Health Care, Costs

Estimating Health Care Costs

Total expenditures are growing at an alarming rate. In 2003, they were $1.7 trillion, with government projections to grow to $2.16 trillion in 2006 and over $4 trillion by 2015. Total health spending as a percentage of the GDP grew from 7.2 percent in 1965 to 16.2 percent in 2005, with projections to be 20 percent by 2015. Health expenditures are growing at a faster rate than is the overall economy. Projections are that health spending between 2006 and 2015 will grow annually by 7.2 percentage points while the GDP will grow annually only by 4.9 percentage points.

[Page 432]Per capita health care costs have also been increasing at a fast rate. In 2005, per person health spending was $7,110, up from $6,280 in 2004. Individual spending may increase to $12,320 by 2015. Out-of-pocket costs rose from $647 in 1999 to $788 in 2004, with projections to increase to $1,287 by 2015. Thirty-five percent of per capita spending is paid out-of-pocket.

Explaining Higher Health Care Costs

One of the major explanations for the increase in health care costs is the rise in the costs of providing services. Hospital care accounts for over 30 percent of national health expenditures. In 2003, hospital costs were $551 billion, and they are projected to increase to $1.01 trillion by 2014. Attempts to decrease or control hospital costs include improvements in the efficiency of administration and a reduction in the care done on an inpa-tient basis. As a result, other health care providers, such as those engaged in home health care, have seen a rise in their share of health care costs. Between 1990 and 2000, home health care, as a percentage of total health costs, rose from 1.8 percent to 2.5 percent. Nursing home expenses will also rise. Physician and clinical services make up 22 percent of total health expenditures, and these costs may more than double, from $370 billion in 2003 to $783 billion in 2014, because of increased demand for physicians, heightened specialization within the field, and the cost of malpractice insurance.

The emphasis on medical technology in the U.S. health care system also leads to an increase in costs. Expensive tests and highly advanced medical procedures are commonplace and sometimes done when not necessary. Examples of these procedures include invasive cardiology, organ transplantation, and imaging.

Prescription drug costs are another important contributor to rising health care costs. In 2004, they totaled $188.5 billion, but by 2015, expectations are that they will increase to $446.2 billion. The annual growth in prescription drug costs, at around 8 percent, is thus higher than the annual growth in hospital and physician costs. Advances in, and increased demand for, pharmaceutical research and technologies lead to greater medical costs, a trend expected to intensify in the future.

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