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Health Care Spending in the United States sample essay

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One of the issues that is widely discussed and debated concerning the United States economy is healthcare system. Unlike in the majority of developed and developing countries, the healthcare system in the United States is not public, meaning that the state does not provide free or cheap healthcare services. In Canada or Great Britain, for example, the government funds healthcare providers through taxes, and such a system is called social. The United States, on the other hand, being a profoundly capitalistic country, opted for another route and passed the burden of healthcare spending on private consumers as well as other institutions such as employers, insurers, etc. Everything would have been fine unless statistics showed dramatic increases in healthcare spending over the years. American healthcare system is the most expensive one in the world; in 2004 America spent about 16% of nation’s Gross Domestic Product on healthcare services, which is approximately $1.9 trillion (Economist, 2006). Furthermore, annual spending continues to grow 10 to 15 percent every year (Davis et al., 2003), which is faster than the national inflation growth rate. Thus, we can see that healthcare spending in the United States requires immediate analysis and new policy solutions, otherwise it would become an uncontrollable fund-consuming machine.

American economists are now trying to understand the nature of the growing healthcare costs, and to analyze its impact on the overall nation’s economy. Health and Human Services Department identified the major trends that lead to the rapid growth of healthcare spending. These include (but are not limited to) “changes in healthcare utilization, population demographics, price inflation, and advances in medical technology” (HHS, 2005). Discussion of these causes is not the purpose of this paper, although their analysis would provide a much more understandable picture of rising healthcare expenditures. But it is important to note that the increase in healthcare spending directly influences the economy of the United States and its economic development. It is a well-known fact that healthcare expenditures on employees is the employers’ hot issue for these healthcare costs are much higher than labor, litigation, or even energy. As healthcare prices increase, employers, those who carry a significant portion of the burden, attempt to pass healthcare spending to their employees. As a result, employees are less attracted to join such companies, which in turn results in decreased productivity. The result of this chain is obvious: a slowdown of overall nation’s economic growth.

Healthcare spending growth rate trends show astounding estimates. Since 1960, spending has risen from $27 billion ($143 per capita; 5.1% pf GDP) to amazing $1,678.9 billion ($5,670 per capita; 15.3% of GDP; 2003 data) (HHS, 2005). Recent research estimated that by 2013, healthcare spending will be as high as 18.4% of the GDP. It is important to note that the gradual move from hospital to ambulatory setting has resulted in much higher spending on outpatient hospital services and prescription drugs. The spending growth for these two trends is much higher than the overall healthcare cost growth, which, in fact, increases faster than such important economic indicators as GDP growth, inflation growth, and population growth rates.

Although there is a belief that great proportion of healthcare funding comes from out-of-pocket money, in reality private insurance is the major source. Generally, private and public sectors almost split the overall funding evenly, public sector accounting for 55% and public – for 45% respectively (HHC, 2005). The table below illustrates the sources of funding in 2003:

Sector Source Spending ($ b) Spending in %

Private Insurance 600 36%

Out-of-pocket 230 14%

Other private ~83 5%

Subtotal 913 55%

Public Medicare 283 17%

Medicaid & SCHP 267 16%

Other public ~200 12%

Subtotal 750 45%

Total ~1,679 100%

The nation’s health dollar; sources of funding; data taken from HHC website. Numbers rounded.

Other private includes privately funded construction, non-patient revenues, and industrial in-plant. Other public means worker’s compensations, public health activity, hospital subsidies and school health, as well as several governmental departments such as Department of Defense and Department of Veteran Affairs.

Such a dramatic increase in out-of-pocket spending is caused by the increase of spending on prescription drugs, greater utilization, increases in price, new medicines, and most importantly the fact that almost 100% of consumers of prescription drugs – the seniors – pay out-of-pocket nowadays.

It is important to note that the proportion of public spending has increased as compared to year 1990 when it was 41% of total healthcare expenditures. Public spending continues to grow relative to the overall spending.

As we can see, current situation in the healthcare system of the United States is far from perfect. As Economist journal authors have written in an article about current problems of American healthcare system, “the world's biggest and most expensive health-care system is beginning to fall apart” (Economist, 2006). Thus, healthcare department secretary and President George W. Bush should take immediate measures in order to curb the tremendously fast growth of healthcare spending. So far American healthcare system is the most expensive in the world, and still it continues to grow faster than population, Gross Domestic Product, or inflation. The impact of the growing prices cannot be ignored, since it directly influences the lives of the public and of the employers, and economy at large.

One of the solutions to the problem of rapidly rising costs would be to try to gradually shift from the belief that employers should provide healthcare insurance for employees. I do not mean they have to quit providing insurance, but they have to grant it in such a way that employees use it wisely. Typically, employees spend a great deal of their employers’ money for not so important matters; they do not think twice before attending a doctor because it is free for them. If such consumer attitude of employees could be removed or at least changed, companies would spend much less on healthcare of their employees. One of the techniques effectively utilized by the major retailer is to have literally all employees perform some physical job at least once a day. Older people and those with health problems would be deferred by such requirements, and naturally younger and healthier ones would only stay in the list of candidates. This way, these healthier workers would naturally spend less money on medical assistance, which would in turn make the life of the employer easier, and diminish spending on healthcare services.

Finally, I would like to conclude that healthcare expenditures nowadays in America account for almost one fifth of the nation’s Gross Domestic Product. Both GDP and healthcare spending in the United States are the highest in the world. The country is developing economically, demographically, and culturally, and thus the population, economy, and inflation grow. However, the growth rate of healthcare spending is much faster than any other economic indicator of the country, which draws healthcare system an unpleasant reality for the government, businesses, and economists. Immediate amendments must be implemented in order to trammel the growth of costs, because this growth influences economy in a negative way. And even though capitalism is a prosperous system to live in, still human health is something more important and more sacred than money. And turning medical treatment, nursing, surgeries, and saving lives of citizens into a big business is way too much. The healthcare system of the USA looks like it had forgotten its primary function, which consists in not beating the economic records, but in simple, humane, and natural activity which is helping people fight their health problems and saving human lives.

Bibliography

1. Desperate measures. (2006). Economist on-line journal. Retrieved May 24th 2006 from http://www.economist.com/world/displaystory.cfm?story_id=5436968

2. Davis, K. and Cooper, B. (2003). American Health Care: Why So Costly? Testimony for the Senate Appropriations Subcommittee. The Commonwealth Fund. Retrieved May 24th 2006 from http://www.cmwf.org/publications/publications_show.htm?doc_id=221624

3. Effects of Health Care Spending on the U.S. Economy. (2005). Health and Human Services Department. Retrieved May 24th 2006 from http://aspe.hhs.gov/health/costgrowth/
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