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Causes for the Rising Cost of Health Care

In 2008 the amount of money spent on health care in the United States grew by 6.9%. This number is nearly double the rate of inflation. $2.4 trillion was spent on health care in 2007, this number accounts for 17% of the Gross Domestic Product. The near future does not seem to hold anything that will slow this growth. Americans are expected to spend 4.3 trillion dollars on health care by the year 2017.

To put these numbers in perspective each year the United States spends 4.3 times as much money on health care as it does on national defense. The US spends, proportionately, far more money on health care than nations that offer universal health care to their citizens. Clearly the cost of health care is out of control but what has caused this rapid growth in spending? And more importantly, where is this money going to come from in the future?

 

Severe Consequences From Rising Health Care Costs

The consequences of the high cost of health care in the United States are severe. 43 million Americans are uninsured, and in a national survey the high cost of health insurance was cited as the main reason why so many Americans remain uninsured. As the cost of health care has risen, the number of uninsured Americans has grown. Another study found that fifty percent of bankruptcy filings are at least partly the result of medical expenses. 1.5 million families face the foreclosure of their homes each year as the direct result of medical costs. Clearly the high cost of medical care in the US has become a burden on its citizens. This problem has many possible solutions, but before any of these can be considered, the causes of this increase in the cost of health care must be examined.

 

Bloated System and Patients Combine to Worsen the Problem

What has caused the crisis that we now find ourselves in? One of the culprits is chronic illness. The sickest 5% of Medicare beneficiaries account for 43% of all the money spent by Medicare each year. The rise in obesity rates is directly related to increased heart disease, diabetes, cancer, and other chronic diseases. Experts also agree that our health care system is riddled with inefficiencies, excessive administrative expenses, inflated prices, poor management, inappropriate care, waste and fraud. These factors, combined with an aging population, have resulted in this massive increase in dollars spent on medical care.

 

Private Insurance and Government Regulation at Odds

The money that is spent on health care each year comes from two main sources. The first is government spending: Medicare, Medicaid, and Social Security. The second is private insurance companies. Private insurance companies are supposed to allow the market to determine their premiums and coverage. But is the free market failing to regulate proper coverage coupled with affordable premiums? The two logical choices for dealing with private insurance companies are regulation by the government, or waiting to see if market forces will drive premiums down to an affordable level. Each of these approaches has its own dangers.

The hands-off approach could allow insurance companies to raise premiums while cutting coverage. Market forces, because of the involvement of employers and group policies, could fail to lower health care prices to a reasonable level for individuals. One could argue that the free market has already started to push down the cost of individual health insurance. Over the last couple of years several companies have started to offer individual rates that are affordable for many middle class families. But with 43 million Americans still uninsured, clearly what the insurance companies have done so far is insufficient.

On the other hand, if government regulation is used to force insurance companies to lower rates and increase coverage this regulation could force insurance companies out of business and leave millions of Americans who were previously insured with no coverage at all.

Many of our leaders in Washington have ideas as to how to solve this crisis. Some of those elected officials get campaign money from HMOs and others get money from groups who are pushing for socialized medicine in the United States. What is important is not that the solution comes from a Republican or a Democrat, but that the focus of any policy change is on what will result in the best health insurance for the average American.

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