Overview of the High Cost of US Health Care

Topics: Health care, Health economics, Medicine Pages: 14 (4536 words) Published: March 24, 2014

Why Are U.S. Health Care Costs So High?
Overview of the High Cost of Health Care


Alaska Pacific University
MBA 63600
Health Service Systems and Policies
Fall 2013

Why Are U.S. Health Care Costs So High?
According the Department of Health and Human Services, total health care spending in the U.S. reached $2.3 trillion in 2008, or $7,681 per person. As a share of GDP, healthcare expenditures set a new record of 16.2 percent. That’s double the 8.1 percent share of GDP in 1975, and it is triple the 5.2 percent share of GDP in 1960. (Perry, 2010) Last year in 2012, total U.S. health care spending hit $2.807 trillion, or $8,948 per person. (Geisel, 2013) Its rate of increase has been relatively low since 2009, at about 4%, but it’s still increasing and the expenditures are still astounding. Many of us already have pre-conceived notions for the reasons why health care costs seem to be rising. And many experts regularly talk about the many reasons and factors that are affecting higher and higher costs. The purpose of this paper is to provide a bird’s eye view and better understanding of the problem, by explaining the ten most cited reasons for rising health care costs in this nation, and then to narrow it down to two of the biggest reasons. The conclusion will discuss possible solutions that are commonly offered. Meaning of “Cost”: Price vs. National Health Expenditures

First, when we talk about health care “costs”, this means different things to different people, depending on your point of reference. As an individual and from the point of view of consumers, we are usually referring to the price of our health care in terms of insurance premiums, out-of-pocket costs, doctor visits, and drugs. From a macro level, costs are looked at as the total amount our nation spends on health care. Cost can also mean cost of goods and services to a provider like hospitals and health organizations. (Singh, 2012) This paper will focus on the macro perspective of health spending as a nation because this macro trend is affected by the other two micro trends. It is also easier to gather data and analyze. National Health Expenditures (NHE) Measured in 3 Ways

The macro trends of national health expenditures (NHE) are usually measured in three different ways. Compare Medical inflation to changes in CPI, Compare NHE as a percentage of GDP, and Compare NHE to other countries. Compare Medical Inflation to General Inflation in the Economy The first way is to compare medical care costs to the consumer price index (CPI). (Singh, 2012) The CPI is an index of price levels for an entire market basket of goods and services, and usually is the best representation of inflation. Comparing medical costs to general inflation can give us an idea of how reasonable they are. The chart below shows clearly how medical care cost has increased more rapidly than general inflation.

(Stransky, 2013)
Measure NHE as a Percentage of GDP
A second way is to measure NHE as a percentage of the nation’s Gross Domestic Product (GDP). Also, the rates of change among the two can be compared. Below is the graph showing the growth of the NHE as a percentage of GDP. The higher this gets, the more health care is consuming a larger portion of our total economic output, which can be viewed as a red flag if we are not getting our money’s worth. Looking at the share of GDP over time shows what share of total economic output health care comprises. In 2008, total NHE was $2.3 trillion or $7,681 per person. As a share of GDP, healthcare expenditures set a new record of 16.2 percent, as it had nearly every year since 1960.

Compare U.S. Health Care Spending with That of Other Countries The third common method of measuring NHE in the U.S. is to compare it to other countries. The comparison is usually of NHE as a percentage GDP and is accompanied by quality comparisons as well. In comparison to other countries, it is well documented that the U.S. spends a much...

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