Six Factors Driving Health Care Cost Sky-High
Winning Progressive’s Series on America’s Health Care System
America’s health care system was placed in the spotlight from the very beginning of the Obama administration, and rightly so for several reasons – good health is important to a successful citizenry, health care was out of the reach of many Americans, and the federal budget expense devoted to ensuring good health for its citizens is rising unsustainably.
Our Winning Progressive series on the American health care system will discuss what drives health care costs higher, Obama Administration plans to reduce these costs while expanding coverage to more Americans, and how other countries have tackled the challenge of keeping its citizens healthy.
Part 1 – Six Factors Driving Health Care Cost Sky-High
(by Mark McCutchan)
U.S. health care costs have been going up dramatically over the last 50 years, both in total expenditure and as a percentage of the GDP (graph 1).
Graph 1 –U.S. Health Care Costs vs. GDP (in $Billions)
In 2007, the U.S. spent $2.26 trillion on health care, or $7,439 per person, according to the Office of the Actuary (OACT) of the Centers for Medicare and Medicaid Services , 16% of our nation’s GDP. Health and Human Services expects expenses to continue rising to 19.5% of GDP by 2017.
Warren Buffett appeared on CNBC last year to call the nation’s health care spending “untenable,” comparing “out of control” costs to a “tapeworm eating at our economic body.”
Here are the top six factors driving health care costs higher. Some can be addressed directly by effective governmental action, while others are cultural and demographic in nature and will take much longer to address.
1. Technological Advances – The Congressional Budget Office, reviewing a number of studies, has estimated that approximately half of the growth in healthcare costs in the U.S. is due to technological advances that allow for more treatment of more diseases. Such advances can provide significant benefits to individuals receiving treatment and to society as a whole. New technology, surgical procedures, and pharmaceuticals, however, are typically not subjected to an evaluation of their benefits versus their costs and, as a result, many expensive new technologies or procedures that become very popular among doctors and patients offer little to no benefit over the much cheaper approaches that they replace. For example, the $1.5 million da Vinci robot, which performs various surgical procedures, adds $8,000 to the cost of heart bypass surgery, yet there is no evidence that it leads to better outcomes than traditional surgery. “The trick is we really need research to know how to use these tools in a manner that will be preventive and predictive, to tailor the tests and interventions to what the patient really needs,” says Herb Kressel, radiologist-in-chief at Beth Israel Deaconess Medical Center in Boston.
2. High Administrative Costs – According to Vermont’s Independent Senator, Bernie Sanders, approximately 30% of every healthcare dollar spent in the United States goes to administrative costs rather than to delivering care, and that includes marketing costs, bureaucracies to handle all the paperwork involved, and a thick layer of profit for everyone involved – drug, equipment and supply manufacturers, insurance companies, and for-profit hospitals. One of the big advantages of a single payer system is that the vast majority of this administrative expense is eliminated, as doctors have to deal with only one insurance entity.
3. Lack of Health Insurance – According to the CDC, about 16% of Americans do not have health insurance. The uninsured tend to get less preventative care, which delays treatment until there is a much bigger and more expensive problem to treat; they are also more likely to use emergency rooms, the most expensive form of care. The cost to the health care system for treating the uninsured was almost $100 billion in 2001, the latest report available. The cost to the uninsured in the form of lower productivity, enjoyment of life, and potential development has been estimated to fall between $65 and $130 billion per year.
4. High Patient Demand: Direct-to-consumer marketing of prescription drugs was legalized in the US in 1997 (who among us doesn’t recall those commercials to “ask for the purple pill”?), and drug makers now spend over $4.3 billion on media ads in newspapers, magazines, TV and the internet to encourage potential patients to ask for their brand at the doctor’s office. Doctors wishing to keep their patient are only too happy to oblige, contributing to the climb of US prescription drug sales from $145 billion in 2000 to $307 billion in 2010. The growing abuse of prescription drugs, especially pain medication available at pill mills, has been estimated to cost $18 billion annually, before considering the lost lives, productivity, and criminal justice expenses.
5. Poor Lifestyle Choices: Spurred by the abundance of convenient junk foods, effective neural marketing by Frito-Lays and other processed food manufacturers, and less free time to prepare healthy alternatives, Americans have developed a diet high in fat, sugar and caffeine over the last few decades. Combine this with a 8 hours/day screen habit and loss of exercise time, and you have a recipe for an explosive rise in obesity, heart disease, and diabetes, increasing the demand for related health services. The Congressional Budget Office has estimated that 12 percent of the growth in health care costs between 1987 and 2001 was caused by increased obesity in the U.S.
Graph 2 – US Population, Overweight & Obese
6. Aging Population and End of Life Care – Our senior population is growing rapidly; the population eligible for Medicare (65 and older) is expected to rise from a current 40 million to 82 million by 2050, while the members of society in need of expensive end-of-life treatments, those age 85 and older, may rise from nearly 6 million today to 19 million by 2050. Twenty-five per cent of all Medicare spending – about $125 billion – is for the 5% of patients who are in their final year of life, and most of that money goes for care in their last couple of months which is of little apparent benefit. Our current health care system emphasizes avoiding patient mortality at any cost, without considering the importance of end-of-life decisions for patients and their families that can provide meaning and comfort.
In Part 2 of this series, we will cover competing proposals for reducing health care costs, and how progressive proposals offer the best approach for reducing health care costs without harming people in need of care.
Tags: health care, health care costs, health care reform, health insurance
