If you haven’t noticed, healthcare is pretty expensive. Healthcare in the US costs about twice as much as it does in any other developed country. Healthcare costs this country $3 trillion- yes, trillion. According to Consumer Reports, if the US healthcare sector was ranked as a country, it would the world’s top fifth largest economy. Health insurance is so expensive because healthcare is so expensive.

So what gives? Why does the US spend so much more on healthcare than other countries? Here are three reasons:

Administrative Costs. This is the number one reason healthcare is so expensive. Administrative expenses are related to the organization as a whole as opposed to an individual department – so things like salaries of senior executives, marketing, accountants, billing clerks and other general services are included in these costs. About one quarter of healthcare cost is associated with administration.

Further, the healthcare system is complex. There are different healthcare systems for seniors, veterans, federal government employees, as well as hundreds of private plans. All of these systems need middlemen (and women) who enroll members, compile bills and process claims. The US Government Accountability Office concluded that if we could get administrative costs of our medical system down to the Canadian level, the money saved would be enough to pay for healthcare for all the Americans who are uninsured!

Drug Costs. Another thing that sets America apart from other countries is the cost of drugs. In most countries the government negotiates drug prices with the drug makers, but not here. When Congress created Medicare Part D, it specifically denied Medicare the right to use its power to negotiate drug prices. The Veteran’s Administration and Medicaid pay the lowest drug prices because they are able to negotiate.

Another reason drugs are so expensive is because the FDA drug approval process makes pharmaceuticals far more expensive than they need to be. In Europe, rather than just having one agency, they have a number of quasi-private entities approved by EU governments so there is sort of a competitive system when it comes to producing drugs. The result is that new drugs go to market more quickly.

Defensive Medicine. Because America is such a litigious country, and doctors are afraid of being sued, they will order multiple tests even if they are sure of a diagnosis. They want to make sure they have run every test imaginable to rule out any other factors when diagnosing a patient. A Gallup survey estimated that $650 billion annually could be attributed to defensive medicine.

On top of additional and maybe unnecessary tests, doctors in the US also tend to use a more expensive mix of treatments. Compared to other developed countries, the US uses three times as many mammograms, two and half times the number of MRIs and 31% more Caesarean sections. The result is more money being spent on technology in more locations. Further, more people in America are treated by specialists, who cost more money than primary care physicians, which drives up the cost of healthcare for everyone.

In Conclusion. Healthcare in America is expensive. While other developed countries control costs in part by having the government play a larger role in negotiating prices, America is still behind. Other countries don’t spend nearly as much as we do on administrative costs because a lot of those countries don’t have as many plan options as America does. Fewer plans means an easier to navigate system, which means you need fewer people in the mix navigating the system.

There has been a lack of political support for the government to take on a larger role in controlling costs. The Affordable Care Act focused on ensuring access to healthcare for all Americans, but didn’t do much to encourage competition among insurers and healthcare providers.

It’s not all bad news. The quality of healthcare in the US fares comparably to other countries. Long wait times for treatment, for example, are not as much of an issue in America as it is elsewhere. And, in treating heart attacks and strokes, the US has the best record of any country. So if you have a heart attack when you get a bill from your doctor, rest assured that you will receive the world’s best treatment.