The Current US Health Care System is a Failure of Planning

Business lessons to take from government policies

As a Canadian citizen who’s working from home up north, I’ve been worrying about my US neighbors and friends. My coworkers all have health insurance, but thinking about the people without it makes me deeply disheartened. With the greatest pandemic that the modern era has ever faced going on, it’s scary to think that some people will forgo their health for the sake of their finances. Although only 8.5% of people in the US are uninsured as of 2018, the fact that it costs more per capita than countries with universal healthcare, there is a huge problem and represents wastage. With the US currently sitting at 14.7% unemployment, and likely more bad news to come, more citizens are going to feel the wallet pain.

Select Country Health Spending per Capita, Source: OECD

This problem is a lesson in the importance of setting business policies right from the get-go, as change on a large scale is extremely difficult to implement. It also shows the irrationality of individuals, businesses, and governments which need to be kept in mind for business owners.

Basics of the U.S. Healthcare System

To begin we need to understand the basics, we’ll use a simple graphic to demonstrate the process. We’ll explain why the system is referred to as a “multi-payer” system. There are 3 main players other than yourself when it comes to healthcare treatment payment. Of course, the time of a doctor isn’t free and you need to pay for their expertise.

Credit: Author

First, we’ll start by understanding the different groups possible, and who falls under what. You either have a private health care plan paid by you or your employer, a public plan, or you’re uninsured. Depending on where you fall, that’s also where health care providers have to contact to receive payment. Remember that insurance companies are extremely hard to deal with, and there is an estimated 30% of U.S. health care spending considered to be waste.

Types of Health Care Coverage in the U.S.

Out of the 320 plus million people residing in the United States, here’s a breakdown of how they receive coverage.

US System Coverage Type Split — Source: Census 2018

A bit confusing with so many different parties at play, but we now understand how things work in the States.

Canada’s Universal Health Care System

Canadian citizens are guaranteed access to hospital and physician services, and the principle is that citizens should all receive “medically necessary hospital physician services”. Each province and territory provides its program, and supplemental benefits such as dental care or drug coverage depend on the province/territory. Since healthcare providers only need to deal with one payer, the province or territory, Canada is known to have a single-payer system. Critics would talk about how prescription drugs, dental care, and vision care are not included under the basic system and would require a separate policy. They would also bring up the “long” wait-times, but satisfaction rates of citizens in their hospital experience is rated 9–10, 62% of the time.

Compared to the US, one of the countries with the most dissatisfaction in their health care system, there’s improvement needed for Canadian healthcare, but a slight improvement won’t save the health care system down south.

Fee-for-service healthcare

One of the main issues associated with high healthcare spending relates to a philosophical question on how you should pay doctors for their treatment. Much of the US currently follows an FFS payment model. This type of payment model depends on the quantity of care provided by the healthcare provider, rather than the quality of care. Can you see the huge problem with this incentive structure, especially when people are covered by health insurance?

Doctors and healthcare providers are incentivized to have people visit them often because they are paid based on the number of visits, tests, procedures, or other services they provide. Essentially, in the worst case, it implicitly turns the healthcare system into a business, where doctors are compensated on their quantity, and not whether or not they effectively helped the patient out.

A recent study that looked at waste in the US health care system found that overtreatment, fraud/abuse, and administrative complexity are some of the ways spending is being wasted. If a patient came in with a typical cold, or disease that could be cured on its own over a few days, sometimes doctors may recommend the most profitable treatment, such as excessive antibiotics, over the treatment that makes the most sense. Similarly, rather than recommending a patient to wait and watch over symptoms, a doctor may choose to use surgery right away, as it would count towards their quantity of care. Lastly, because most patients aren’t paying out of pocket for health care, they are shielded from costs and may be more open to drugs that the doctor recommends. Since health care is expensive, they may jump at any opportunity to receive treatment, even if it’s not necessary.

Photo by JAFAR AHMED on Unsplash

Fraud and abuse occur from healthcare providers frequently through fake billings, and scams that attempt to defraud the payers, as well as intentionally prescribing opioids and adding to the epidemic. Closely tied with this is the fact that there are many different parties to contact to ask for a payment, creating huge inefficiencies. Different agencies, government entities, and payers have different forms and processes for billings, and it’s time consuming going through redundant tasks.

Thinking about this makes it similar to the military-industrial complex we’ve heard much about. Doctors are incentivized to overtreat, insurance companies will then just pass this cost on to customers with higher premiums, and the cycle continues. We’re not here to question the ethics of doctors, as the majority care about the wellbeing of their patients, but their reward systems are not aligned and are an issue.

Role of Government

Overall, these selected factors play a large role in why costs are so high for a multi-payer system using the fee-for-service payment model. Notice that Medicare aims to use a value-based program, to try to target the problems with FFS. Interestingly enough, Medicare is a government program, and the government is responsible for payment.

Looking back to Canada, prescription drugs are much cheaper, and per capita, healthcare spending is much lower. This is because the governments are responsible for paying for treatments and there are price caps on drugs once they become unreasonable. There’s less waste because not only does the government have power, there is also less incentive to profit. Governments have little to gain from pushing excessive costs down to their constituents and will find it harder to do so without retaliation.

In the US, price negotiations don’t include the government. Individual insurers and Big Pharma negotiate their prices. By allowing advertisements from drug manufacturers to consumers, demand is generated, making the drugs just like a product from traditional retail. Insurers can also eventually bake any increased costs into an individual or company’s insurance plan, even if consumers believe they are paying less out of pocket through co-pay.

Here’s a quick drug price comparison of what I mean between Canada and the US:

Drug Price Comparison, Source: DrugWatch


Without bringing politics into things, essential healthcare should be a universal right to all, and wastes should be minimized. The healthcare system money pipeline is leaky, and bad players are the ones who profit. Healthcare can’t stop being a business, but money should be made in good faith. It’s not easy for a huge overhaul to happen, and it may not come soon enough.

COVID-19 related healthcare spending, paired with a recession hopefully will spur policy reform in the healthcare space, and people will be able to enjoy a life where they don’t need to worry about whether or not they can afford essential health services.

Wrapping up now, but with a personal anecdote about my encounter with appendicitis while still living in Canada. I received an abdominal X-ray, ultrasound, and CT scan before the doctor gave me a choice between an appendectomy or watchful observation. I chose the observation because I didn’t want a scar or days at the hospital. The doctor was happy to provide me with a 7-day antibiotics prescription, and by the end of it, fortunately, my appendicitis went away. All in all, the entire trip cost me $45 dollars, because I had to pay for my ambulance ride to the hospital.

For Business Owners

Take care of your employees, and remember that many depend on your company for essential health services. Loyalty should go both ways, and providing an important payment such as health care premiums will only foster the employee’s commitment to your firm.

Once you have a strategy in place, it may be extremely difficult to pivot, so it’s important to also consider long-term implications. Never neglect the social aspect of decisions, and start to consider all of the stakeholders involved rather than just shareholders, whenever you can.

Investment banker, global citizen interested in the pursuit and sharing of knowledge. Inquiries to

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