Why U.S. Health Care Costs So Much: The Reason, the Fix, and the Opportunity

Where the money goes, why it's more than it needs to be, what other countries do differently, and what it means for investors

Prepared by Richstorm.co

U.S. health care spending is enormous by any measure — $5.3 trillion a year, or $15,474 per person, equal to 18.0% of the nation's entire GDP (2024 figures), more than any other country spends.

Key Takeaways

• U.S. health care costs more not because Americans use more care, but because everything costs more per visit, pill, and procedure — driven by administrative complexity, physician wages, and drug prices that aren't centrally negotiated.

• The U.S. isn't even the world's richest country per capita, which rules out “we spend more because we're richer” as the explanation.

• Countries that keep costs low all rely on the same core idea in different forms: a fixed, known price everyone actually uses, whether centrally negotiated (Germany, Japan) or transparently benchmarked (Singapore).

• The U.S. has started moving on real fixes — Medicare drug-price negotiation, rebate pass-through — but full reform means insurers, hospitals, and drug makers giving up real revenue, which is why progress has been slow and partial.

• Each inefficiency described here is also a distinct, investable opportunity, from administrative-automation software to biotech catalyst-timing risk — relevant to different types of investors, not one blanket sector call.

Why Is U.S. Health Care So Expensive?

Most people assume it's because Americans go to the doctor more, or get more treatment, than people in other countries. That's actually backwards — Americans use somewhat less care by volume (fewer doctor visits, fewer hospital days) than people in other wealthy countries. The real answer is simpler: everything costs more per visit, per pill, per procedure. There are three main reasons.

Reason 1: A lot of money goes to paperwork, not care

Running the U.S. health system costs about 8% of the entire economy just in administration — billing, insurance paperwork, claims processing. Other wealthy countries spend only 1–3% of their economies on this. Why? Every U.S. insurance company has its own rules, its own paperwork, and its own approval process. A hospital has to know dozens of different rulebooks depending on which insurance a patient has. That complexity costs real money — roughly $1 trillion a year, system-wide.

Reason 2: Doctors are paid more, for real reasons

U.S. doctors earn significantly more than doctors in other countries. Two honest reasons why: medical school is extremely expensive here (typical debt is over $200,000, versus free or nearly free in much of Europe), and malpractice insurance — protection against being sued — can cost a U.S. surgeon $150,000 to $200,000 a year, compared to $15,000 to $20,000 for the same specialist in Australia. Higher pay partly just covers those two costs. There's also a genuine debate about whether the U.S. artificially limits how many new doctors can be trained each year, which would also push salaries up by keeping supply tight.

Reason 3: Drug prices aren't centrally negotiated

In most other wealthy countries, a government body negotiates a price with the drug maker before a new medicine goes on sale. In the U.S., that kind of central negotiation has historically not existed — instead, thousands of separate insurance companies each negotiate individually, with far less combined bargaining power than one national negotiator would have. That's starting to change: Medicare can now negotiate prices for a small number of drugs, a genuinely new development rather than the long-standing rule.

How Does the U.S. Compare to Other Countries?

A major study comparing the U.S. to nine other wealthy countries (including the UK, Canada, Germany, and Australia) ranked the U.S. dead last overall — worst on getting access to care, worst on how efficiently the system runs, worst on fairness, and worst on actual health outcomes. The one place the U.S. does well: once you're actually being treated, the quality of care is excellent. The problem is getting in the door and paying the bill.

NOT EVEN THE RICHEST

Here's the part that surprises most people: the U.S. isn't even the richest country in the world. Several countries — Luxembourg, Ireland, Switzerland, Singapore, Norway — have more money per person than the U.S. does. Yet none of them come close to U.S. health care spending. This rules out the simplest explanation (“we just spend more because we're richer”) and points back to how the system itself is built.

So how do other countries avoid these problems? The short answer: they pick one fair price and make everyone use it. Even countries with several competing insurance companies (like Germany and Switzerland) require every insurer to pay the exact same, pre-negotiated price for a given service. There's nothing to fight over, so there's much less paperwork. The same idea applies to drugs — one national negotiator sets a fair price once, instead of thousands of separate insurance companies each negotiating on their own with much less leverage.

Singapore offers a useful comparison for a different reason — it actually has the same basic ingredient the U.S. has (a personal medical savings account, and high out-of-pocket costs that push people to care about price), yet still spends only about 5% of GDP on health care, a fraction of the U.S. figure. The U.S. has its own version of this (Health Savings Accounts, high-deductible plans — 61% of insured workers had a deductible over $1,000 in 2022), so the savings account itself isn't the differentiator.

Publishing a bare price isn't enough on its own — without a way to judge quality, a lower price could just as easily mean worse care, and “competition” could quietly become a race to cut corners. Singapore addresses this directly: since 2018, a committee of specialists, hospital administrators, insurers, and patient advocates sets clinically-vetted fee benchmarks for common procedures, so a quoted price is compared against a professional reference point, not left to guesswork. Singapore hospitals have also tracked cost and quality together in practice — one hospital's program for cataract surgery cut costs per case while quality scores held steady or improved, not declined.

The U.S. gap turns out to be a quality-transparency problem as much as a price-transparency one. A peer-reviewed study of U.S. hospital websites found only 1.3% published usable price information, and just 5.7% published quality outcome data — the researchers concluded there simply isn't enough information available for patients to choose a hospital on either basis. Singapore pairs price with a quality reference; the U.S. currently offers patients neither in a usable form.

Can This Be Fixed?

Not hopeless — every piece of this problem has already been solved somewhere in the world, and the U.S. has started moving on some of them. Medicare can now negotiate a small number of drug prices for the first time ever. A new law now requires more drug-rebate money to flow through to patients as lower premiums. Some states have started cutting back on unnecessary paperwork requirements for doctors.

But full fixes — like extending price negotiation to all drugs, or standardizing prices the way Germany does — would mean a real shift in revenue across insurance companies, hospitals, and drug companies alike. That's exactly why change has been slow and partial for the last twenty years, rather than one big fix. Reasonable, well-informed people disagree about how far to push this: some argue lower U.S. prices would mean less money for inventing new drugs in the first place, since much of the world's new medicine funding currently comes from the U.S. market. Others argue the current system mostly just moves money around inefficiently without much benefit. Both are serious, evidence-based positions — this piece won't pick a side, but it's worth knowing the debate exists.

What This Means for Investors

Every inefficiency described above is also a specific, investable opportunity — but not the same opportunity for every investor. Each one below is written for a particular kind of investor, since most of these only matter to the reader they're actually relevant to.

Healthcare IT and automation investors

This is for you if you invest in software and services companies. The administrative complexity described above — physicians completing 45 prior authorizations a week, every insurer running its own billing rules — is a roughly $1 trillion addressable market for revenue-cycle-management, prior-authorization automation, and claims-processing software. It's a durable opportunity as long as fragmentation persists, though regulatory pushes toward standardization (like state-level gold-carding laws) are a real headwind for this category, not just a tailwind.

Healthcare services investors

This is for you if you look for structural, multi-decade demand curves. The projected shortage of up to 86,000 physicians by 2036 only grows on current trajectories, which is direct, durable demand for companies that stretch a constrained physician supply further — nurse practitioners, physician assistants, and telehealth platforms.

Small-cap and policy-catalyst investors

This is for you if you're comfortable underwriting regulatory-direction risk. Only 1.3% of U.S. hospitals currently comply with price-transparency rules, which means real, government-mandated compliance demand exists but is currently unmet. This is genuinely two-sided: it only pays off if enforcement tightens, and the rule was actually loosened in 2024–25 rather than strengthened.

Managed care and value investors

This is for you if you hold, or are evaluating, a specific insurer name. Three PBMs control roughly 80% of the market, and two of the three sit inside vertically integrated giants. The rebate pass-through law already in effect compresses a real, identifiable profit pool at those specific companies — this is a name-level margin risk, not a sector-wide comment.

Event-driven and biotech catalyst investors

This is for you if you trade around specific FDA approval dates. Since nearly half the FDA's budget comes from industry user fees rather than pure congressional appropriations, a government funding fight can mechanically delay PDUFA review dates — a real, underpriced link between government-funding news and biotech catalyst timing.

Pharma value and dividend investors

This is for you if you hold a pharma name with revenue concentrated in a small number of drugs. Medicare drug-price negotiation is still narrow today, but the negotiated-drug list is scheduled to expand on a known schedule — this is dateable, calendarable exposure for any company whose revenue leans heavily on a few Medicare-heavy drugs.

Macro and thematic long-duration investors

This is for you if you're underwriting a ten-year-plus thesis rather than a near-term trade. Germany's all-payer model and Singapore's price-transparency-plus-benchmark model both show a mechanism the U.S. has only just begun taking small steps toward. If that direction continues, it's a structural, long-duration headwind for U.S. drug-pricing power — relevant to position duration, independent of any single company's near-term pipeline.

Sources: U.S. Centers for Medicare & Medicaid Services (National Health Expenditure Data, 2023–24); Association of American Medical Colleges (Physician Supply and Demand Projections, 2021–2036); Commonwealth Fund (Mirror, Mirror 2024; Singapore Health Care System Profile); International Monetary Fund (GDP per capita data, 2025–26); KFF (2025 Employer Health Benefits Survey); Journal of Medical Internet Research (Price and Quality Advertising Among American Hospitals); PMC (Value Driven Outcomes Program, National University Hospital Singapore); AMA (Prior Authorization Survey); Health Affairs; JAMA.