Why do Americans pay so much more for healthcare than people in other wealthy countries, often without getting more care? In this conversation, Gerard Anderson, PhD, Professor of Health Policy and Management at the Johns Hopkins Bloomberg School of Public Health, explains why high prices, not overuse, drive U.S. healthcare spending.
Jeffrey Snyder, Broadcast Retirement Network
Well, Dr. Anderson, it’s a pleasure to see you, sir. Thanks so much for joining us this morning.
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
Thank you for inviting me.
Jeffrey Snyder, Broadcast Retirement Network
Well, look, healthcare, obviously it’s sacrosanct. It’s something that’s so important to each and every one of us. We all have a personal need to use healthcare so that we can have a greater and longer life and a better lifespan.
So thank you so much for appearing. I thought maybe what I would do is I wanna get your perspective on where things stand today in healthcare. Because from what I’ve read and why I reached out to you in particular is because healthcare expenses are just going through the roof.
So what’s the top line, top headline here for you when you look at healthcare and healthcare policy?
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
Prices keep going up. We’re not necessarily getting more services. We’re not going to the doctor more often.
We’re not going to the hospital more often. But when we do go to the hospital, when we go to see the physician, it just costs more and more. And that then reflects on the premiums that we have to pay.
They’re going up at 10%, 12%. Some of the places even more than that, depending on what risk group you’re in and what insurance you have.
Jeffrey Snyder, Broadcast Retirement Network
And what drives those costs? I mean, the price of a good, if you think about economics, and I’m by no means an economist, but I mean, I dilly-dallied around it. Things go up in price just because of the natural inflation.
This doesn’t appear to be in alignment with what a typical good would go up. What’s costing, what’s driving that cost up, if I may ask?
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
So we’re going, our prices are going up about three times faster than inflation. And that’s been true for a long time. So this is not a new phenomenon to have much higher prices than overall inflation.
And the answer is, when you go to the hospital, you have to get care. You can’t shop around. And your insurer is not shopping around.
They put you into that plan. And so there is just no choice available in any step of the way. And there’s no price transparency in any step of the way.
I’m a professor at Johns Hopkins. There’s one health plan I choose, it’s Blue Cross, because that’s the only one that’s available to me. So I’m essentially stuck.
Jeffrey Snyder, Broadcast Retirement Network
Okay, so from a economic perspective, and again, not an economist, but just trying to put some level of context, we don’t have a lot of choice in terms of, individuals don’t have a lot of choice too. Like you would shop for a dishwasher. I’m not saying it’s the same as a dishwasher or a car, but when you go buy a car, you can go to any car dealership, look at the price of the car and negotiate those expenses.
Typically that doesn’t exist, right, with our healthcare, in our healthcare system today. Is that the leading cause of, if we were able to shop around more, you and I, would that help drive costs down, or is it more than that?
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
It wouldn’t offer most things. So maybe if you were gonna get a colonoscopy or something like that, it’s the same procedure at one hospital and another hospital, you could find a less expensive option. Now, it might not be as good an option, and we don’t really know how to measure quality.
But when you go to a hospital, or you have a lot of things wrong with you, then you don’t know what’s the best doctor, what’s the best hospital, and you don’t know what services you’re gonna get. So it’s almost impossible to be a comparison shopper if you don’t know what you’re gonna buy. In your example of a dishwasher, you know you want a KitchenAid dishwasher.
But here, you don’t know when you go in, because you have a pain in your stomach, what services they’re gonna do. Are they gonna do an MRI on you? Are they not gonna do an MRI on you?
Are they gonna find cancer? Are they not gonna find cancer? All these things are just uncertains, whereas in most goods and services, it’s pretty clear.
I’m buying a dishwasher.
Jeffrey Snyder, Broadcast Retirement Network
So how is this, thank you for that, and how is this different than other countries? Obviously, United States is unique. It’s 250 years old.
We all know that. And we have the ability to, in some ways, buy what we want. But is it different than our European cousins or other civilizations, not civilizations, other societies around the world?
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
So the answer is yes. I wrote a paper, now twice, called It’s Price is Stupid. Why is the United States more expensive than other industrialized countries?
And it’s not because we got more services. It’s because we pay about three times more for identical services than the other countries. Why do we do that?
Well, in other countries, there’s one purchaser. It’s either the government or a group of insurers that all get together. In the United States, Blue Cross makes a deal, United makes a deal, Medicare makes a deal, Medicaid makes a deal, and they all make different deals.
Also, in these other countries, there’s one price for all doctors who do this particular procedure. In the United States, every doctor gets to negotiate with every insurer. It just makes no sense, but, and it’s responsible for the fact that nobody has much market power to drive down the prices.
Jeffrey Snyder, Broadcast Retirement Network
Okay, so let’s fast forward to today, or maybe we’re already into today, where prices have gone up well above the rate of inflation. And we’re gonna have a new Congress, clearly, and this is not an old issue. This is an issue that has reared its head back to the Affordable Care Act, before that.
I mean, I would imagine back when Medicare was being, this is a little bit before my time, Medicare was being debated, et cetera. How do we move forward? So if you, as someone who is in public policy, and I don’t wanna get into the politics of it, but how do you move forward to try to find some common ground?
Because the Congress is gonna have to do something. They can’t not, and the administration will have to do something.
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
So I’ve worked with a number of administrations, both Republican and Democrat. And so we originally, back in the 1980s, decided that we were gonna set rates in the Medicare program for hospitals. So it’s a regulatory approach to set rates for hospitals.
Private insurers have not necessarily followed that, although Medicaid has. Then we moved fast forward. We couldn’t control prices of drugs.
So the Inflation Reduction Act allowed Medicare to negotiate prices with different insurers. We’ve been working with a number of states to try to get them to do it. It essentially, unfortunately, the market’s not working very well to set rates.
And we saw that with the international comparisons. So essentially, we’re moving more and more towards regulation as a way to bring down the prices.
Jeffrey Snyder, Broadcast Retirement Network
So regulation as opposed to legislation, is that, would that be- No, I would say you typically need legislation and then it turns into regulation.
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
So the Inflation Reduction Act was legislation, which then became the approach of negotiating rates.
Jeffrey Snyder, Broadcast Retirement Network
So here we are, 2027 is around the corner. It’s hard to believe, but 26 is almost over. And obviously a new Congress will be sworn in.
Do you anticipate, how long would a transition? So assuming everyone wanted to do something, because that’s part of the, right? Everyone’s gotta come to the table.
And don’t forget, professor, or doctor, excuse me, we also have social security. We’ve got a lot of things that we’ve got, appropriations and defense spending and all these things that are part of the budget. But assuming that everyone wanted to work together in a kumbaya moment to solve and resolve an issue, how long would it take, in theory, to resolve this, to try to figure this out?
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
So if on January 1st, they said, we wanna do something in healthcare, I think we could do it within three to six months, because we have all the ideas on the table. It’s just a willingness to agree, as you said, a kumbaya moment. If everybody agreed, we could do it.
And it would then apply a year to two years later, because you always have to give people a chance to respond and react to things. So we can do a number of things. So when we did the Inflation Reduction Act and did it for drugs, it took two years, but now we have significantly lower prices for drugs in the Medicare program.
Jeffrey Snyder, Broadcast Retirement Network
So obviously, neither you nor I control those decisions. Is it really a kick-the-can type of concept where, like Social Security, you don’t do anything? I mean, it’s been, what, 20, 30 years since we’ve done anything really substantive with Social Security to try to, I mean, we’ve known about this issue of 2032.
For years, I mean, this is not new. This is not a new reveal. The same thing with the deficit, the same thing now that we’re getting our premiums for the Affordable Care Act exchange that are going up, and they went up again last year, or this year.
Is it a matter of until the people, you, I, and others, citizens say, hey, look, enough is enough. We need to do this. Is that when the representatives will do something?
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
For me, it’s not the people. It’s the large self-insured companies. It’s the General Motors.
It’s the Boeings. It’s those people, because they control half of the insurance in the United States, and they’re the ones that are paying substantially more than what Medicare pays. And so we need to get them on board in saying, we want to control healthcare costs.
We’ve been working with them for the last 10 years. We have not gotten very many of them to be aggressive in trying to control healthcare costs, and they’re the ones that are insuring most of us in America.
Jeffrey Snyder, Broadcast Retirement Network
But it doesn’t make any, well, I mean, you would think of being their own self-interest to do that, right? Because a lot of them are for-profit public companies that have shareholders. Wouldn’t that help their bottom line if they were able to figure out a way to, that’s gotta be a big part of their employment expenses, in addition to compensation, is the benefits they play, right?
So wouldn’t it be in their self-interest to move? What’s kind of holding them up, if I can ask?
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
I wish I knew.
Jeffrey Snyder, Broadcast Retirement Network
Okay, well, I mean, there’s the wall.
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
I mean, they pay about $27,000 a year for health benefits for somebody who has a family, 27,000, and they’re probably paying their workers 70,000. So that’s a significant chunk of their compensation is just for health benefits. And so they should be.
They negotiate very hard on steel. They’ll negotiate on all sorts of things. They do not seem to wanna do it.
Why? We don’t actually know. But my guess is, let’s assume you’re Google.
You wanna make sure that you get the best, fanciest scientist that you can possibly have to work for Google. And if you say, out in California, well, you might not be able to go to Stanford, because we’re gonna find a less expensive provider, and your premium will be less. That scientist at Google says, no, no, no, no.
I want to be able to go to Stanford if possible. So, so many of the CEOs hear from their workers that’s saying, I don’t care how much the hospital is. When I get sick, I wanna go to that hospital.
Jeffrey Snyder, Broadcast Retirement Network
So it’s more about the competitiveness of the benefits, if I’m hearing correctly. That is a value add. I mean, I guess it’s a service add as well, but it’s a value to the employee, and it’s a differentiator between Google and say, non-Google, right?
I mean, that’s what you’re saying. So someone, they value that. So that’s really important.
So in a way, the citizen or the employee is kind of driving that preference.
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
They are, they wouldn’t say it that way, but yes, it is. I mean, what the HR department knows is that people want access to the academic medical center in their community, which is almost always the more expensive facility. And that’s an important thing for them to decide when they look at their health benefits.
Jeffrey Snyder, Broadcast Retirement Network
Well, at least I feel better, hopefully the audience does as well, to understanding the complexity. It’s not as easy as waving a magic wand, although it’d be nice to kind of bring the cost down.
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
There’s a lot- I would love to have a magic wand. I just don’t have one today.
Jeffrey Snyder, Broadcast Retirement Network
No, I don’t. Candidly, I don’t think anyone does. We’re gonna have to get people in a room.
They’re gonna have to agree, and they’re gonna have to hash it out. Doctor, I just hope that they do it so it’s transparent, so that everyone can kind of see it. I think if you do that, then everyone feels like they’re a part of the process, right?
I mean, that would be the best way.
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health
Yeah, having a large national debate is the way to go, and hope the Congress decides to do that, but- Well, let’s hope so.
Jeffrey Snyder, Broadcast Retirement Network
We’ll see. Yeah, we will. Well, Dr. Anderson, thank you so much for taking the time. We appreciate you joining us on the program. We look forward to having you back again very soon, sir.
Gerard Anderson, PhD., Johns Hopkins Bloomberg School of Public Health I will look forward to it.
