Though the United States has the most expensive healthcare system in the world, 47 million Americans have no health insurance. Healthcare is the country’s largest economic sector, accounting for over $2 trillion in annual expenditures—four times larger than national defense!

Yet millions cannot afford to take care of their health needs.

And the prospects are getting worse. During the past eight years, insurance premiums have nearly doubled, resulting in health insurance moving farther out of reach for millions. Burgeoning medical bills are increasingly leaving families drowning in debt. Tragically, one-half of all personal bankruptcies are caused by medical bills, according to the organization Health Care for All – California.

Hospital emergency rooms are stretched beyond capacity, as the number of emergency visits increased to 120 million a year in 2006, up from 90 million ten years earlier. At the same time, the number of hospital emergency departments dropped by 7%, according to the 2009 National Report Card on the State of Emergency Medicine. Millions of sick people who cannot afford medical care are desperately pouring into emergency rooms, which by law cannot turn them away.

Adding to the misery, by 2015, the National Coalition on Health Care projected that the government will double healthcare spending to $4 trillion per year, or 20% of the nation’s budget. With millions of uninsured people unable to access proper healthcare, overstretched hospitals and escalating costs, America’s healthcare system is collapsing.

Can anything be done to save it?

How the System is Financed 

The U.S. healthcare system is financed by premiums, the collection of monies paid for health insurance. At the same time, healthcare providers must be reimbursed for services dispensed. The responsibilities for these are shared by insurance companies and the government.

Defining U.S. Healthcare

The U.S. is the only developed country, except for South Korea, that does not provide healthcare for all its citizens. What is unique about the U.S. system is that the private element dominates the public one. For example, the Kaiser Foundation reported that 61% of non-elderly Americans in 2006 received insurance through their employers; 14% were enrolled in public insurance programs like Medicaid; and 18% were uninsured. Those over age 65 were usually enrolled in Medicare.

Here is how the system is organized:

Private Health Insurance

• Employer-sponsored Insurance: The main way Americans receive health insurance coverage is through their employers. Companies provide this as part of their benefits package. These plans are administered by insurance companies both for-profit (Aetna, Cigna, State Farm, for example), and not-for-profit (Blue Cross/Blue Shield).

Some large companies choose to “self-insure,” that is they pay the health costs directly while choosing a third-party (usually an insurer) to administer the plan. Employer-sponsored plans are financed partly by the employers who pay most of the premium, and partly by employees who pay the remainder.

• Individual Health Insurance: This option covers individuals for whom insurance is not provided through their employers, those who are self-employed, and retirees. Plans are provided by private insurance companies. Insured individuals pay the full health insurance premium.

Public Health Insurance

• Medicare: This is a program provided by the federal government which covers individuals aged 65 and older, and disabled individuals as well. It is funded through federal income tax, as well as taxes on employers and employees, and premium payments by those enrolled. Medicare covers hospital services, physician services and prescription drug benefits.

• Medicaid: This program is designed for low-income individuals and those who are disabled. States are required by law to provide coverage for children, the elderly, the disabled, parents and poor pregnant women. Adults without children are not covered, as well as poor individuals who earn too much. A comprehensive set of benefits is offered by the program, including prescription drugs. However, in spite of this, many of those enrolled still have problems finding providers that accept Medicaid, because of its low rate of reimbursement.

• Other Public Systems: These include the Veteran’s Administration (VA), which provides healthcare for military veterans in VA hospitals and clinics, which are government-owned, and the State Children’s Health Insurance Program (S-CHIP), which covers children whose families earn too much to qualify for Medicaid, but too little to purchase private health insurance.

Individuals and businesses pay premiums to insurance companies that pay those insured when claims are made. In many cases, insurers make payments directly to the healthcare providers instead of to the claimants; this depends upon the type of plan chosen. Both individuals and businesses pay income taxes to the government, which fund programs such as Medicare, Medicaid and other government-funded health insurance programs. The government also uses money from taxes to reimburse providers for services to members of government programs.

The federal government substantially subsidizes employer-sponsored insurance because employees receive this as a tax-free benefit, and employers are able to deduct health insurance benefits as a cost of doing business. The size of the subsidy is estimated to be approximately $100 billion annually.

Expensive and Problematic

The U.S. spends a higher percentage of its Gross Domestic Product (GDP) on healthcare than other industrialized countries; in 2003, it was 15%, versus an average of 8.6% in the OECD nations (the Organisation for Economic Co-operation and Development, a group of major industrialized countries). The United States also spends more per capita than any other industrialized country, spending $5,635 per capita in 2003, versus the OECD’s $2,307. And coupled with high expenditures is the high cost of care for individuals.

The reasons for the high cost of care in the U.S. include factors such as the rising cost of technology and prescription drugs, and high administrative costs from the country’s complex multiple payer system. Approximately one-third (31%) of all healthcare dollars are spent on administrative costs. Further, another 10% of U.S. expenses are spent on “defensive medicine”—the costly tests by doctors, afraid of missing anything, who risk being sued for malpractice.

Another contributing factor is the shift from “non-profit” to “for-profit” healthcare providers, such as the growth of for-profit hospital chains. Also, the large number of uninsured people is significantly contributing to rising costs because conditions that could have been detected, treated and prevented in their early stages go undetected and later develop into full-blown crises. These then require more expensive procedures that may even include intensive care or emergency room treatment.

Due to rising costs, many employers have been forced to cut back or drop their health insurance plans. As the number of uninsured grows, hospitals and other healthcare providers must compensate through “cost shifting” at the expense of taxpayers and higher premiums for those with insurance.

Even public programs have been affected. The country’s aging population is boosting spending on healthcare. It is estimated that one-half of Medicare funds are being used to support sick people in their last stages of life. Experts estimate that Medicare funds will be exhausted by 2018