Rising Healthcare Costs; Detailed Analysis

Rising Healthcare Costs; Detailed Analysis

Rising healthcare costs is one of the most important issues Americans will have
to face in the immediate future and for years to come. There are many misconceptions about rising healthcare costs that need to be dispelled. The Kaiser Family Foundation provided a circle graph in a report they recently published that shows exactly where our healthcare dollars are going. Although there may be some adjustments to this chart that could be made for 2012, the overall percentages have not changed significantly.

As shown in the figure below, hospital care and physician/clinical services combined account for half (51%) of the nation’s health expenditures.

National Health Expenditures, 2008

Gates Capital Management Reduces Risk After Rare Down Year [Exclusive]

Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More

Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group.

A major area of discussion in the health care cost crises is the breakdown of how much the federal government spends on healthcare. Data provided by The National Academies Press shows there are “six major government health care programs—Medicare, Medicaid, the State Children’s Health Insurance Program (SCHIP), the Department of Defense TRICARE and TRICARE for Life programs (DOD TRICARE), the Veterans Health Administration (VHA) program, and the Indian Health Service (IHS) program—provide health care services to about one-third of Americans.” Federal health care programs cover over 100 million Americans, or approximately one third of the nation’s population. According to the Centers for Medicare and Medicaid Services, the federal government spent $502.3 billion on Medicare in 2009, and $373.9 billion on Medicaid. Just these two health care categories alone accounted for almost one trillion dollars of the federal budget in 2009!

The numbers for the private insurance industry are just as staggering. A report published by Healthcare Business Strategy, reported that “in 2009 the insurance industry reported an aggregate of $454 billion in revenue, with approximately $395 billion of that total spent on medical expenses.” Although current data for 2010 and 2011 is still being compiled, it is easy to see that overall U.S. spending for health care is in the trillions each year. Data provided by the Centers for Medicare and Medicaid Services show that National Health Expenditures grew 4.0% to $2.5 trillion in 2009, or $8,086 per person, and accounted for 17.6% of Gross Domestic Product (GDP).

When there is a problem, Americans usually look for someone to blame, or look for some cause that can be explained and solved. So where does the blame for rising health care expenditures fall? The place to begin is with the demographics, technological advances and social expectations related to health care expenditures.

  • There are large expenditures related to research and development leading to improved medical technology and new drugs. New technologies and new drugs provide greater opportunities to cure diseases and provide a higher quality of life for people who are living longer and healthier.
  • There are large expenditures related to the ability to treat diseases that would have been a death sentence not too many years ago. Medical science is able to cure or delay the advance of diseases such as cancer, diabetes and many others. People are able to live longer with the assistance of new medicines or advanced technology, increasing the overall health care costs that are being paid by insurance companies and government insurance programs.
  • There are large expenditures for health care costs incurred as the U.S. population ages. Significant numbers of people are living into their 80s and 90s because of the medical advances that have been made in the last 60 years. Many of these people are able to enjoy active and productive lives because of the medical advances our country’s health care system has made. It is important to remember that there is a significant cost associated with the high quality health care system Americans enjoy.
  • There are large expenditures laid out for administration, marketing, billing and facility construction. There may be some places where the system can economize in these areas, but there is a limit to how much can be cut without sacrificing the level of care and convenience we enjoy in our health care system.

So to answer the question posed in the title of the article, every person who uses the health care system is to blame for rising costs. Americans have come to expect the full availability of the full range of health care services 24 hours a day. When people walk into an emergency room or an examination room they expect clean, modern and well equipped facilities. Patients expect minimal wait times, and expect the best qualified medical personnel the system has to offer. The quality and quantity of health care coverage the American public expects is not inexpensive to provide. People keep asking how the health care industry can reduce costs. The greatest cost for any enterprise is labor, and medical facilities do not have the luxury of being able to lay people off to reduce costs.

The most pressing issue for those who do not receive satisfactory health care coverage through their employer is finding coverage they can pay for on their own. This is not an easy task. Families, who simply do not have sufficient income to pay for health insurance, are forced to depend on one of the government programs for care. This then increases government outlays, and places more burden on state and federal budgets. Hospitals pass on costs government plans do not cover to those who can pay through billing to insurance companies. This then increases the costs insurance companies pass on to employers and patients who can pay.

One final thought for your consideration. The average insurance policy for a single person costs about $4800 per year, and there are approximately 330 million people in the U.S. If the federal government would take all of the money it spends on health care and purchase an insurance policy for each person in the county, everyone would have coverage, and there would be no need for all of the government programs listed earlier in this article. Do the math, it will surprise you. Maybe this is an idea for consideration as our nation tries to come to grips with the rising cost of quality health care.

No posts to display