Sunday, December 21, 2014

U.S. healthcare costs: It's time to get worried

U.S. healthcare spending far exceeds that of any other developed nation. The U.S. now spends 17.6% of its gross domestic product on healthcare, whereas France spends only 11.6% and Australia only 9.1%. Total U.S. health expenditures neared $2.6 trillion in 2010, more than ten times the $256 billion spent in 1980.

U.S. healthcare costs: It’s time to get worried

The rise in healthcare costs over the past several decades has been astounding. And as they continue to increase, the national deficit grows along with them. The high cost of healthcare impacts the national budget and economy in a variety of ways.

U.S. healthcare spending far exceeds that of any other developed nation. The U.S. now spends 17.6% of its gross domestic product on healthcare, whereas France spends only 11.6% and Australia only 9.1%. Total U.S. health expenditures neared $2.6 trillion in 2010, more than ten times the $256 billion spent in 1980.

Healthcare costs are rising more rapidly than wages. As of 2007, over 60% of individuals who filed for bankruptcy did so due to medical bills, a 50% increase over the percentage who filed for medical reasons in 2001. As many as 75% of those people had health insurance but could not afford medical bills due to gaps in coverage.

So why does U.S. healthcare cost so much?

One reason is that healthcare is not a competitive market. For example, large hospitals often dominate local markets and use this status to extract high prices from insurance companies. Competition is also limited in many insurance markets, which makes it easier for companies to raise rates.

Americans are also remarkably unhealthy, and the population is aging rapidly. Almost half of all Americans have at least one chronic condition such as asthma, heart disease, or diabetes, which are expensive to treat over a lifetime. The obesity epidemic is not helping either. Two-thirds of U.S. adults are either overweight or obese, which results in more chronic illness. As these trends produce more illness, projections show that Medicare enrollment will increase by an average of 1.6 million people annually as baby boomers begin to retire.

The cost of prescription drugs and new medical technologies also contributes significantly to healthcare spending. While the development of new drugs and treatments are costly, many of them are not cost-effective. Patients and providers frequently demand the newest technology, even when it has not been proven more effective than the existing treatments.

Why should we be concerned?

If individuals are dedicating a significant portion of their expenses to paying off medical debt, they will have limited expendable income, which could otherwise be spent in the marketplace and boost the overall economy. Furthermore, individuals are depleting their retirement savings to pay down medical debt, which may lead to an increased reliance on public funds.

Rising healthcare costs may also lead the federal and state governments to raise taxes, which could suppress economic growth or cause funds to be reallocated from other critical sectors such as education and infrastructure.

They could also impair the business sector. Rising healthcare costs could lead companies to reduce employment and investments. They could fuel inflation and make U.S. goods and services less competitive in international markets.

As the U.S. economy continues to struggle, efforts to rein in healthcare spending should remain a priority for politicians at both the local and national levels. The future of the U.S. economy could depend on it.

- Erica B. Cohen

About this blog

The Field Clinic reports and analyzes health care laws, government policies, and political trends that are transforming the care we receive and the way we pay for it. Read more about our panel of bloggers here.

This blog is produced in partnership with Kaiser Health News, an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health-policy research and communication organization not affiliated with Kaiser Permanente. Portions of this blog may also be found on Inquirer.com and in the Inquirer's Sunday Health Section.

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Robert I. Field, Ph.D., J.D., M.P.H. Professor, School of Law & Drexel School of Public Health
Jeffrey Brenner, MD Founder of the Camden Coalition of Healthcare Providers, Medical Director of the Urban Health Institute at Cooper University Healthcare
Andy Carter President & CEO, The Hospital & Healthsystem Assoc. of Pa.
Robert B. Doherty Senior Vice President of Governmental Affairs & Public Policy American College of Physicians
David Grande, MD, MPA Assistant Professor of Medicine at the University of Pennsylvania
Tine Hansen-Turton Chief Strategy Officer of Public Health Management Corporation
Drew A. Harris, DPM, MPH Director of Health Policy Program at the Jefferson School of Population Health
Antoinette Kraus Director of the Pennsylvania Health Access Network
Laval Miller-Wilson Executive Director of the Pennsylvania Health Law Project
David B. Nash, MD, MBA Founding Dean of the Jefferson School of Population Health
Mark V. Pauly, Ph.D. Professor of Health Care Management, Business Economics and Public Policy at The Wharton School
Howard J. Peterson, MHA Managing Partner of TRG Healthcare, a national healthcare consulting firm
Donald Schwarz, MD, MPH Deputy Mayor for Health & Opportunity and Health Commissioner for the City of Philadelphia
Paula L. Stillman, MD, MBA Healthcare consultant with special expertise in population health and disease management
Elizabeth A. W. Williams Senior Vice President & Chief Communications Officer for Independence Blue Cross
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