Understanding Health Care Costs

If patient demand, malpractice costs, the aging population, and advanced technology do not explain the rising
cost of heath care, what does? There are two major factors that contribute to the cost: a fragmented system
that multiplies administrative costs and the fact that health care providers control the prices rather than the
consumers. Much of the money spent on health care in the U.S. is not for medication, tests or treatment, but
for administrative costs. Countries that have reduced money spent on the administrative aspect of health care
costs spend less on health care while providing higher quality care than the U.S.

U.S. vs. Canada


At a global point of view, the Canadian society is probably the most similar to U.S. society. Comparing these
two countries helps illustrate what influences the high cost of health care in the U.S.

Understanding Health Care Costs - Health ArchitectureUnderstanding Health Care Costs - Health Architecture

In the image above, studies show that high percentage of GDP spent and the excessive amount spent on
administration does not reflect the quality of health care provided for consumers. Even though U.S. almost
doubles what Canada spends on health care, the Canadian health care system, ranked at 30, is ranked higher
than the U.S. system, ranked at 37. So, what differentiates the Canadian system from the U.S.?


The major points about the Canadian health care system [3]:

  • Canadians receive their health insurance from a single payer: the government (single-payer system)
    Hospitals receive an annual sum from the government to cover their costs. Patient's expenses do not
    need to be tracked through an expensive administrative system.
  • Costs are restrained by government oversight on major capital development. For example, hospitals
    must address the government before purchasing new advanced technologies or equipment, which results
    in lower hospital cost.
  • Canada's health care system have the power to control prices it pays companies/people related to health
    care, such as doctors, technology companies, and health care providers.
  • There is only one national insurance system that doctors must submit bills to rather than filing out multiple
    forms with different insurers.

The major points about the U.S. health care system [3]:

  • Public and private health care insurers, health care providers, and health care settings function autonomously
    in multitude and often competing ways. The U.S. is theo nly more developed nation that does not guarantee
    health care to its citizens.
  • Pharmaceutical companies significantly control the drug market. They determine the advertisement and prices
    of drugs with little or no government forces.
  • Doctors are able to control the fee for each service or the number of services performed. With full control of
    their services, doctors protect their incomes by increasing prices.
  • U.S. doctors and hospitals are free of governmental oversight and do not face constraint costs.



1. Flexner, Abraham (1910), Medical Education in the United States and Canada: A Report to the Carnegie Foundation for the Advancement of Teaching, Bulletin No. 4., New York City: The Carnegie Foundation for the Advancement of Teaching, p. 346, OCLC 9795002, retrieved April 20, 2013
2. Barzansky, Barbara;Gevitz, Norman(1992).Beyond Flexner: Medical Education in the Twentieth Century(1. publ. ed.). New York: Greenwood Press.ISBN978-0313259845.
3. Weitz, Rose. The Sociology of Health, Illness, and Health Care: A Critical Approach. Boston, MA: Wadsworth/Cengage Learning, 2013. Print
4. David, Karen, Cathy Schoen, and Kristof Stremikis. "Mirror, Mirror on the Wall." How the Performance of the U.S. Health Care System Compares Internationally. The Common Wealth Fund, June 2010. Web. 01 May 2013. <http://www.commonwealthfund.org/%7E/media/Files/Publications/Fund%20Report/2010/Jun/1400_Davis_Mirror_Mirror_on_the_wall_2010.pdf>.

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