Health Care Costs Just Keep Going Up

April 20, 2009

I usually use this space to talk about diseases and conditions.  Lately, I’ve been talking to friends, patients, and other physicians about the broader topic of health.  If you’ve been following the news lately, you know there’s been a lot of talk about health care reform.  Right now, spending on health care in the U.S. is more than $2 trillion each year, and costs keep rising!  We spend about twice as much as other developed countries.  But if you look at health outcomes, on many measures- such as infant mortality and life expectancy -- our system is not as good as it should be.

I think it’s important that we all have a say in any changes to our health care system.  It’s our health—and it’s also our money that pays for private insurance and government programs.  That means we all should be informed about where the money is going.

The $2 trillion is a sort of snapshot of the whole system.  In order to make sense of such a huge number, you need to know how the money is divided.  People often think that expensive drugs must be one of the main reasons for our nation’s high healthcare spending. This is probably because you often have a co-pay when you go to your local pharmacy.  Actually, outpatient prescriptions make up only 10% of the total.  Thirty-one percent goes for hospital care.  That includes your actual hospital room, medicines you receive, nursing care, and any other services the hospital provides.  Twenty-one percent covers doctors’ fees and clinic services, mostly for outpatient care.  Nursing home stays account for 6%.  Public health programs are only 3% of the total.  Seven percent of our health care dollars go to administrative costs and overhead.

Guess how much health care spending is already financed by our tax dollars.  The amount may surprise you!   It’s nearly half!  That includes Medicaid, Medicare, and other government programs.  This amount increases every year, so you need to be informed.

Now that you know where the money is going, another big question is why costs keep going up.  It turns out that there are some drivers of spending we can’t change.  About 6% of the increase we see is due to the aging of our population.  The baby boom generation is getting older, and they are going to need more health care! As we get older, we typically develop health problems – that’s also a big reason why we need to focus more on prevention and healthy living!   The influences can also shift from year to year.  There was a big increase in Medicare spending in 2006 when the new prescription drug benefit kicked in—but interestingly, growth slowed down again the following year.  The growth in prescription drug spending actually slowed down last year. For reliable ways to lower costs, experts are looking at things like improving efficiency within the system, lowering overhead, and making sure we’re using the best and most effective treatments.

As you listen to discussions about health care reform, keep these numbers in mind—and keep an eye out for more details.  Knowing more about where our spending goes can help you make your own judgments what we need to address and which plans for reform make the most sense.