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lindagray

Drivers of Health Care Spending in the U.S.

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Drivers of Health Care Spending in the U.S.

Prohibitively high cost is the primary reason Americans give for problems accessing health care. Americans with below-average incomes are much more likely than their counterparts in other countries to report not: visiting a physician when sick; getting a recommended test, treatment, or follow-up care; filling a prescription; and seeing a dentist. Fifty-nine percent of physicians in the U.S. acknowledge their patients have difficulty paying for care. In 2013, 31 percent of uninsured adults reported not getting or delaying medical care because of cost, compared to five percent of privately insured adults and 27 percent of those on public insurance, including Medicaid/CHIP and Medicare.

While there is no agreement as to the single cause of rising U.S. health care costs, experts have identified three contributing factors. The first is the cost of new technologies and prescription drugs. Some analysts have argued “that the availability of more expensive, state-of-the-art medical technologies and drugs fuels health care spending for development costs and because they generate demand for more intense, costly services even if they are not necessarily cost-effective.” In 2013, the U.S. spent $1,026 per capita on pharmaceuticals and other non-durable medical care, more than double the OECD average of $515.

Another explanation for increased costs is the rise of chronic diseases, including obesity.  Nationally, health care costs for chronic diseases contribute huge proportions to health care costs, particularly during end of life care. “Patients with chronic illness in their last two years of life account for about 32% of total Medicare spending, much of it going toward physician and hospital fees associated with repeated hospitalizations.” The National Academy of Sciences found that among other high-income nations the U.S. has a higher rate of chronic illness and a lower overall life expectancy. Their findings suggest that this holds true even when controlling for socio-economic disparity. Experts are focusing more on preventative care in an effort to improve health and reduce the financial burdens associated with chronic disease. One provision of the Patient Protection and Affordable Care Act, commonly referred to as simply the Affordable Care Act (ACA), implemented in 2013, provides additional Medicaid funding for states providing low cost access to preventative care.

Finally, high administrative costs are a contributing factor to the inflated costs of U.S. health care. The U.S. leads all other industrialized countries in the share of national health care expenditures devoted to insurance administration. It is difficult to determine the exact differences between public and private administrative costs, in part because the definition of “administrative” varies widely. Further, the government outsources some of its administrative needs to private firms. What is clear is that larger firms spend a smaller percentage of their total expenditures on administration, and nationwide estimates suggest that as much as half of the $361 billion spent annually on administrative costs is wasteful. In January 2013, a national pilot program implemented under the ACA began. The aim is to improve administrative efficiency by allowing doctors and hospitals to bundle billing for an episode of care rather than the current ad hoc method.

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