Who to Blame for America’s High Health-Care Costs

Who to Blame for America’s
High Health-Care Costs

© David Burton 2020

Health Care Costs Rising

     “IN AMERICA nearly one in every five dollars spent is on health care, a larger share than in any other country. Many of the culprits are well-known. Americans have more procedures, pay more for them, and face exorbitant administrative costs. One driver of rising costs has often been overlooked, however: politicians. [Emphasis mine]” (Ref. 1)

Prescription Drugs

     Another culprit is claimed to be prescription drugs.

  • ”The sickest 5% of Americans account for at least 50% of all health-care spending, according to a Kaiser Family Foundation study.
  • ”Prescription drugs now eat up an astounding 40% of all the health spending among high-cost patients, the study found.
  • ”The data underscore the importance — and cost — of prescription drugs in treating people with serious illnesses such as HIV, MS, cystic fibrosis, rheumatoid arthritis, diabetes and cancer.
     “If you tuned into {the August 2019} Democratic presidential debates you got an earful on runaway health costs and various proposals to solve the health-care access problem. But amid the talk of Medicare for All, universal care, a public option, and other bold proposals, one underlying issue continue{d} to dominate the discussion inside and outside of Washington: The high-cost of pharmaceutical drugs.
     “{An} analysis by Kaiser Family Foundation add{ed} new light on exactly who bears the brunt of these costs and why.
     “Just 5% of all Americans account for at least 50% of health-care spending, [Emphasis mine] according to the Kaiser study. That makes sense. Of course the sickest people spend the most on health care.
     “But what may be more surprising is the fact that prescription drugs account for an astounding 40% of spending among high-cost patients, [Emphasis mine] pointing out once again how disproportionate the cost of prescription drugs can be . . .
     " ‘A very small group of patients with major illnesses is responsible for an outsized share of health-care spending,’ . . . This new research shows that prescription drugs are a big part of the reason their bills are so high.
      - - -
     “For now, despite the clear data showing how huge the drug cost burden can be, especially among the sickest patients, how to lower those cost remains an open question.” [Emphasis mine] (Ref. 2)

The Elderly

     Another group that is being blamed for high health care costs is the population of Americans over the age of 65, our senior citizens. Yes, “Health-care costs are soaring, but don’t blame old people. The per-person allocation for those over 65 is actually shrinking Health-care expenditures have doubled since 2002, but most of that change can be attributed to the 91% increase in costs for those aged 18 to 64. In the last 10 years, the percentage of the US population over 65 has grown from 12% to 16%, but its share of total health-care spending has remained flat, meaning the per-person allocation for those over 65 is actually shrinking.” (Ref. 3)

     According to Reference 3, here are some interesting facts about health-care costs in the United States, as of 2016:

Total health-care expenditures:
     Over age 65   – less than $0.6 trillion;
     Ages 18-64     – more than $0.8 trillion;
     Under age 18 - less than $0.2 trillion.

     The Share of costs per person for those 65 and over is actually decreasing. - - - First off, they’re healthier than ever. {The percentage of unhealthy seniors has fallen from 27% in 1998 to 21% in 2016.} And older people take better care of themselves than middle-aged adults – The percentage of people over 65 who used recommended services is greater than the percentage of people between the ages of 35-64. Meanwhile, share of costs per person for those under 65 is increasing.

Government Policy and Lifestyle Changes

     “In 2017, U.S. health care costs were $3.5 trillion. That makes health care one of the country's largest industries. It equals 17.9% of gross domestic product. In comparison, health care cost $27.2 billion in 1960, just 5% of GDP. That translates to an annual health care cost of $10,739 per person in 2017 versus just $147 per person in 1960. Health care costs have risen faster than the median annual income.” (Ref. 4) For comparison, the U.S. defense spending in 2018 amounted to only 3.2% of GDP as compared to the 17.9% of GDP in 2017 for American health care. [5] What caused the enormous rise in health care costs in America between 1960 and 2017?

     “There were two causes of this massive increase: government policy and lifestyle changes.
     “First, the United States relies on company-sponsored private health insurance. The government created programs like Medicare and Medicaid to help those without insurance. These programs spurred demand for health care services. That gave providers the ability to raise prices. [Emphasis mine] A paper in Health Affairs . . . found that Americans use the same amount of health care as residents of other nations. They just pay more for them. For example, U.S. hospital prices are 60% higher than those in Europe. Government efforts to reform health care and cut costs raised them instead. [Emphasis mine]
     “Second, chronic illnesses, such as diabetes and heart disease, have increased. As of 2010, the health care costs of people with at least one chronic condition are responsible for more than 85% of health care spending. Almost half of all Americans have at least one of them. They are expensive and difficult to treat. As a result, the sickest 5% of the population consume 50% of total health care costs. The healthiest 50% only consume 3% of the nation's health care costs. [Emphasis mine] Most of these patients are Medicare patients. The U.S. medical profession does a heroic job of saving lives. But it comes at a cost. Medicare spending for patients in the last year of life is six times greater than the average. Care for these patients costs one-fourth of the Medicare budget. In their last six months of life, these patients go to the doctor's office around 25 times on average. In their last month of life, half go to the emergency room. One-third wind up in the intensive care unit. One fifth undergo surgery.” (Ref. 4)

Government Policy

     As health insurance expanded, it covered more people and the demand for health care services rose. By 1965, households paid out-of-pocket for 44% of all medical expenses. Health insurance paid for 24%.
     Medicare and Medicaid covered more people and allowed them to use more health care services. Medicaid allowed seniors citizens to move into expensive nursing home facilities. As demand increased, so did prices. Health care providers put more money into research. It created more innovative, but expensive, technologies.
     Medicare helped create an overreliance on hospital care. Emergency room treatment is very expensive, making up one-third of all health care costs in America. An astonishing one out of five adults use the emergency room each year.
     In 1986, Congress passed the Emergency Medical Treatment and Labor Act. It forced hospitals to accept anyone who showed up at the emergency room. Prescription drug costs rose by 12.1% a year. One reason is that the FDA allowed prescription drug companies to advertise on television. [Emphasis mine] Pharmaceutical companies invented new types of prescription drugs. They advertised straight to consumers and created additional demand. [Emphasis mine] The number of drugs with sales that topped $1 billion increased to 52 in 2006 from six in 1997. The U.S. government approved expensive drugs even if they were not much better than existing remedies. [Emphasis mine]
     In 2003, the Medicare Modernization Act added Medicare Part D to cover prescription drug coverage. It also changed the name of Medicare Part C to the Medicare Advantage program. The number of people using those plans tripled to 17.6 million by 2016. Those costs rose faster than the cost of Medicare itself.
     The nation’s reliance on the health insurance model increased administration costs. A 2003 study found that administration made up 30% of U.S. health care costs. It's twice the administrative costs in Canada. About half of that is due to the complexity of billing. [Emphasis mine]
     For example, U.S. private doctors' offices use at least 11% of their revenue on administration. A big reason is that there are so many types of payers. In addition to Medicare and Medicaid, there are thousands of different private insurers. Each has its own requirements, forms, and procedures. Hospitals and doctors must also chase down people who don't pay their portion of the bill.
     The reliance on corporate private insurance created health care inequality. Those without insurance often couldn't afford visits to a primary care physician. By 2009, half of the people (46.3%) who used a hospital said they went because they had no other place to go for health care. The Emergency Medical Treatment and Active Labor Act required hospitals to treat anyone who showed up in the emergency room. Uncompensated care costs hospitals more than $38 billion per year, some of which is passed on to the government.[4]

Lifestyle Changes

     “The second cause of rising health care costs is an epidemic of preventable diseases. The four leading causes of death are heart disease, cancer, chronic obstructive pulmonary disorder, and stroke. Chronic health conditions cause most of them. They can either be prevented or would cost less to treat if caught in time. Risk factors for heart disease and strokes are poor nutrition and obesity. Smoking is a risk factor for lung cancer (the most common type) and COPD. Obesity is also a risk factor for the other common forms of cancer.
     “These diseases cost more than $5,000 per person. The average cost of treating diabetes, for example, is $9,601 per person. These diseases are difficult to manage because patients get tired of taking the various medications. Those who cut back find themselves in the emergency room with heart attacks, strokes, and other complications.” (Ref. 4)

In Summary

     High health care costs in the United States are due to numerous causes – bloated prescription drug costs, government policy, bad lifestyles, belief in the something-for-nothing fairy, and more. It will take a colossal effort to reverse the trend of ever-increasing health care spending in the United States. One step in this direction would be to have the consumer of health care services shoulder more of its cost directly. This might well force the consumer to search for ways to lower health care costs, e.g., shop for lower prices, avoid unnecessary visits to medical facilities, improve lifestyle, demand reduced administrative costs, etc. America must do away with the attitude of: “If I don’t have to pay for it directly, I’ll use it and the more the better.“ America must come to realize that government “freebies” are never free. Ultimately, someone has to foot the bill. Health insurance is not free, Medicare is not free, Medicaid is not free, Obamacare is not free, government payment for health care of the uninsured is not free.

     “High healthcare spending is not necessarily a bad thing, especially if it leads to better health outcomes. However, that is not the case in the U.S. When evaluating common health metrics, the U.S. lags behind other countries despite higher healthcare spending.(Ref. 6)

  1. Health-care costs are soaring, but don’t blame old people, Tate Ryan-Mosley, MIT Technology Review,
    21 August 2019.
  2. Blame Congress for high health-care costs, The Economist, 2 September 2017.
  3. Wondering why health-care costs are so high? Blame it on the drugs, Walecia Konrad, cbsnews.com,
    2 August, 2019.
  4. The Rising Cost of Health Care by Year and Its Causes, Kimberly Amadeo, the balance, 28 February 2020.
  5. The Biggest Military Budgets As A Share Of GDP In 2018, Niall McCarthy, Forbes, 29 April 2019.
    15 March 2019.


  28 May 2020 {Article 415; Govt_83}    
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