aamc.org does not support this web browser.
  • Viewpoints

    The Inflation Reduction Act will cut health care costs for some patients. But we need to do more

    The United States spends $4 trillion on health care each year, yet many still lack access to high-quality, affordable care. Targeted interventions can help, according to the AAMC Research and Action Institute.

    Stethoscope with dollar shaped cord standing on turquoise background

    Last week, Congress passed historic legislation to fight inflation, reduce carbon emissions, and invest in domestic energy production. But the Inflation Reduction Act of 2022 also contains a number of health care provisions, including ones that will cut Medicare drug costs by an estimated $287 billion over 10 years and lower Affordable Care Act premiums for three years.

    That’s good news for millions of individual patients and their families.

    Much more will need to be done, though, if we are to truly rein in the astronomical cost of health care in the United States, which topped $4 trillion in 2020.

    What do we get for our $4 trillion?

    It’s worth noting that people across the globe — including many world leaders — come to the United States every year for high-quality health care. At the same time, the public health outcomes of some of our most vulnerable citizens remain dismal. The United States ranks 31st in life expectancy at birth, with high rates of maternal and infant mortality, obesity, heart disease, and HIV/AIDS, among other illnesses.

    Some point to these poor outcomes, as well as the fact that the United States spends roughly twice as much per capita as other wealthier nations on clinical care ($11,945 per person in 2020, compared with $5,268 in the U.K., $5,564 in France, and $6,731 in Germany), to suggest that the U.S. has a “health care spending problem.”

    But suggesting that we simply “spend less” fails to consider the complexity of the U.S. health care financing and delivery system — a system that includes both private and public insurance, a high degree of patient choice in providers and hospitals, and a cultural mandate to care for anyone who walks through the doors, regardless of ability to pay. All of these add to costs in ways different than in any other nation, as does the relatively high cost of labor.

    To wrap our arms around this problem, we at the AAMC Research and Action Institute are publishing three papers examining U.S. health care costs in all their complexity. Not surprisingly, no one factor is to blame for the high cost of care, but unique features of the American system contribute. For one, the United States spends more on clinical care but less on social services for families than many similar countries, despite higher rates of poverty. Furthermore, the United States is the only developed country that does not provide a basic health care plan for all residents. As a result, 27 million nonelderly people were uninsured in 2020.

    The United States also spends an extraordinary amount on administrative costs, including billing and insurance, and through inefficient cross-subsidies to make up for government underpayments. While Medicare and Medicaid pay pre-negotiated fees for health care goods and services (though not, until this point, for drugs), these fees do not cover actual costs — Medicare covered 84% of average hospital costs, while Medicaid covered 88% in 2020 — leading providers to charge several times over for privately insured patients in an attempt to recoup their fees. All this negotiation between doctors and hospitals and dozens of different insurance companies costs money — and drives up the cost of care for everyone.

    None of these cost drivers is going to be fixed in the near term. And frankly, the American public isn’t nearly as worried about them as they are about their own out-of-pocket health care costs.

    Today, nearly one in five Americans has medical debt, and out-of-pocket spending for health care has doubled in the past 20 years, from $193.5 billion in 2000 to $388.6 billion in 2020. These rising costs have disproportionately fallen on those with the fewest resources, including people who are uninsured, Black people, Hispanic people, and families with low incomes. But even solidly middle-class families have been forced to make difficult health care decisions, due to increased cost sharing through copays and coinsurance.

    So what’s the solution? In the short term, policymakers should provide targeted subsidies to specific populations, such as families whose household incomes fall outside the average or whose health care expenses are extraordinary. These subsidies — such as those included in the Inflation Reduction Act — might increase total health care spending in the short term but would provide tremendous benefit in the long term as patients may be more likely to seek preventive care.

    We also need to pursue thoughtful and targeted policies that will decrease out-of-pocket costs for patients, as well as those that will improve outcomes, including better health promotion and disease prevention. And we need to focus on getting more for our health care dollars while helping those who suffer from poor health and lack of access to care.

    We may not be able to reduce overall health care costs significantly as a nation, but we can cut costs for families, reduce growth in costs, and, hopefully, improve health at the same time.