Health Care: Why does it cost so much?

The facts about health care in the United States are eye opening. How can a nation that spends nearly twice as much as our economic peers still have so many problems? As the former ranking member of the state Senate Health Care Committee and current assistant ranking member, I spent some considerable time trying to unpack our rising health care cost challenge. Like other complex, human problems, this one won’t be solved with a silver bullet either.

Let’s start with the biggest problem in our state – Medicaid reimbursement. This is the largest driver of cost on consumers. That is because Washington has woefully underfunded the program over the last 20 years, so we are missing out on federal matching dollars. We rank 48th, receiving the lowest federal contribution for Medicaid rates according to analysis from the Kaiser Family Foundation. While other states have raised reimbursement rates over time, Washington has remained flat, shifting costs of underfunding to the privately insured.

From 2000 to 2017, Washington only increased spending in these critical areas by just over 1%. Other states like Louisiana and Mississippi increased their state-level spends by 11.5% and 6.5%, respectively. Think of it like this. Four people go out to eat and one doesn’t pay. Now, the bill is distributed among three people to cover the meal. That’s the reality in Washington, where nearly 25% of the population is on some form of subsidized health care. In some systems it is near 70% and the state’s reimbursement does not come close to meeting the actual cost of care.

In the previous two-year budget, Washington spent $29 billion on health care. That investment is unfortunately being squandered with an unaccountable bureaucracy, the Health Care Authority, that acts like a black box. Money goes in, but we are not quite sure where or how effectively it is being spent.

Therein lies another major cost problem in our health care system – overly burdensome complexity. To comply with the litany of regulations and laws, health care providers must employ an army of administrative staff to just do the bookkeeping, which drives up costs. Other “high-income” countries spend between 1% and 3% on administrative costs. In the U.S., it is 8%.

Another significant factor that contributes to our systemic health care challenge is the “Silver Tsunami.” Americans are living longer and the costs of care later in life can be staggering. Not only are U.S. health care professionals paid significantly more than in other developed countries, patients expect and deserve high quality care. New technologies and interventions are constantly introduced into the system that other countries just do not have. That comes at a higher price.

Our health care system is not a free market, nor is it totally government controlled. Having a foot in both worlds is bad for consumers when it comes to cost. The state must do better at what it’s already tasked with managing. We have the resources, but making those investments in health care for low-income Washingtonians has not been a priority. A dollar invested today will yield better outcomes and lower costs in the future.