Health Spending in the U.S. and the Cost of Health Care

The cost and spending on health care is an essential component of the economy of any developed country. Health care costs take a significant part of the U.S economy. Every year the health-related spending grows to outpace the expenditure on goods and services. The high cost of healthcare significantly affects households, federal and state institutions and also businesses. The rise in health care spending results in less affordable insurance for individuals, families, and enterprises. For taxpayers, there are government programs such as Medicaid and Medicare that use state and federal budgets. These federal and state programs influence health care costs and spending with the help of differing payment programs. Good health care spending results in better human resources (HRM) practices. The HRM is vital in providing high-quality health care. Human resource is essential for implementing health care spending and also in the delivery of services.

Publicly Funded Healthcare in the USA

Comparing the U.S health care to other sectors, it is notable that it is more publicly funded. The United States uses publicly funded care designed to cater for the health care needs of its citizen under democratic accountability. The right of access to the funds applies to the whole population. The health fund comes from insurance premiums and taxes. Other health dollars originate from out-of-pocket and co-payments expenditures. American citizens make direct payments or use insurance to pay for medical expenses. On the other hand, the federal government covers military personnel together with their dependents. Medicare covers older Americans, while Medicaid provides funds to low-income mothers, disabled persons, and children. Due to the high health care costs, the U.S government has to address health equity challenges that include: reducing fees at primary health care facilities and developing a universal health financing strategy (Afifi, Rice, Andersen, Rosenstock & Kominski, 2013). Health care equity and funding is a goal that international organizations recognize as essential in meeting health-related millennium goals. Financing approaches are significant in the performance of a health care system and the achievement of universal coverage.

The U.S has to have considerable health care spending as it leads to the development of medical drugs and technologies. The government has to satisfy the fundamental individual and social demands for health services to improve health outcomes. As a consequence, citizens lead longer lives and thus have greater productivity. Health systems need to start moving towards universal coverage (Afifi et al., 2013). It is to allow all citizens to access key preventive, to promote, rehabilitative and have curative health interventions at an affordable cost, in that way America will achieve equity in health services access.  The U.S government needs to ensure that all health systems incorporate an element of pre-payment and risk pooling.

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The Factors Influencing the Rising Cost of Health Care

The unceasing rise in health care spending for Americans is due to a number of reasons. First, the hospital increases the required money for their expenditures. The increase in care cost is attributable to technological growth. When citizens earn more money, they demand the best available care, which may result in high care charges. Goods and services cost higher due to inflation, therefore, impacting on hospital costs. The national expenditure on health care totals to about one-third of the country’s budget.  These factors comprise of workers, information, and equipment services. Additionally, the increase in demand for care and its compliance with regulatory requirements also leads to an upsurge in medical costs (Feldstein, 2012).  Hospitals have an issue with Medicaid and Medicare. The two programs cover 60 % of the persons visiting the hospital for admissions. Medicaid and Medicare have the problem of not fully repaying the full amount of care.


Provider prices are the second factor that affects health care costs as charges for doctor’s visits are increasing. The high costs occur as doctors negotiate with insurers on the rates. Health care consumers bear the burden of paying higher rates for care. Insurers also make consumers pay hospital bills through the out-of-pocket mode if they choose to visit a doctor not in the insurer’s network.

Medical technology is the third factor that continues to increase the price of health care. The advancement of technologies directly affects care costs. They account for approximately 38 to 65 % increase in care rates. Robotic surgeries and other high-cost procedures are essential as they improve the quality of care. However, they push up the costs of care that are passed to patients. In healthcare, technology advancements require more funding. They translate to high insurance claims for advanced procedures and techniques (Afifi et al., 2013). Technology is vital to good health systems, but the services convert to the high cost of patient care. When patients receive needed care as a result of new technologies, they pay more fees. Evidently, new technology replaces low-cost services with technically high-cost ones.

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The fourth factor leading to increased health care costs is a waste. Waste entails spending on services that do not produce better health outcomes when compared to alternatives that are less expensive. Numerous studies have shown wasteful spending on public programs. It also includes inefficiencies, in the healthcare services. Costs incurred in treating preventable medical injuries are also part of wastage. The amount of ineffective health care spending by Medicaid and Medicare is enormous. In addition, consideration paid by out-of-pocket and private insurers is sometimes wasteful. Wasteful spending is deemed to be increasing the costs of care due to unstable rates and policies. The U.S government needs to eliminate wasteful spending without harming consumers. The health care costs will save approximately one-half of the overall spending.

There are different forms of healthcare waste. The first one occurs when physicians and doctors fail to deliver essential care to their patients. Most of the medical providers refuse to use best practices while administering care. Best practices include preventive care and practices of patient safety.  When clinicians and other medical providers fail to deliver the best care, it results in worse medical outcomes that could be in the form of injuries. As a consequence to patients, they incur additional costs of care to rectify the problem. Sometimes clinicians fail to coordinate while giving care. As a result, patients receive fragmented care that may involve other resources or waste. The problems arise due to poorly managed health care facilities. They mostly lead to unnecessary hospital admissions, health complications and functional decline in chronically ill patients. Over-treatment is another form of waste. It occurs when health providers use out-dated models that ignore scientific findings. Physicians may order for unnecessary diagnostic procedures as they guard against malpractice lawsuits. Sometimes clinicians over-diagnose when trying to identify the disease (Jost, 2012). Excessive treatment is wasteful as it leads to unnecessary harms.

Administrative complexities are a category of waste that involves excess spending due to flawed rules and bureaucratic procedures. Private insurance companies, accrediting agencies, and the government lack standards and procedures that result in complex billing work. Physicians in the United States experience high administrative costs that are passed on to health care consumers. Pricing failures also occur when the price of a care service exceeds that of a functioning market. Services such as magnetic resonance imaging and tomography scans are more expensive in the United States than in other countries. The pricing failures are attributed to a lack of transparency and absence of competitive markets. In 2011, the pricing failures added the cost of care to $84 billion to wasteful spending (Feldstein, 2012).

The fifth cause of escalating medical cost is unhealthy lifestyles. The burden brought about by unhealthy behaviors increases the cost of care. The American Medical Association claims that 25% of the health care fund is used to treat diseases and disabilities caused by changeable behaviors. The unhealthy lifestyles that cause these illnesses are smoking, poor diet, alcohol abuse, overexposure to the sun and lack of exercise. Preventable health care costs are a concern of many medical critics. Today, costs related to cases of obesity are over $ 27 billion per annum (Jost, 2012). What is more annoying is that people with unhealthy habits contribute to a fraction of costs. Most of the expenses are made by the rest of the society in forms of government expenditures, high insurance premiums and disability benefits.

Different organizations that include lawmakers and insurers are requesting for policies that allow redistribution of such expenses to people involved with the health risks. Nonetheless, penalizing people for their unhealthy behavior is not reasonable as it may result in social harm as well as great injustices. As medical costs in the United States continue to rise, the government needs an alternative means of funding. The issue of subsidizing the costs associated with unhealthy lifestyles requires careful assessments. There are different appeals regarding justice when holding individuals responsible for their health behaviors. The benefits, as well as, the harm brought by the penalties, should be assessed.

The aging population is the sixth factor that influences health care costs in America. The country experiences increased health expenditures due to the aging population. The health care system faces numerous problems while managing the mounting health care costs for an aging population. The system has to ensure that demographic changes do not interfere with other government programs, debt control, and tax rates. Regions do not have similar challenges with the aging population. In some areas, people age faster than in others. In other instances, some individuals are more susceptible to the age-related problem than others. Therefore, the appropriateness of age-related responses should be based on the challenges in the region. Local governments have to estimate the impact of demographic changes on costs using research. As health expenditure increases, policymakers need to anticipate the fiscal effect of population amendments to the aging persons (Porter & Lee, 2013).

The seventh factor is state and federal taxes. The law on health reform imposes the sales tax on health insurance thus causing a rise in the cost of covering health care.  The Affordable Care Act is also known as Obama care. It increases taxes and credits for high earners. It mostly affects large businesses and organizations such as the healthcare industry. On the other hand, the tax credits affect low and middle-income individuals. In America, the state government subsidizes the country’s health insurance for its citizens. The state government realizes that taxing insurance premium generates much money as revenue (Jost, 2012). What is more, the money comes from taxpayers. It sometimes has to translate to costly employer-based covers. When the tax premiums increases, the federal and Medicaid spending also increases.  Private insurers deliver the growing amount of national services. The federal government subsidizes the health insurance costs through giant healthcare organizations and the tax code.


Insurer profits also cause high health care costs. Major health insurers in the United States continue to pocket large profits. The value of insurance increases as the costs of medical care rises. Health insurers charge high premiums, thus earning enormous profits as the health costs increase (Feldstein, 2012).  It is ironical that insurers increase profits when they cover high medical services. Health insurers pocket more profits when the person purchases high premiums to mitigate risks. Health insurers are more valuable when the financial risk is related to high medical costs. The insurers charge high premiums on these covers, thus earning greater profits consequently leading to higher medical expenses. The insurance industry does not limit the amount used on medical services (Jost, 2012). The reason is people need health insurance when medical expenses are high. Higher medical costs translate to increased medical charges. When people have high financial risks the demand for insurance cover increases. Conversely, it becomes advantageous to insurers when medical rates are very high.

Factors Driving Slower Growth in Health Spending

Health spending is slow when two factors are in place. The first factor is increased cost-sharing that reduces utilization of services in private plans. Secondly, it also reduces the costs on the prescription of medicine. Cost sharing is aimed at utilizing services and prescription drugs for people with public or private health covers. Cost-sharing on medical services and prescription drugs reduces health care rates. The strategy prevents any ethical and moral threats that may occur due to unethical insurance schemes.  Private health insurance uses a cost-sharing policy to decrease the over-consumption of costly drugs. The system also ensures that there is the improved use of generic medicines. Conversely, public medical insurance also recommends a prescription co-payment system as it controls moral hazards in health care institutions (Porter & Lee, 2013). Therefore, all forms of health insurance need to practice the cost-sharing policy. The strategy is fundamental in changing the health, financial risk. Cost sharing system evidently, decreases cost and thus reduces health care spending.

Functions of the Affordable Care Act

Functions of the Affordable Care Act (ACA) are numerous. The Act helps in the reduction of overpayments to health care providers and plans. It increases access to affordable insurance covers. The Act plays a significant role in healthcare as it ensures that most people are insured. The Act expands eligibility for Medicaid and provides establishments that offer health plans. The Affordable Care Act facilitates cost-sharing reductions and premium subsidies to ensure affordable coverage. They also increase the deployment and use of quality payment models. The ACA has regulations for private insurance to guarantee provision (Feldstein, 2012).  It prevents insurance providers from denying health coverage to individuals for any reason. The Act ensures American citizens get a civil education on health-related costs. The Act allows consumers to take control of their health care. The American people get the stability and flexibility to make informed decisions regarding their health.

Conclusion

The paper has tackled health spending in the United States. It has focused on health care costs, dealing with issues of funding and areas that the money is used. The cause for the continued rise in medical payments is hospital charges, provider prices, medical technology, waste, unhealthy lifestyles, taxes and the aging population. Healthcare spending is not only attributable to the aging population, but to higher income and new technologies. Other factors that include unhealthy lifestyles increase the health care costs. As a result, the government or health institutions should encourage American citizens to avoid unhealthy lifestyles. Having healthy citizens enables the federal government to maintain the escalating expenses of health care. The Affordable Care Act is significant in reducing health care spending. It reduces overpays for health care through the Medicaid programs. Other factors that reduce health care spending are cost-sharing on health services and prescription of drugs.

References:

  1. Afifi, A. A., Rice, T. H., Andersen, R. M., Rosenstock, L., & Kominski, G. F. (2013). Changing the U.S. health care system: Key issues in health services policy and management. San Francisco, Calif: Jossey-Bass.
  2. Feldstein, P. J. (2012). Health care economics, Clifton Park, NY: Delmar Cengage Learning.
  3. Jost, T. S. (2012). Eight decades of discouragement: The history of health care cost containment in the USA. Forum for Health Economics & Policy, 15(3), 53-82.
  4. Porter, M. E., & Lee, T. H. (2013). The strategy that will fix health care. Harvard Business Review, 91(10), 50-70.

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