Lauren Greenberg
HCS/440
January 17, 2013
Eric Oestmann, PhD, PT

Health Care Spending In 2010, health care spending, or health expenditures in the United States neared $2.6 trillion. That is more than ten times the $256 billion that was spent in 1980. In recent years, the growth rate of spending on health care has decreased in relation to the growth rate during the late 1990s and early 2000s. However, it is still predicted to increase more rapidly than the national income over the foreseeable future. Addressing this pressing concern has been, and continues to be a major policy priority. Mainly because the United States has been experiencing a significant recession for much of the past decade. This economic recession has resulted in higher unemployment rates and lower income rates for much of the American population. These tough economic conditions have helped to focus even more attention on health spending and affordability in this country. From 2012 to 2012, employer-sponsored health coverage for family premiums has increased by 97 percent. This has been the cause of increasing financial burdens on both employers and employees. In the public sector, Medicare covers the elderly and people with disabilities, and Medicaid provides coverage to low-income families. Enrollment for these programs has grown tremendously in both Medicare, with the aging of the baby boomers, and in Medicaid due to the recession. This means that the total amount of government spending has increased considerably, which as caused a significant strain on federal and state budgets. In total, health spending accounted for 17.9% of the nation’s GDP (Gross Domestic Product) in 2010. While there is general agreement that the drastic increase in health care costs must be somehow controlled, there is much disagreement over the specific factors that are causing this rise. Some of the key factors that have been discussed in health care cost growth are technology and prescription drugs, a rise in chronic diseases, and costly administrative programs. For a number of years, funding spent on prescription medications and new medical technologies has been determined as one of the main contributors to the rise in overall spending on health care. However, in more recent years, the rate at which this spending is increasing has begun to slow. Nonetheless, some professional analysts have claimed that the availability of these expensive, state-of-the-art medical technologies and prescription medications have fueled health care spending for development costs and because they create higher demand for more intense, expensive services even if they are not necessarily cost-effective. Longer life spans, accompanied by an increased prevalence of chronic illnesses among our population has placed tremendous demands on the rise of costs in the health care system as well. It is estimated that health care costs for the treatments of chronic diseases account for more than 75% of total national health care expenditures in the United States. In particular, recently there has been tremendous focus on the rising prevalence of obesity in America regarding the contribution to chronic illnesses with regard to health care spending. This evolving trend of illness has sparked a renewed interest for many professionals in the possible role for prevention to help control costs. It is estimated that at lease 7% of health care expenditures are expected to go toward the administrative costs of government-funded health care programs and the net cost of private insurance. Some have argued that the mixed public-private system is the cause of high overhead costs and large profits that are adding to the increase in health care spending.

With regards to cutting health care expenditures, The Affordable Care Act is the most recent effort to attempt to contain health care costs. This new law is consisted of an array of changes and reforms to the way health care is both funded and delivered. These reforms reward the value and quality of care, rather than just the quantity of care. These signals to health care providers are already catalyzing change throughout the health care system. However, health care costs still continue to be a major concern. National health expenditures are projected to continue to increase more quickly than the economy, rising from about18 percent of the economy to approximately 25 percent by the year 2037. Even with the Affordable Care Act, federal health spending is estimated to grow from 25 percent of total federal spending to about 40 percent by 2037. There are many reform ideas that simply shift federal spending to individuals, employers, and states. These theories, however, fail to address the root of the problem and would ultimately lead many people to forgo necessary care. The best solutions to control overall growth in health care costs are designed to reduce overall health care spending for both public and private payers. One of these ideas is to shift the focus of health care to prevention of illness, rather than treatment after a condition develops. This trend has begun to take hold in some organizations with much success. For example, J&J had begun offering comprehensive wellness programs to its 100,000 employees in 1995. Internal studies found that in the four years from 1998 to 2002, those efforts saved an average of $225 per employee per year oh health care costs. Another way to cut unnecessary health care costs is to enforce patient compliance regarding prescription medications and other doctor’s orders. Almost any health care professional will concur that patient compliance is one of the biggest issues facing effective care today. Studies show that three out of four Americans fail to take their medications as directed by their doctor. This patient noncompliance is the cause of additional doctor visits, hospitalizations, and treatments that together add up to about $177 billion a year to overall health care spending in this country, according to the National Council on Patient Information & Education. Of course one of the most obvious ways to reduce health care costs is to crack down on fraudulent activity. Law enforcement agencies have made it a main priority to crack down harder on illegal drugs. This has caused a shift in organized crime, which has diverted resources into multimillion-dollar medical scams because there is less of a chance for detection. The FBI estimates that fraudulent billings to Medicare, Medicaid, and private insurers account from between 3% and 10% of total health care spending in America. The FBI also states those estimates may, in fact, be low. "Everywhere we look, we see evidence of fraud," says Lewis Morris, chief counsel for the Office of the Inspector General at the U.S. Health & Human Services Dept. It is no secret that health care spending in America is rising at a rate far beyond the rate of economic growth, with no predictions at slowing in the foreseeable future. By making changes to the focus of funding in the health care system, we can help slow the rate of spending and keep costs at a reasonable level for both the federal government and the American people.

References

DeNavas-Walt, Carmen; Proctor, Bernadette D.; Smith, Jessica C. (September 13, 2011). Income, poverty, and health insurance coverage in the United States: 2010. U.S. Census Bureau: Current Population Reports, P60-239. Washington, DC: U.S. Government Printing Office.
Ellen Nolte and C. Martin McKee, "Measuring the Health of Nations: Updating an Earlier Analysis,", Health Affairs, January 8, 2008, Volume 98
WHO (2011). World health statistics 2011. Geneva: World Health Organization.