our demand for drugs is higher than any other country in the world. We also incentivize drugmakers to crank out new drugs by offering long periods of patent exclusivity, and we do not regulate prices.
While surging drug prices certainly play a role in keeping our total spending up, you might be surprised to learn how small of an impact drugs have on our overall spending. According to data published by Express Scripts, the nation's largest pharmacy-benefits manager, the average American spends just $1,370 each year on prescription drugs. While this figure continues to tick higher over time, it still represents only about 15% of total healthcare spending.
What other factors are driving our costs higher?
According to a 2012 paper published in the Journal of the American Medical Association, Donald Berwick and Andrew Hackbarth argued that healthcare waste is the answer. The paper argued that overtreatment, administrative complexity, fraud, pricing inefficiencies, and a general failure to coordinate care are the primary drivers behind our vast overspending. The authors estimated that, if we successfully addressed each of these issues and used the proceeds to invest in preventive care, we could reduce our total spending by a whopping 34%.
Spending does not equal health
Given our elevated level of healthcare spending, you'd naturally assume that America must also rank as one of the healthiest nations on earth, right?
A recent study by the United Nations General Assembly, published in The Lancet, ranked 188 countries based on 33 health-related indicators. This study ranked each country from 0 to 100 on a number of health measures, such as the prevalence of diseases, alcohol consumption, smoking rates, childhood nutrition, neonatal mortality, violence, and more, to get an overall measure of health.
Unfortunately, this study noted that America didn't even make it into the top 10 list of healthiest countries. In fact, the U.S. ranked 28th overall, putting us far behind countries like Cyprus, Iceland, and Slovenia, all of which pay far less per capita than we do for healthcare.
Why did we rank so poorly given our clear willingness to spend? The report noted that the U.S. performed well in areas like sanitation, hygiene, access to clean water, and control of diseases. However, the U.S. ranked poorly in measures such as childhood obesity, alcohol consumption, and "mortality due to interpersonal violence, self-harm, and unintentional poisoning."
Attempts to fix the problem
Former President Barack Obama made an attempt to address this problem when he signed the Affordable Care Act, which is better known as Obamacare, into law. One of the primary selling points of his bill was that insurers were going to be forced to compete for patients in a transparent and open marketplace.
In addition, the bill also incentivized hospitals and physicians to share best practices, decrease patient injuries, and help reduce overuse of ineffective care by shifting payments toward the value of care provided. Theoretically, these two factors should have helped to lower costs for all and cover more Americans.
Unfortunately, the Affordable Care Act hasn't been able to deliver on all of its promises. While the uninsured rate has fallen to record lows, several large insurers, such as UnitedHealth Group and Humana, ended up losing boatloads of money by participating in the plan. Why? The sickest patients signed up first, while many healthy individuals chose to remain uninsured. The combination led to higher losses, causing several insurers to jack up their premiums and abandon Obamacare plans in many states.
Meanwhile, President Trump was elected in part because of his promise to "repeal and replace" Obamacare. Last month, he took his first step to deliver on that promise with the introduction of the American Health Care Act, which was dubbed Trumpcare. While the bill proposed several sweeping changes, the largest one arguably would be the rollback of Medicaid expansion.
However, shortly after the bill was introduced, the nonpartisan Congressional Budget Office estimated that 14 million Americans would lose their health insurance by 2018 if the bill passed. The bill drew a lot of criticism, which caused it to be pulled from Congress before it could be voted on.
If something can't go on forever...
In 2014, the U.S. spent more than 17% of its total gross domestic product on healthcare. With 10,000 baby boomers turning 65 each day, this figure is expected to reach 20% by 2020. Simply put, that's an unsustainable trend that can't continue forever.
Economist Herbert Stein once said, "If something cannot go on forever, it will stop." One way or another, we'll ultimately be forced to find a solution to this problem. However, it's still anyone's guess as to what that solution might look like and how long it will take the U.S. to get there.
Brian Feroldi owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences and Johnson & Johnson. The Motley Fool owns shares of Express Scripts and has the following options: short June 2017 $70 calls on Gilead Sciences. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.