U.S. Census data claims more money is spent per person on health care in the U.S. than in any other country in the world. Health care spending in the U.S. has grown steadily over the past three decades – slowing somewhat in the mid-1990s and then reaching double-digit increases by 2001. The Kaiser Family Foundations’ Kaiseredu.org reports that by 2008, U.S. health care spending was about $7,681 per resident, slightly more than 16% of our GDP that year. Elsewhere, Kaiser Family Foundation claims that between 1999 and 2008, health insurance premiums grew 119% compared with inflation growth of 29% and wage growth of 34%. And according to a report from the American College of Emergency Physicians (ACEP), the annual cost of U.S. health care will hit $2.8 trillion this year. Where does the money go, and what’s driving increases?
Where Does the Health Insurance Money Go?
In 2009, we paid an average annual premium of $2,985 for an individual health care insurance and about $6,328 for a family, according to a comprehensive study by America’s Health Insurance Plans. Those prices have gone up since then, but based on a Price Waterhouse Cooper’s 2008 analysis, here’s the break-out for each dollar your spend on health insurance:
- Insurance company profits – $0.03
- Consumer services, provider support and marketing- $0.04
- Government payment, compliance, claims processing, & other admin- $0.06
- Other medical services – $0.05
- Drugs – $0.14
- Outpatient costs – $0.15
- Inpatient costs – $0.20
- Physician services – $0.33
What’s Driving Health Care Cost Increases?
One simple reason is that our population is aging and older people access health care resources at a greater level than younger people. The laws of supply and demand dictate that prices go up as demand outpaces supply. The only way to control that is increased regulation, price controls and manipulation such as cost shifting, and care rationing.
Overhead costs for health care providers have also increased as have the threats of malpractice suits. That means higher malpractice insurance premiums and doctors ordering lots of tests as a defensive measure. Those costs are passed along to consumers.
We also shoulder the burden for new technology research and development. Prescription drug costs grew 89% between 2000 and 2007, compared to 67% increases for hospitals and 66% increases for physician services.
In the second part of this series, we’ll take a look at what you can do to control health care costs.