… Two of the major drivers of out of control healthcare spending are medical liability and the 3rd party payment system.
Medical liability costs, both the money spent to defend claims and the awards, is greater in the United States than in all of the Western democracies combined. The largest contributor to these costs comes from extra tests ordered by physicians, to protect themselves from frivolous lawsuits-defensive medicine. A Harvard study in 2008 calculated these costs to be about 2.4% of healthcare spending or $65 billion annually. The 2011 newsletter of the American Health Insurance Plans (AHIP) reported that these costs were actually somewhere between $650-850B annually.
The 3rd party payment system is perhaps the most potent driver of runaway healthcare spending. Without any restraint on spending, largely because individuals are disconnected from the costs of their healthcare, patients routinely expect tests and procedures that may be unnecessary simply because someone else is paying the bill. Doctors have little incentive to dissuade this behavior since the cost is also opaque to them and the threat of malpractice always lingers in the background.
Physician compensation is not the reason that healthcare costs are out of control. Annual healthcare spending is estimated to be $2.7 Trillion. There are many parties uninvolved in direct patient care, who have devised ingenious ways to get a share of this limited pot of money.
Healthcare apparently is the only endeavor that claims to save money by increasing the number of middle men.