MW How to fix America's broken healthcare system? Follow this country's example.

By Peter Morici

Why copying Germany's system would give Americans less costly, more efficient medical treatment

The murder of UnitedHealthcare Chief Executive Brian Thompson last December triggered an avalanche of complaints about health insurers and the industry practice of prior review for many services and claims reimbursement.

UnitedHealth Group $(UNH)$, the parent of UnitedHealthcare, is a large insurer and has been criticized for its high denial rates for claims. A Senate subcommittee concluded in a report last October that UnitedHealthcare, Humana $(HUM.UK)$ and CVS Health $(CVS)$, the parent of Aetna, were denying coverage for nursing care for patients recovering from falls and strokes in order to boost profits. UnitedHealth Group is now under a U.S. Justice Department investigation for abusing Medicare Advantage plans.

Dealing with health insurance companies, even when issues are resolved favorably, is time-consuming and tedious. Doctors complain that negotiating with insurance companies to secure approvals is only getting worse. Many physicians have sold their practices to private companies and became employees in part to avoid such hassles.

Critics were quick to jump on the Thompson tragedy as an indictment of the Affordable Care Act $(ACA)$. A recent Gallup survey indicated only 44% of Americans rate the U.S. healthcare system as good or excellent, down from 62% just prior to the 2010 passage of the ACA.

What's overlooked is why the U.S. has this broken system and the radical changes that will be necessary to reform it.

The ACA, enacted in 2010, was intended to ensure quality coverage for virtually all Americans - either through mandated employer-sponsored plans or private insurance purchased with income-tested subsidies - and to bring healthcare costs under control. The poor and elderly have Medicaid and Medicare. With the creation of the ACA, the share of Americans without health coverage fell by half, to around 8%. When it comes to costs and quality, however, the ACA is a mixed bag.

On the quality of medical service delivery, the U.S. system compares quite well with other developed nations, according to the OECD. But the problem is accessibility, notably barriers imposed by insurers' approval processes. On healthcare outcomes, as measured by avoidable deaths and life expectancy, the U.S. ranks near the bottom, the OECD reports.

Prior to the ACA, healthcare spending as a share of U.S. GDP was rising, but since its inception, this figure has held steady at about 17% even with a 10% increase in the insured population. That share of GDP is 40% to 63% greater than in other industrialized nations such as Germany, the Netherlands and the U.K.

Healthier options for Europe

It became apparent in the public debate leading up to the passage of the Affordable Care Act in 2010 that many Americans who already had health insurance did not want to give it up in favor of a public, single-payer system like the U.K.'s National Health Service. And they didn't want government bureaucrats making decisions about treatments.

What emerged in the U.S. was a complicated system with important omissions.

Mandatory systems of non-profit funds and private companies are funded by a payroll tax in Germany; and employer and employee premiums adjusted according to income in the Netherlands. Prices are regulated and the treatments covered are fairly well-defined. Essentially, the government orchestrates the rationing through those requirements.

The U.S. system has private-sector rationing. In the U.S., insurers compete on premiums charged, required copayments, range of services covered, the scope of in-network physicians and other services. An insurer can be tough, with high denial rates and making approvals processes so time-consuming that patients simply give up.

Under the ACA, insurers' administrative costs as a share of premiums are capped, and profits are just 2.4% of premiums. To grow and create shareholder value, insurers have become part of vertically integrated companies that control the entire supply chain, from drug stores to pharmacy-benefit managers, physician practices and hospitals. They can shift costs around, game government efforts to control what they charge and regulate the quality of access.

The only real answer to high costs, bureaucratic hassles and arbitrary treatment, and claim denials is to have the federal government regulate prices and arbitrate what people are offered.

It's been so long since Americans have had anything resembling free markets in healthcare, that the best solution may be to impose on providers, hospitals and facilities by setting our prices and scope of coverage equal to Germany's.

This would impose wrenching adjustments on the business practices and fees charged by America's doctors, hospital bureaucracies and drug companies. But the current system pays providers more for delivering a lower quality of care than in Europe - exactly what we'd expect from monopoly abuse.

Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.

More: 'Don't get your operation on a Thursday,' this hospital expert warned. Here's his plan to lower costs and save lives.

Also read: 'Delay, Deny, Defend' author: Fix the insurance industry to calm Americans' rage

-Peter Morici

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March 11, 2025 07:05 ET (11:05 GMT)

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