The Rising Cost of Healthcare Essay

Without a doubt healthcare costs are rising out of control. Not one of us are happy with the increases, but we have to understand what the reasons are for the increases in healthcare. American people look at their insurance bills, co-pays and drug costs, and do not understand why they continue to increase. The insured should consider all reasons behind the increase before getting upset. In 2004, employer health care premiums increased over 11 percent, four times more than the rate of inflation. In 2003, premiums rose 10.1 percent and in 1002 they rose 15 percent. Employee spending for coverage increased 126 percent between 2000 and 2004. These increases were lower than expected. The site to look up information on the cost of health care coverage and the breakdown on the cost is (National Coalition on Health Care, Facts on health care costs). Premiums have risen five times faster than workers’ wages, if medical spending continues to rise by just two percent more than a personâ €™s personal income, by 2040 Medicare and Medicaid will rise 8.4 percent of gross domestic product this year’s 15.6 percent by 2040, according to Congressional Budget Office projections. If all government programs stay at the same size relative to the economy, the budget will grow from 19.9 percent of GDP in 2003 to 27.1 percent by 2040, (http://www.cato.org/sites/cato.org/files/pubs/pdf/tbb-0306-15.pdf). There are huge impacts of the rising costs of healthcare. Many people cannot afford health insurance today and struggle to pay for their medical needs. Of the families that do have health coverage, 50 percent are concerned about having to pay more for the coverage in the future, while 42 percent fear they will not be able to afford coverage at all if the rate increase keep s going the way it is. This leads to believe one of the reasons for health care cost increases: cost sharing or cost shifting. When an individual or a family does not have insurance, and cannot or does not pay their medical bills, the cost of health care rises. Over years the American healthcare system has been plagued by the continuous rise of healthcare cost. These costs include but are not limited to insurance premiums, co-pays as well as prescription drugs. One of the significant reasons for the increase is that nowadays people are living longer lives than they once did and this gives higher rates to contracting chronic diseases or developing life threatening injuries, this cause the United States healthcare system to suffer a finical  crisis. The three major parts to industries health care sector are as follows: the healthcare service industry consisting of providers such as medical practices, hospitals, clinics, nursing homes, and home health care agencies, next is the healthcare insurance industry consisting of both government programs such as Medicare and commercial insurers, and last is the managed healthcare industry consisting of organizations such as health maintenance organization (HMO’s) that incorporate both insurance and provider functions. Citizens of the United States are currently spending up to 15 percent of the income expenditures on healthcare. It has been estimated that the expenditures are likely to rise to about 29 percent of gross domestic product by the year 2040. The Medicare insurance program that was created in the mid-1960’s to cover the elderly that is funded by the payroll system is costing more than $5,000 per enrollee, a national cost of more than $200 billion annually. Projected cost for the Medicare will rise rapidly from 2.5 percent to 5.5 in 2030. For HMO’s they often emphasize their ability to contain costs through oversight of physician’s decisions or by implementation of capped payment scheme that aligns physician’s incentives with those of the healthcare plan. HMO’s do have lower hospitalization than traditional healthcare providers. Some people also argue that the increasing use of managed care generates positive externalities that benefit consumers enrolled in non HMO health plans. This argument typically invokes some notion of market discipline, arguing that traditional insures or healthcare providers will have to lower premiums to remain viable in a health insurance market. It may be difficult to measure the effect of HMO participation on spending and outcomes because enrollment in managed care plans often voluntary, and those who choose to enroll are likely to differ in unobservable ways from those who do not. Using data on 300,000 welfare recipients the average effect of the mandate is to increase spending by 12%. This increase may be due to higher payments to providers, higher administrative costs, the inclusion of normal level of profit for the HMO’s, or a mark-up of bids above cost. Check out this site that goes deeper into the HMO and the reason of increase to healthcare cost at; (http://www.nber.org/bah/winter03/w9091.html). Looking at healthcare outcomes it is looking like switching to a HMO does not improve the efficiency of the Medicaid program because they lead to substantial spending  increases with no demonstrable quality improvements.