Resident Editor's Letter -- Healthcare in America: The Bottom Line
Resident Editor's Letter -- Healthcare in America: The Bottom Line
To care for sick patients, Americans have developed an incredibly complex delivery system that is a hybrid of public and private providers and payers. In past articles, we discussed Medicare, Medicaid, SCHIP, the different types of healthcare coverage and those who are uninsured in this country. Regardless of the arguments made for or against the many facets of our country's system, the fact is healthcare in America is incredibly expensive. What follows are facts and figures on the bottom line - how much we spend and what we spend it on.
The cost of all healthcare in the United States in 2008 was approximately $2.4 trillion dollars or 17% of the Gross Domestic Product. That staggering dollar amount is 4.3 times the amount spent on national defense. It is sobering to note that America now spends more money on healthcare than it does on food. Moreover, if growth in healthcare costs continue at roughly the same rate of the last decade, economists estimate that by 2012, costs will rise to $3.1 trillion, and by 2016, to $4.3 trillion.
The cost of healthcare has risen faster than inflation or wages. In 2001, 50% of all bankruptcy filings in the United States cited healthcare expenses as the reason for seeking protection. The United States spends more than any other country, but healthcare service utilization is lower per capita and concentrated among a small group of individuals. One percent of the US population accounts for 27% of all spending - 5% of the population accounts for 50% of all spending. These are the sickest patients, requiring the most expensive care, and therefore utilize the majority of resources.
As costs rise, employers are spending more money on insurance premiums, but they shift much of the burden to employees. See Table .
In 1998, companies paid 90% of employee's premiums. That number has now fallen to approximately 73%. A Corporate Executive Board survey of 350 large corporations suggests this trend will not change, as employers save money by switching to higher deductible plans where the employee pays a larger percentage of the premiums.
The last two years of life are the most expensive. As an age group, the elderly make up 12% of the total US population, but account for 34% of healthcare costs. Working age individuals are 62% of the US population, but only account for 52% of the costs. Children are 26% of the US population, but only account for 13% of the costs.
The bulk of healthcare associated costs are from hospitalization (31%) and physician services (21%). Prescription drugs make up 10%, and administrative costs make up 7%. Administrative costs account for $168 billion dollars annually - an incredibly impressive dollar amount not matched by many other countries. Interestingly, the government-operated programs, Medicare and Medicaid, frequently described as large, inefficient programs, have administrative costs of less than 2%. If the entire industry matched Medicare and Medicaid's relatively low administrative costs, the country would save roughly $120 billion.
A 2008 McKinsey report noted that America spends at least $480 billion more than any other developed country in the world on healthcare. Their analysts determined through population data studies that severity of disease does not explain the increased expenditures. In other words, McKinsey analysts argue Americans are not sicker.
There are countless explanations for the staggering costs of healthcare in America. The Congressional Budget Office wrote in a 2008 report, "About half of all growth in health care spending in the past several decades was associated with changes in medical care made possible by advances in technology."
The 2007 McKinsey Global Institute report suggested, "The overriding cause of high U.S. health care costs is the failure of the intermediation system -- payors, employers, and government -- to provide sufficient incentives to patients and consumers to be value-conscious in their demand decisions, and to regulate the necessary incentives to promote rational use by providers and suppliers."
Despite the bleak outlook, there are a number of intelligent individuals working hard within the government, at think tanks, and non-profit organizations across the country to come up with solutions to our expensive problem. The majority of solutions fit into three broad categories. The first includes consumer driven health plans that have greater price transparency, rely heavily on "health reimbursement accounts," and allow free market forces to shape a solvent system. The second category argues for greater government regulation to design a system modeled after current social programs like Medicare and Medicaid, which have substantially lower administrative costs than most private programs. The final group argues for promoting a "quality and efficiency" model that improves disease management, finds cost savings in the implementation of new technologies (such as electronic medical records) and bulk buying of medications (similar to the VA).
Healthcare will remain a front-page story for the next few years as policymakers argue the merits of a number of reforms. Any discussion about changes to healthcare will certainly reference the bottom line.
To care for sick patients, Americans have developed an incredibly complex delivery system that is a hybrid of public and private providers and payers. In past articles, we discussed Medicare, Medicaid, SCHIP, the different types of healthcare coverage and those who are uninsured in this country. Regardless of the arguments made for or against the many facets of our country's system, the fact is healthcare in America is incredibly expensive. What follows are facts and figures on the bottom line - how much we spend and what we spend it on.
The cost of all healthcare in the United States in 2008 was approximately $2.4 trillion dollars or 17% of the Gross Domestic Product. That staggering dollar amount is 4.3 times the amount spent on national defense. It is sobering to note that America now spends more money on healthcare than it does on food. Moreover, if growth in healthcare costs continue at roughly the same rate of the last decade, economists estimate that by 2012, costs will rise to $3.1 trillion, and by 2016, to $4.3 trillion.
The cost of healthcare has risen faster than inflation or wages. In 2001, 50% of all bankruptcy filings in the United States cited healthcare expenses as the reason for seeking protection. The United States spends more than any other country, but healthcare service utilization is lower per capita and concentrated among a small group of individuals. One percent of the US population accounts for 27% of all spending - 5% of the population accounts for 50% of all spending. These are the sickest patients, requiring the most expensive care, and therefore utilize the majority of resources.
As costs rise, employers are spending more money on insurance premiums, but they shift much of the burden to employees. See Table .
In 1998, companies paid 90% of employee's premiums. That number has now fallen to approximately 73%. A Corporate Executive Board survey of 350 large corporations suggests this trend will not change, as employers save money by switching to higher deductible plans where the employee pays a larger percentage of the premiums.
The last two years of life are the most expensive. As an age group, the elderly make up 12% of the total US population, but account for 34% of healthcare costs. Working age individuals are 62% of the US population, but only account for 52% of the costs. Children are 26% of the US population, but only account for 13% of the costs.
The bulk of healthcare associated costs are from hospitalization (31%) and physician services (21%). Prescription drugs make up 10%, and administrative costs make up 7%. Administrative costs account for $168 billion dollars annually - an incredibly impressive dollar amount not matched by many other countries. Interestingly, the government-operated programs, Medicare and Medicaid, frequently described as large, inefficient programs, have administrative costs of less than 2%. If the entire industry matched Medicare and Medicaid's relatively low administrative costs, the country would save roughly $120 billion.
A 2008 McKinsey report noted that America spends at least $480 billion more than any other developed country in the world on healthcare. Their analysts determined through population data studies that severity of disease does not explain the increased expenditures. In other words, McKinsey analysts argue Americans are not sicker.
There are countless explanations for the staggering costs of healthcare in America. The Congressional Budget Office wrote in a 2008 report, "About half of all growth in health care spending in the past several decades was associated with changes in medical care made possible by advances in technology."
The 2007 McKinsey Global Institute report suggested, "The overriding cause of high U.S. health care costs is the failure of the intermediation system -- payors, employers, and government -- to provide sufficient incentives to patients and consumers to be value-conscious in their demand decisions, and to regulate the necessary incentives to promote rational use by providers and suppliers."
Despite the bleak outlook, there are a number of intelligent individuals working hard within the government, at think tanks, and non-profit organizations across the country to come up with solutions to our expensive problem. The majority of solutions fit into three broad categories. The first includes consumer driven health plans that have greater price transparency, rely heavily on "health reimbursement accounts," and allow free market forces to shape a solvent system. The second category argues for greater government regulation to design a system modeled after current social programs like Medicare and Medicaid, which have substantially lower administrative costs than most private programs. The final group argues for promoting a "quality and efficiency" model that improves disease management, finds cost savings in the implementation of new technologies (such as electronic medical records) and bulk buying of medications (similar to the VA).
Healthcare will remain a front-page story for the next few years as policymakers argue the merits of a number of reforms. Any discussion about changes to healthcare will certainly reference the bottom line.