Health Expenditures and Services in the U.S.:
Health care costs continue to rise in the U.S. and throughout the developed world. Total U.S. health care expenditures were estimated to be $3.24 trillion in 2015, and are projected to soar to $3.78 trillion in 2018.
The health care market in the U.S. in 2015 included the major categories of hospital care ($1,031.1 billion), physician and clinical services ($640.3 billion), dental services ($119.1 billion) and prescription drugs ($328.4 billion), along with nursing home and home health care ($253.6 billion). Registered U.S. hospitals totaled 5,723 properties in 2013, according to an American Hospital Association survey, containing 914,513 beds serving 35.4 million admitted patients during the year (the latest data available).
Medicare, the U.S. federal government’s health care program for Americans 65 years or older, provided coverage to an estimated 55.8 million seniors in 2015. National expenditures on Medicare for fiscal 2014 were projected to be $646.0 billion, including premiums paid by beneficiaries. By 2030, the number of people covered by Medicare will balloon to about 82 million due to the massive number of aging Americans who will become of eligible age.
Medicaid is the federal government’s health care program for low-income and disabled persons (including children), as well as certain groups of seniors in nursing homes. National expenditures on Medicaid totaled an estimated $544.5 billion in 2015. The majority of that expense is paid for by the federal government. However, the states pick up a significant share of the cost, which is a massive burden on state budgets.
Health spending in the U.S., at about 18% of Gross Domestic Product (GDP) in 2015, is projected to grow steadily. Health care spending in America accounts for a larger share of GDP than in any other country by a wide margin. Despite the incredible investment America continues to make in health care, 11.7% of people in the U.S. (36.7 million) lacked health care coverage for the entire year of 2014. For some, insurance was unavailable or unaffordable. In other cases, a lack of insurance was due to a personal decision not to pay for it. According to the Kaiser Family Foundation, most uninsured people are in low-income working families, but 21% of America’s uninsured are non-U.S. citizens, both lawful and illegal residents.
In March 2010, President Obama signed the Patient Protection and Affordable Care Act (ACA), designed to strengthen insurance company regulation and provide medical coverage to millions of uninsured Americans. The act called for sweeping changes. Provisions taking effect within the first six months of signing included coverage for adult children up to age 26 on their parents’ policies; making it unlawful for insurers to place lifetime caps on payouts or deny coverage should a policy holder become ill; and new policies are required to pay the full cost of selected preventive care and exempt such care from deductibles. Effective in 2010, small businesses with fewer than 25 employees and average annual wages of less than $50,000 became eligible for tax credits to cover up to 35% of staff insurance premiums.
Online health care insurance “exchanges” began enabling consumers to shop for health coverage. A 3.8% unearned income tax is levied on individuals earning more than $200,000 per year and families earning more than $250,000 per year, to fund the programs in the act. Employers with more than 50 employees that do not offer health benefits will pay a fine per full time staff member if any of the workers receives a tax credit to buy coverage. Most businesses with more than 200 employees are required to enroll all staff automatically in health insurance plans. Also in 2014, the government began fining citizens who choose not to carry health insurance.
Health Expenditures Globally and in OECD Developed Nations:
A comprehensive study published by the Organization for Economic Cooperation & Development (OECD) covering more than 30 nations including the majority of the world’s most developed economies (but excluding Brazil, Russia, India or China), found stark contrasts between health costs in the United States and those of other nations. In 2012 (the latest complete data available), the average of a list that includes, for example, the UK, France, Germany, Mexico, Canada, South Korea, Japan, Australia and the U.S., spent 9.3% of GDP on health care, unchanged from the previous year. The highest figures in this study were in America at 16.9% of GDP, The Netherlands at 11.9%, France at 11.6%, Switzerland at 11.4%, Germany at 11.3%, Austria at 11.1%, Denmark at 11.0% and Canada at 10.9%.
Total health care expenditures around the world are difficult to determine, but $6.7 trillion would be a fair estimate for 2015. That would place health care at about 8.3% of global GDP, with expenditures per capita about $921. This $6.7 trillion breaks down to approximately $3.2 trillion in the U.S., $2.7 trillion in non-U.S. OECD nations and $0.8 trillion elsewhere around the world. Outside the U.S. and the rest of the OECD, that would allow roughly $90 per capita per year. Clearly, there is vast disparity in the availability and cost of care among nations, as there is with personal income and GDP. Health care spending per capita in the U.S. was equal to about $10,125 during 2015, while spending in the world’s remotest villages, such as those suffering from an outbreak of the Ebola disease during 2014, was next to nothing. The trend over the near future is for the modest amount now spent on health care in emerging nations to rise dramatically, while OECD nations like America struggle to contain their own mountainous costs. Globally, the total prescription drug market was over $1 trillion in 2015 and is expected to reach $1.3 trillion by 2018, according to IMS Health.
Health Care Costs in the U.S.
Particularly in the U.S., continuous increases in the cost of health care, growing at rates far exceeding the rate of inflation in general, have been inflicting financial pain on health consumers and payers of all types. Employers, including government, are hit hard by vast increases in the cost of providing coverage to employees and retirees.
Many major employers are utilizing unique new programs in efforts to reduce employee illness, and thereby cut costs. For example, the use of preventive care programs is growing, as is the use of employee education aimed at better managing the effects of diseases such as diabetes. Some very large employers are even hiring in-house physicians and nurses, or contracting with outside providers for on-premises care facilities, to provide primary and preventive care in the workplace.
Patients and insurance companies are also dealing with sticker shock over the nation’s prescription drug costs. Other factors edging costs upward include expensive new medical technologies and patients’ demands for greater flexibility in choosing doctors and specialists at their own discretion. At the same time, hospitals and health systems write off massive amounts of potential revenues to bad debt, which increases costs for bill-paying patients.
In the wake of the tremendous growth of all aspects of the health care industry from the end of World War II onward, efficiency, competition, price transparency and productivity were, regretfully, largely overlooked. Much of this occurred because employers plus federal and state governments pay such a large portion of the health care bill, to the extent that patients were generally not sensitive to health care costs.
As of 2012, according to the U.S. Centers for Disease Control, 117 million Americans (nearly one-half of all adults) suffered from one or more of the most common chronic diseases, such as cancer, diabetes, heart disease, pulmonary conditions, stroke or hypertension. In addition to the massive cost of health care for these patients, the lost time at work and lost economic output due to these illnesses substantially reduced the nation’s GDP. These burdens could be vastly reduced through better consumer health practices and better preventive medicine. For example, obesity, lack of exercise and cigarette smoking are immense contributors to these diseases. The Centers for Disease Control and Prevention reported that medical costs for obesity-related diseases rose as high as $147 billion in 2008, compared to $74 billion in 1998. That number could easily have grown to more than $200 billion today.
The American health care industry faces more challenges than ever, due to a number of significant factors:
· One of the most dramatic results of the Affordable Care act of 2010 has been consolidation within the hospital industry, with mergers creating massive organizations that in many cases have dominant, regional or city-wide market share. A similar effect has been a migration of physicians leaving private practice or small clinics in order to join giant physician practice groups or the staffs of hospitals. Independent physicians are concerned about their ability to meet increased regulatory scrutiny, successfully deploy electronic health records and earn the incomes that they desire. Many older physicians state that they will simply retire earlier than they had planned.
· The U.S. population is aging rapidly. At the same time, the life expectancy of seniors is extending. Senior citizens will place a significant strain on the health care system in coming years. America’s 75 million surviving Baby Boomers began turning 65 in 2011.
· The future obligations of Medicare and Medicaid are enough to cause vast problems for federal and state budgets for decades to come. The number of seniors covered by Medicare will continue to grow at an exceedingly high rate, from 47.4 million people in 2010 to 82 million in 2030.
· Likewise, costs for Medicaid, which is administered at the state level, have grown so rapidly that they are competing fiercely for budget dollars that might otherwise go to education and other vital state-provided services.
· High, and growing, pharmaceutical costs have created a large backlash among health consumers and payers.
· We are now in what will long be remembered as the beginning of the Biotech Era. Breakthroughs in research for targeted drug therapies are occurring at a rapid pace, and highly advanced, genetically-engineered drugs are available for many diseases.
· Due to rising costs, employers large and small are straining under the financial burden of health care coverage expenses for current employees and retirees.
· Physicians, hospitals, medical device makers and pharmaceutical manufacturers face daunting pressure from litigation and claims regarding malpractice. Lawsuit reform legislation has recently been enacted in many states with very promising results.
· Vast numbers of Americans fail to lead healthy lifestyles that would prevent disease and cut both the amount and the cost of medical care. Obesity-related illnesses are adding an immense amount to the nation’s health care costs. Large numbers of people smoke cigarettes and/or do not exercise regularly.
· The three biggest causes of death in the U.S. are heart disease, cancer and stroke. Nearly one-fourth of America’s annual health expenditures go for treatment of these three killers.
· Only a relatively modest amount of money is spent on preventive medicine and health education. The vast majority of health care funds are spent on the treatment of chronic diseases as well as end-of-life care for dying patients.
Source: Plunkett Research, Ltd.