There have been innumerable attempts at discerning the rationale behind skyrocketing healthcare costs in the United States. To be sure, aging baby boomers will be using more healthcare services over the coming decades, but they aren’t the main cause behind the massive cost increases. By some estimates, the United States spends more than $500 billion a year on unnecessary healthcare expenses. A portion of this fantastic sum is the result of the conventional culprits: malpractice suits, malpractice insurance, inflated pharmaceutical costs, inflated hospital care costs, etc.
More costly than any of these problems, however, is the fact that private health insurance companies and healthcare providers can charge inflated prices for healthcare services. This is primarily due to two factors: inelastic demand on the part of patients and a lack of leverage on the part of the government. Inelastic demand is a problem because we, as patients, are often dependent on medications and healthcare services for our quality of life (and in some cases, our survival). Patients will come up with the money to pay for lifesaving surgery, drugs, or hospital stays, even if these services are vastly overpriced.
The second problem, the government’s lack of leverage in negotiating with healthcare providers and health insurance companies, is due to the fact that the private health insurance industry is extremely robust in the United States. The US government does not have the power to award national health contracts (as is the case in nations with universal coverage) and so private health insurance companies have little incentive to keep their services and products affordable in hopes of winning a contract over all other bidders.
The Affordable Care Act of 2010 (also known as Obamacare or the ACA) was designed in part to enhance the leverage the US government has over such price inflation in the private health insurance industry. Though these online marketplaces by no means represent a universal coverage system (that is, universal health insurance based on citizenship and funded by a pool of public tax revenue), they are indeed a step toward expanding access to health insurance and healthcare services for millions of American citizens. The Affordable Care Act’s legislation includes mandates that obligate small business owners with 50 or more full-time employees to provide health insurance for their full-time staff or pay a financial penalty, as well as a mandate that individuals without insurance must purchase one of the public options or opt out by paying 1% of their income (or $95, whichever is higher in 2014). For employers, the ACA also establishes the Small Business Health Options Program (SHOP) for small business owners to directly compare public health insurance coverage plans for their employees. With these tools, the US has begun the journey toward a universal coverage system and an end to the longstanding inflation that private health insurance companies and healthcare providers have brought to the industry.