Why Americans Spend So Much on Health Care

At-a-Glance Facts about National Health Care Costs

Oct 17, 2009

Cost Containment: A Heallth Insurance Issue, Stephanie Berghaeuse

Why, as a nation, is the U.S. spending so much on heath that costs are growing faster than the economy?

The question of how to contain future health care costs is important to Americans. In a year of highly charged public debate, polls show that Americans want health reform — but that many are also frightened of getting what they wish for. Ideally, the twin goals of health care reform are to insure those who are uninsured (or under-insured) and to reign in galloping health care expenses. Cost containment is key, as the following at-a-glance numbers show.

At-a-Glance Facts about National Health Care Cost Escalation

According the Washington-based, non-profit, non-partisan National Coalition on Health Care (of which both former presidents George Bush and Jimmy Carter are honorary co-chairs), these are the basic numbers:

In 2009, national health spending is expected to reach $2.5 trillion, accounting for 17.6 percent of the gross domestic product (GDP).
By 2012, Medicare and Medicaid combined will account for 50 percent of all national health spending.
By 2018, national health care expenditures are expected to cost twice as much as they did in 2007, reaching about $4.4 trillion.
Health spending is growing faster than the economy. In the next decade (2008 to 2018) the GDP is expected to increase 4.1 percent per year. The projected increase in national health expenditures is higher, at 6.2 percent per year.

Why are U.S. Health Care Costs Rising?

The question of why Americans spend so much on health care (especially compared to other Western nations that boast better health outcomes) seems like it ought to have a simple answer. It doesn't.

Opinions vary about what the factors are and what role they play. Take, for instance, new medical technologies. Do new procedures, scans, and surgical appliances save money, or add to the overall health care bill? Easy to ask, hard to answer.

In a 2009 article in the peer-reviewed publication Health Affairs, entitled, “Income, Insurance, And Technology: Why Does Health Spending Outpace Economic Growth?," Sheila Smith, Joseph Newhouse and Mark Freeland estimate that new and improved “medical technology explains 27–48 percent of health spending growth” since 1960. At the higher end of that estimate—that nearly half of all medical spending growth is due to new technologies—it's hard to imagine how costs could be controlled without slowing innovation.

Generally, however, it’s believed that a wide range of factors are at play in the nation's growing expenditure on health. These include an aging population, wasteful administration, overspecialization of physicians and a deficit of primary care doctors, a legal structure that encourages “defensive medicine” practices, use of very expensive interventions for people at the end of life, and the consumer appeal of new technologies.

The copyright of the article Why Americans Spend So Much on Health Care in Health Field is owned by Ellen Freudenheim. Permission to republish Why Americans Spend So Much on Health Care in print or online must be granted by the author in writing.