HC Statistics

Largest one-year jump in health spending

According to a recent Health Affairs paper, health care spending as a share of GDP grew by the largest percentage point increase since the U.S. government has tracked national health expenditure.  Not only did the numerator (health spending) increase–especially for public spending–but the denominator also decreased (i.e., GDP).  The article begins as follows:

National health spending is estimated to have grown 5.7 percent and reached $2.5 trillion in 2009, despite a projected 1.1 percent decline in gross domestic product, up from 4.4 percent in 2008. The result is an expected rise in the health share of GDP of 1.1 percentage points, to 17.3 percent. This projected rate of escalation would represent the largest one-year increase in the health share of GDP since the National Health Expenditure Accounts (NHEA) began tracking health spending in 1960, and it reflects the severity of the recession that began in 2007…

Health spending by public payers ($1.2 trillion) is projected to have grown much faster in 2009 (8.7 percent) than that of private payers (3.0 percent, to $1.3 trillion). A leading driver of the acceleration among public payers, up from 6.5 percent in 2008, is the expected growth in Medicaid enrollment (6.5 percent) and spending (9.9 percent) as a result of rising unemployment related to the recession.

The relatively low growth of private-payer spending in 2009 was influenced by private insurance enrollment that is expected to have declined 1.2 percent. The decline occurred despite a substantial boost from federal subsidies provided by the American Reinvestment and Recovery Act (ARRA) of 2009.”


1 Comment

  1. It is interesting and notable that in spite of decades of new systems intended to control health care costs they remain uncontrolled. But of course, this is no surprise. There are four fundamental drivers of high health care cost and none of these drivers is willing to be controlled. The drivers are: 1) technology, 2) the insurance dynamic, 3) legal fears, 4) and increasing system complexity.

    Technology must, of course, be given first billing. Without high cost things to provide there could not be high costs. The insurance dynamic, as discussed below, unleashed both development and consumption. So, anything that can be produced, and argued as having value, will be consumed.

    The insurance dynamic is second most critical. Prior to insurance people were responsible for the bills of what they consumed; so, they controlled consumption. After the insurance dynamic was set in motion the consumer of health care was not ultimately responsible for the bills they incurred. These were passed to others via the insurance dynamic. Having this unleash consumption is an obvious “no brainer”. But, it also unleashed technological production because people could “afford” to consume almost anything which was produced.

    Doctors know that they can provide the most superb care and still be sued by an unhappy patient. They know that even if they can be vindicated in court they still loose – because they must defend themselves and because someone will be asking about the case (in applications) literally for decades to come – even if there was no wrongdoing whatsoever. So, the standard is not “don’t commit malpractice”. The real standard is “don’t do anything which can have any chance whatsoever of even being asserted as possible malpractice”. Further, since illness is axiomatically dangerous, bad outcome is certain to occur. Using microscopic, retrospective analysis it is possible in almost all circumstances to find something to criticize. Retrospective analysis has huge advantages – none of which are enjoyed by the people making the decisions in real time. So, all of this drives high cost.

    Increasing system complexity itself drives high cost. Where once a patient may have had one doctor, with one set of records, and one person to oversee what was going on with the patient, now most patients have more than one doctor, and some have many doctors. Issues of communication, multiple sets of records, collaboration and other interrelationship problems all drive costs.

    All of this is then wrapped in industry which was once largely a cottage industry of lone professionals. Now it is big business. And anyone providing services in the industry feels strong pressure to approach health care as a business. This sets in motion (and allows) other behaviors with adverse consequence on cost.

    The industry protects itself. Businesses providing materials and technologies in the industry have no inherent interest in seeing their products used less. They constantly argue that their products are needed. Insurance companies make profits from investing “the float”. The larger “the float” is the more the insurance industry benefits. Malpractice lawyers want to argue that there is malpractice because that is how they make a living. They don’t want to look for what was reasonable. They want to assert that something different should have been done (a posture greatly helped by retrospective analysis). Doctors may once have entered medicine clearly because it was an honorable profession. But now constant hassles by insurance companies, threats from lawyers, regulation by government and other “war zone” perspectives drive well-intentioned candidates into the hands of business.

    Rising costs of health care is no surprise. It is predictable. Will it be controlled by paying less for individual services, by beating up doctors, by turning health care into a warzone of competing vested interests? No. The above factors clearly reveal these techniques won’t work.

    Can it be fixed? Yes, of course. This is not rocket science. Patients must be invested in consuming reasonably. Expectations of “health” must be reasonable (there is no limit to the perspective of “health”, and no inherent limit to the amount of services which can be rendered in the pursuit of “health”). The doctor-patient relationship must be rebuilt so that patients may have trust in reasonable, cost-constrained choices by the health care providers. Legal remedies must be redesigned so that those who would wish to criticize are under the same constraints as those who had to make the original choices. Society must decide what limits it will set on health care spending overall (decide first what are the limits determined by fiscal responsibility, then society can decide how it will fit services into this budget). The medical profession must be rebuilt so that it is a place of honor and responsibility, but not huge income. (With the right design the best can still be encouraged to join, for the right reasons.)

    Will health care costs be controlled? No. To control health care cost the system must not be owned by insurance companies who have adverse incentives in the industry. It must not be exploited by lawyers who are driven to see evil at every turn. It must not drive a wedge between the frightened patient and the caring provider. It must not be a “cost is no object” technological consumer. It must not be a war zone. But, those who own health care at this point (and they are certainly not doctors) have no intention of letting go of an industry which is getting bigger and bigger, and has a guaranteed future.

    So, what will happen? Simple. The U.S. will continue to claim interest in health care cost control while really designing a growing industry owned by corporations, an industry whose most guaranteed “providers” are the ever growing ranks of regulators. This will continue until the industry collapses of its own weight. The problem is that the U.S. will not longer be competitive in a world market by the time that occurs.

    Or, so it seems to me. Prove me wrong! Really!

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