The assassination of the UnitedHealthcare CEO has ignited a significant wave of understandable outrage. The phrase “Deny, delay, depose” reflects the experiences of countless Americans. However, what is the actual cost of health insurance? The American Medical Association reports that it constitutes merely 6 percent of total health care expenditures.
In practical terms, if insurance companies were to allocate all their profits to health care, it would result in only a 3 percent reduction in costs. Health insurance primarily functions as a conduit, transferring premiums to health care providers. This 6 percent encompasses the profits of insurers, their personnel, and other operational expenses. The vast majority of their revenue, amounting to trillions of dollars, is directed towards compensating providers.
Several factors contribute to the relatively limited impact of health insurance in the United States compared to other nations. However, two critical issues are frequently overlooked: the anti-competitive behavior of hospitals and a physician shortage that has been systematically created over the past several decades.
The first issue is that hospitals in the U.S. do not engage in price competition for patients. For many years, until the introduction of price transparency regulations by the Trump administration in 2020, the costs incurred by insurers (typically your employer) and patients for surgical procedures were kept confidential, only revealed after the bills were issued. Although hospitals attempted to challenge these regulations, they were unsuccessful. Currently, 34 percent of hospitals still violate these rules, as reported by the Department of Health and Human Services. The department has imposed fines on hospitals only four times to enforce compliance, allowing the avoidance of discussions regarding costs to remain deeply ingrained in the culture of health care.
Patients face a significant challenge in selecting healthcare providers that do not impose financial strain on their families. Insurers also struggle to negotiate effectively with these providers; for instance, one private insurer may pay ten times more than another for the same MRI procedure. On average, private health insurers incur costs that are 254 percent higher than those of Medicare for patient coverage.
Moreover, many patients are limited in their options, as nearly half of all metropolitan areas in the United States are served by only one or two hospitals, creating a monopoly or duopoly situation for inpatient care. Between 2000 and 2020, there were 1,164 mergers among major health systems, yet only 13 of these were contested by the Federal Trade Commission, despite the resultant price increases for patients, insurers, and employers.
Another critical issue is the artificially created shortage of healthcare professionals. The United States is in dire need of more healthcare workers. Hospital lobbyists have raised concerns about a projected shortage of 100,000 healthcare workers by 2028, even as the average physician earned $405,000 annually in 2017 during their peak earning years. How did this situation arise?
Throughout the late 20th century, the American Medical Association (AMA), representing physicians, repeatedly asserted that the U.S. was on the brink of an oversupply of doctors. In 1997, they advocated for a reduction in the training of physicians by as much as 20 percent, leading to stagnation or decline in residency positions for medical school graduates from 1970 to 2010, despite an increase in the competitiveness and qualifications of medical students.
It is important to emphasize that there are now more qualified medical students eager to enter the profession than ever before. However, the AMA effectively requested that the government limit the training of new physicians, akin to the practices of a cartel.
When questioned about whether the AMA’s push for these changes was aimed at safeguarding physician incomes, one trustee stated, “That is not the agenda of this initiative. It is socially irresponsible to invest large sums in training doctors who are unlikely to find jobs practicing medicine after their training.”
Only seasoned Canadian physicians are consistently allowed to practice in the United States without undergoing lengthy residencies that demand 60-80 hour work weeks. Conversely, doctors with extensive experience from countries known for their high-quality health systems, such as the Netherlands and Australia, do not enjoy the same privilege.
Consequently, two seemingly opposing realities coexist: the U.S. has a lower number of physicians per capita compared to most affluent nations, despite the fact that American physicians receive the highest compensation globally, earning twice as much as their European counterparts, even when adjusted for income levels.
This observation is not intended as a critique of physician salaries. However, while higher pay may help retain physicians, it does little to address the need for training additional doctors to replace those who retire and to accommodate a growing patient population.
The response to the physician shortage in the United States has been sluggish. In 2023, a few states began to relax restrictions on immigrant doctors practicing without completing a residency. Although the U.S. increased the number of training slots for physicians in 2017, federal legislation aimed at further expanding residency programs remains stalled in committee. Meanwhile, many hospitals, facing staffing shortages, have exhausted their physicians, prompting the American Medical Association to change its stance and advocate for increased medical training.
Both Republicans and Democrats have a range of intriguing policy options emerging from think tanks, including gradual shifts from fee-for-service models to value-based healthcare, as well as more transformative single-payer systems. However, these topics fall outside the scope of this discussion.
It is evident that merely redirecting taxpayer or insurer funds to increase wages will not adequately address the challenges facing our healthcare system. Reducing costs necessitates the implementation of price transparency and the enforcement of antitrust regulations against hospitals that hinder competition. To safeguard patients’ health, it is imperative to increase the number of physicians; thus, expediting the relaxation of residency requirements by states and enacting the Resident Physician Shortage Reduction Act will be crucial in saving lives. Promoting competition and enhancing supply are fundamental components of any strategy aimed at revitalizing America’s healthcare system.
