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:: HEALTH MENU |
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:: HEALTH REALTED SITES |
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| :: HEALTH FEATURES |
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:: Why Does Healthcare Cost So Much? ::
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In 1998, spending on healthcare in the United States exceeded 1.1 trillion dollars. This represents 13.5 percent of the gross domestic product for that year—a percentage greater than that of any other country’s spending on healthcare. This amounts to $4,094 for every man, woman, and child in the United States. Why does healthcare cost so much in this country? Let’s look at a case example:
A single outpatient cancer treatment could cost $9,982.53. Why? Well, that's $2,160 for the medicine (erythropoietin) that promotes the formation of red blood cells. It's used to combat the anemia that makes the patient so tired. Then there is a charge of $2,737.50 for the infusion (pamidronate) that prevents the cancer-ravaged bones from breaking so easily. Additionally, the medicine (leuprolide depot) that helps to prevent the breast cancer from spreading even more, costs $3,737.35. The rest of the charges are for starting the IVs, the injections themselves, and the add-on, in this particular state, to help pay for patients who don't have insurance. And, oh yes, this does not count the cost for the visit, that same day, to the cancer specialist who ordered these treatments. While the leuprolide depot is given only every three months, erythropoietin is injected weekly. The pamidronate is administered every month at the same time the oncologist sees the patient. None of these charges, of course, include the monthly blood tests, the other daily prescription medications, or any studies to visualize the response to the treatment.
The Historical Context
During the Great Depression of the 1930s, hospitals, starting with Baylor Hospital in Texas, began to make agreements with employee groups that in return for a small payment from each member of the group each month, the hospital would provide hospital services for any group member who needed them. This idea became attractive to many hospitals that now could be certain that their bills would be paid. Eventually these individual arrangements led to the founding of the Blue Cross programs around the country.
With the onset of World War II and the general mobilization that accompanied it, all service men and women and their families were entitled to healthcare services through the military system. This was the first time in the history of the United States that some form of health insurance covered most people. And people liked it. Following the war, a wage- and price-freeze precluded unions from bargaining for wage increases, but health insurance benefits were deemed to be a proper issue for negotiation and were exempt from the freeze. Thus, employer-paid health insurance became one of the bases upon which employers could compete for the workers that they wanted to hire. Rapidly, health insurance became an expected work-related benefit.
Health Insurance Biases
Since health insurance had its origins in guaranteeing that hospitals would be paid, the focus remained on inpatient services. Blue Shield was added to help pay for the cost of the doctor bills associated with inpatient care. Thus, the costs of surgery were a covered benefit, but an office visit for services, such as a well-baby checkup, was not. Benefits were available to cover care when you were sick, but not for routine preventive care. In addition, when a trained surgeon performed the same service as a general practitioner, such as the removal of your appendix, the surgeon was paid more than the general practitioner. So, we ended up with a health-insurance system that paid for hospital stays, doctors’ services provided in the hospital, and for care when you were sick. These services tend to be much more costly than routine, office-based, preventive services. These were the days when people checked into the hospital for a routine annual physical examination: All the costs would be covered in the hospital, but none of the costs would be paid for outside the hospital.
In addition to these biases in health insurance coverage, there were specific incentives for people to demand expanded coverage and to use their health insurance. First, the employer paid for the entire cost of the policy. Second, the value of the premium was not taxable as income. The value of the benefits used was not taxed as income. And employers, at the time, did not mind paying the premiums because they could deduct the entire cost as a business expense. Further, the insurance companies were a pass-through operation so that if the cost of services in any one year exceeded the premiums collected, they merely raised the rates charged employers the next year.
Healthcare Cost Explosion
During and after World War II, great improvements were made in what medical attention could do to improve your health. The introduction of antibiotics made surgery much safer, as did the surgical techniques perfected in battlefield hospitals. The combination of an increase in medical knowledge and the differential payment for specialists as compared to general practitioners led to an increase in medical specialization. The increasing costs of both college and medical school education, with the mounting debt on the part of medical school graduates, further supported decisions to specialize.
By the 1960s, it became apparent that having tied health insurance to employment left two very large groups of people without access to our increasingly expensive healthcare system: the retired and the unemployed. In 1965, with the passage of the Medicare and Medicaid Acts, these persons now had the financial resources to demand and pay for health services. This increase in numbers of potential patients, accompanied by the decision of the federal government to have Medicare and Medicaid Programs retain all the biases of employer-sponsored health insurance, contributed to the rapid escalation of health care costs as more and more people sought the services of the increasingly specialized doctors.
At the same time, a federal government study predicted a vast shortage of physicians in the near future. Thus, beginning in 1965, the government funded a doubling of the number of students graduated each year from medical schools both by increasing class size and by supporting the establishment of more schools. Simply adding more physicians to the pool who could order more hospitalizations, more tests, and more medications, increased the amount of money devoted to healthcare.
The Cost of Technology
Simultaneous with the increase in the number of physicians, there was an explosion in available technology. Much of the technology development from the 1960s and onward was paid for by the federal government, originally for military purposes. For example, the monitoring equipment found in intensive care units was first developed for use in unmanned space flights—in direct competition with the former Soviet Union.
The more technology available, the more specialists who were needed to use it correctly. The demand for specialty-trained personnel included not only physicians, but also the technicians to operate and monitor the machines. Hospitals, competing for the best doctors in order to attract more patients, bought the new technologies with abandon; after all, they were paid by the various health insurers, both public and private, on a retrospective cost-plus basis. No matter how much they spent, they were guaranteed reimbursement for their full costs, plus a little more for future investment.
Another technology-related inflationary factor is the way in which the new technology is used. Let’s say that you come with a medical history and set of complaints that sounds like you have a broken wrist. Standard x-rays are ordered and they show nothing. So, an MRI is ordered to further explore the possibility of a fracture. Now, your insurance company pays the bill for both the x-ray and the MRI and the charges for the doctors who read the studies. We have not replaced our older technologies, but use all available diagnostic tools one after the other. The opportunity to save money by using only the most sensitive test is lost. And let’s not forget that the technician who operates the x-ray machine is not the same employee who runs the MRI.
In addition, many medical tests are ordered by physicians who may be afraid of malpractice lawsuits. They are, in essence, ordering tests for the benefit of the medical record, not for the benefit of the patient. However, we have all become accustomed to having these tests performed. Currently, there is a reduction in the number of tests performed as a result of the pressures on physicians by managed care companies. This pressure has created a major backlash against managed care firms. There is great concern that these companies are more interested in saving money than in having patients treated properly.
The Pharmaceutical Industry
Since World War II, the number of new medications developed to treat all sorts of diseases, from high blood pressure to infections to damaged hearts, has been phenomenal. The cost of developing these medications is very high, and the patent that gives the developer and manufacturer the opportunity to recoup their costs is time-limited. That time frame is further compressed by the need to obtain approval from the Food and Drug Administration to place the medication on the market. The process of proving that the new medicine is both safe and effective can take years. Thus, when the new medication is finally available, the manufacturer must charge enough to cover discovery, development, and testing in a relatively short period of time—plus stockholders also expect to see a return on their investment.
We can learn a lot about medication prices if we look at what happens after the patent (an exclusive right to market a medication) runs out. When one or two companies start to sell the generic version (non-brand name) of a medication, the average prescription costs drops from $30 to $17. By the time the fifth generic copy of this medication is available, the price is down to $9.25.
Other Causes of the High Cost of Healthcare
As you may gather, there have been many improvements in healthcare services from which people benefit. There are new technologies and medications, new specialists using newly acquired knowledge to improve the outcomes of care, and insurance coverage giving people the ability to afford these improved services. All of these factors taken together have conspired to fuel an unprecedented rise in the cost of healthcare.
The increase in the population of those more than 65 years of age has been particularly rapid, due in no small part, to the success of our healthcare system. More people living longer with more chronic diseases, almost all of them controlled to some extent by medicines, increases the number of prescriptions that are written each month. For example, a patient with high blood pressure and diabetes may easily use $485 worth of prescription medications each month. If you add to that blood-sugar testing materials, syringes, the need for regular medical monitoring, and periodic flare-ups that may require hospitalization, you begin to understand how the increase in the elderly population, and in the number of years that they are living, impact on healthcare costs.
To give you some idea as to the numbers we are talking about, there are about 33 million people aged 65 and over and, on average, they are expected to live another 17.7 years. Forty percent of those who are white, and 65 percent of African Americans 65 and over, have high blood pressure. While those who are more than 65 years old represent 12 percent of the population, they consume 25 percent of all prescription medications.
At the other end of the life span, some infants are born prematurely or at a very low birth weight. These infants, who until fairly recently would not have survived very long, are now living to go home and grow up. The cost of saving these babies can run into the hundreds of thousands of dollars per child. And many of them will need special medical attention throughout their entire lives.
Just as our scientific and medical knowledge has increased the possibilities for saving lives, so have the costs of doing so increased. Just think of the costs of treating—and curing—many forms of cancer. Consider also the cost of organ transplantation surgery and the life-long need for expensive medications to keep the recipient from rejecting the transplant?
Where Do We Go From Here?
Many of you are now facing the consequences of our runaway healthcare costs. Your employer still offers a choice of health coverage, but it is a choice among managed care plans. And you now pay a percent of the premium, along with higher deductibles and co-insurance, if you choose anything but a health maintenance organization. In these plans you are restricted to certain physicians and hospitals, and if you go outside the plan you may be required to pay the entire bill out of your own pocket. In addition, you can no longer decide to see a specialist without a referral from your primary care doctor. Without that referral, again, you may have to pay the entire bill yourself.
In truth, managed care programs have merely slowed the rate of increase in the costs of healthcare. And these increases are still running ahead of general inflation. The decreasing proportion of total costs paid by the federal government, as a result of the Balanced Budget Act, continues to put pressure on the private sector. As long as we all expect that everything medically possible will be done for us, regardless of the cost, and in some cases, regardless of the possibility of improving our health by even the smallest amount, the costs of our healthcare system will continue to consume a greater and greater portion of our national resources. |
Source/Author Info:
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