The Real Numbers Behind Health Care Costs

The national healthcare debate is driven by steadily rising costs which have increased at a rate significantly above the inflation rate for over four decades. The percentage of Gross Domestic Product (GDP) consumed by healthcare expenditures has risen steadily to 17.9% in 2011, according to the Centers for Medicare and Medicaid Services.

As is often noted, when compared to other industrialized nations, the US spends the highest percentage of GDP on healthcare. In fact spending in the US is 200% of most industrialized European countries. Yet, U.S. citizens do not enjoy longer life or lower infant mortality rates, common markers for quality of healthcare, than those who reside in countries with comparatively less costly healthcare systems.

National and Individual Costs

Total health expenditures on healthcare in the US reached $2.6 trillion as it grew 3.8% in 2009 and 3.9% in 2010. These are the lowest rates of growth in U.S. government healthcare spending in the 51 year history of National Health Accounts.

These costs are also fairly substantial on an individual level. According to the Centers for Medicare and Medicaid Services, the average U.S. per person expenditure for females was $5,989 for females and $4,541 for males in 2004, the last year for which comprehensive data is available. For 2010, it is estimated that healthcare spending was $8,402 per person.

Though healthcare expenditures come in many different forms, increases are seen across the board. That said, the increases were certainly more substantial in some areas than they were in others. Most categories, like Private Insurance health expenditures, increased about 2%, while some, like prescription drug costs (1.7%), increased by less.

More substantial increases were hospital spending, which increased 4.9% and the category “Other”, which includes outside support such as ambulance fees and non-medical-facility care, such as those provided by colleges and schools, increased by 7.7%. Home Health care, or care provided to patients in their home, rose by over 6%. National healthcare programs that provide for those lacking funds to provide themselves healthcare like Medicaid, 5%, and Medicare, 7.2%, also saw substantial increases. However, health insurance premiums rose most dramatically at 11.4%.

Costs to Business and Labor

With health insurance costs rising so dramatically, it places business, which have historically provided U.S. workers with health insurance, in a difficult situation. Health insurance premiums are far outpacing inflation and revenue growth. Thus a recent survey shows that most large business are shifting the burden of health insurance costs to their employees as rapidly as possible. Roughly 53% of large firms surveyed, which employ about four million workers, plan to increase their employees share of healthcare costs next year. More than 10% of those firms are expecting to increase employee contributions by more than 10% while 26% of those firms plan to increase employee deductibles. However, 74% of these firms will now offer a high deductible and less expensive form of insurance to employees, up from 61% in the preceding year.

Due to the patchwork nature of healthcare in the U.S., it is difficult to arrive at a solid figure for healthcare expenditure by the private business community. Therefore, the percentage increases is the primary metric used, and with it rising so quickly, it is clear that business will continue to shift the cost to employees. This hampers wage growth for U.S. citizens, as almost all increases are immediately absorbed by increasing healthcare premium.

In addition, U.S. employers will point out that in many advanced nations government provided healthcare systems remove any need to provide for employee healthcare or injury liability insurance. Thus the burden of healthcare allocated specifically to business places them at a competitive disadvantage. On the other hand, those countries with national health systems must charge higher taxes on some types of goods and services to cover the expense. In the end, the important figure is the 17.9% that the U.S. expends, which is compared to less than 10% in almost every other country.

Inconsistencies in the Cost of Healthcare

Some healthcare cost researchers note that there are dramatic disparities in healthcare expenditures by region and between those with insurance and those who are uninsured; however, there is relatively little difference in actual quality of life or care. Researchers hope to understand the differences in how health care is accessed and used in different parts of the country in order to make healthcare offerings more efficient and less of a burden.

For example, Medicare costs are $5,600 per person in Salem, Oregon compared to $16,000 per person in Miami, Florida. The difference is not one of healthcare quality or outcomes, but in existing fees for services.

Further, the costs increase exponentially when the person seeking care does not have insurance, something that is very common as more than 44 million people in the US are uninsured. One study from the Irvine School of Social Sciences shows that when the uninsured receive continuous healthcare coverage for a period of three years, their average healthcare expenditure decreases from $8,899 in year one to $4,569 in year three. This was largely due to a 25% reduction in emergency room visits.

Private health insurance currently covers about $850 billion dollars of the total healthcare costs with a variety of government programs covering the rest. Controlling the costs and improving efficiency of systems are of great importance to many citizens and business in the U.S. Many feel that the bringing down the cost of healthcare is vital in ensuring the United States remains a competitive, vibrant place to live and do business. However, as the industry is very large and sees an enormous degree of variation, a substantial reductions in cost is a goal that will be difficult to reach.

For more information: