Inquiry Required Is There a Fix for the US Healthcare System?

US healthcare is the most expensive in the world and among the most uneven in its outcomes. Americans spend more on healthcare than do residents of any other country—well over $5 trillion annually, or nearly 19 percent of GDP. At the same time, the United States ranks far behind other leading nations on many basic measures of health. Life expectancy is lower, maternal mortality is higher, chronic disease is more prevalent, and obesity rates are twice the global average. The reasons are difficult to disentangle and fiercely contested—and pundits often don’t agree. What might real reform look like?

Lawton Robert Burns, LAB ’68, AM ’76, PhD ’81 (Sociology), MBA ’84

Our health is in our hands.

The healthcare ecosystem contains about 25 different industries, all of which are vying for their own competitive advantage. What we have is a system that evolved piecemeal from the ground up over 200 years, and there’s no constitutional mandate for the federal government to do anything about it.

The number one issue today is affordability. That’s not only due to rising cost but to people’s incomes not rising commensurately. Most of the policy initiatives out there are not up to the job of addressing this, and the problem has only gotten worse because we’re no longer talking about operating in an era of mergers and consolidations and megaproviders; we’re talking about healthcare conglomerates. As a result, there isn’t greater efficiency in the system—there’s just higher cost and reduced (or stagnant) quality. None of this is designed to serve the American consumer. Consequently, you may need to keep working longer than you want to, and you’re going to have to save a lot more to address future healthcare concerns.

This means that we need to provide people with better education at the grassroots level about how health plans, savings, and deductibles work. We also need to promote awareness around healthy activities and better eating, because the single biggest driver of health is your own behavior. A lot of the solutions here are going to have to come from the education system.

The healthcare field has become dominated by policy people and economists. It’s not necessarily clear to me that they focus much on people’s behaviors and their social connections and social relationships, which play a huge role in health. They aren’t going to address concerns like social isolation and loneliness.

Who are the best levers to help drive change? Probably the single two biggest actors who can help you change your behavior are your spouse and your colleagues. We’re going to have to rely a lot more on families and peer relationships. If you can’t get folks to change stride in their habits, given the healthcare system’s challenges and continuing resistance to change, the rest of the solutions won’t make much of a difference.

Lawton Robert Burns, LAB ’68, AM ’76, PhD ’81 (Sociology), MBA ’84, is the James Joo-Jin Kim Professor at the Wharton School of the University of Pennsylvania. He has spent decades studying the organizational structure of healthcare delivery and the hidden costs of consolidation and written books on a variety of sectors in the healthcare industry. His most recent book, Seemed Like a Good Idea (Cambridge University Press, 2022), explores why many favored solutions to our healthcare problems do not work.

Professor Matthew Notowidigdo

Expand Medicaid across the country—with managed competition.

A lot of political debate focuses on the effects of health insurance policy. But the evidence about the impact of policy on health outcomes is murky. After all, health insurance is first and foremost a financial product. Our own health is determined not just by access to doctors and hospitals but by many of the decisions we make throughout our lives, such as what our diet contains and whether we exercise.

Yet expanding Medicaid across the country would do a lot of good. To make it politically viable, the expansion could come with reforms. For instance, there’s a lot of potential for a healthcare system that looks like a kind of managed competition. If we end up with a publicly funded system, there may be benefits from having private insurers competing for customers—for example, it could give health plans incentives to reduce costs and increase quality.

One of my research projects focused on the economic consequences of health shocks that lead to hospitalizations (a car accident, a heart attack, etc.). We found that for individuals with health insurance, a large share of their medical costs tend to be covered, resulting in small changes in financial well-being. This is exactly what health insurance is supposed to do: provide financial protection in the event of a health shock.

Oddly, though, many Americans seem to place little value on health insurance. Even when it’s heavily subsidized, millions choose to remain uninsured. Why don’t they value the financial protection? This is an underexplored topic, and I’m convinced that economists and psychologists have not worked together enough to figure out the right model of consumer decision-making.

We also found large and persistent reductions in earnings as income from work dropped after hospitalizations, and for a large majority of Americans, we found that these earnings declines were not insured. In other words, health insurance provides financial protection by paying for the medical costs, but most Americans are not “insured” against the labor market consequences of their hospitalizations and do not have paid leave or other sources of sick pay or short-term disability insurance.

For older Americans, there are options such as claiming Social Security benefits earlier or claiming early retirement benefits, if those are available. But this doesn’t work if you’re in your 40s or 50s. Policymakers could step in and expand access to paid sick leave, where the US lags other advanced economies. Other forms of social insurance can improve health outcomes, as well.

Matthew Notowidigdo is the David McDaniel Keller Professor of Economics and Business and Public Policy Fellow and faculty codirector of the Tolan Center for Healthcare at Chicago Booth. Notowidigdo applies tools from health economics to answer questions about insurance coverage and labor markets.

Ream Qato, AB ’07, MBA ’15

Do better by patients.

This means increasing people’s access to reliable, affordable, and timely care. The level and quality of treatment we receive is determined by the degree of benefits we’ve signed up for, stringent insurance contract terms, and providers’ desire to minimize claims and payouts—not by what we clinically need. The system needs to better align pricing and benefits with real-world accessibility.

That’s easier said than done. The healthcare system is structurally fragmented, with each stakeholder—insurers, medical systems, providers—optimizing for their own incentives rather than for overall patient outcomes. And while the system is highly effective at generating innovation, the technologies have accelerated faster than the system’s ability to deliver consistent access and affordability to the general public.

We’re entering an era where some of the most advanced therapies (particularly cell and gene therapies) are functionally curative, yet financially and operationally out of reach for many patients. Clinical success no longer guarantees real-world impact if the system can’t absorb the cost or complexity of delivering it. That gap between what’s possible and what’s accessible is one of the defining challenges in healthcare today.

Operationally, the drug distribution system works exceptionally well. It is one of the most reliable and resilient parts of healthcare. Ongoing drug shortages are actually the result of structurally fragile economics, particularly in generics, combined with concentrated manufacturing and limited supply chain redundancy.

The system is optimized for efficiency, not resilience, and regulatory frameworks can slow the ability to respond to demand shifts. Until incentives support redundancy and flexibility, shortages will remain a recurring issue.

The pharmaceutical industry has a big challenge in that its economics and the way that drugs can be accessed aren’t well understood. Improving transparency around pricing and making it easier for patients to understand how to affordably and conveniently obtain medicines would lead to better policymaking through legislation—and to better industry-wide decisions.

Overall reform requires building infrastructure that can better support both the modern patient journey and contemporary therapies from end to end.

Ream Qato, AB ’07, MBA ’15, is a senior director of product strategy, market intelligence, and categorical pricing in the brand sourcing and manufacturer relations division of healthcare company McKesson. In addition to her MBA, Qato has an AB in chemistry from the University of Chicago and a doctor of pharmacy degree from the University of Illinois Chicago. She is an adjunct assistant professor of healthcare management at Chicago Booth.