The Increasing Cost of Health Care
The Increasing Cost of Health Care
HOW MUCH DOES HEALTH CARE COST?
American society places a high value on human life and generally wants—and expects—quality medical care. However, quality care comes with an increasingly high cost. In 1970 the United States spent 7.2% of its gross domestic product (GDP; the total market value of final goods and services produced within an economy in a given year) on health care. By 2005 health care expenditures reached 16% of the GDP. Table 5.1 shows the growth in health care expenditures, the growth in the GDP, and the annual percent change from the previous year from 1960 to 2005.
For many years the consumer price index (CPI; a measure of the average change in prices paid by consumers) increased at a greater rate for medical care than for any other commodity. From 1980 to 1990 the average annual increase in the overall CPI was 4.7%, whereas the average annual increase in the medical care index stood at 8.1%. (See Table 5.2.) By 2000 the average annual growth in the medical care index had fallen to 3.5%, but in 2006 it had risen again to 4.1%, outpacing overall inflation, which was 3.2%. The medical care index has consistently outpaced the CPI in each decade. Of all the components of health care delivery, the sharpest price increases in 2006 were in hospital services at 6.5%.
The Centers for Medicare and Medicaid Services (CMS) projects that by 2017 the national health expenditure will grow to nearly $4.3 trillion—19.5% of the GDP, from 16.3% in 2007. (See Table 5.3.) (Because the numbers in Table 5.3 are projections, they may differ from the actual numbers presented in some other tables and figures.) In “NHE Fact Sheet” (July 25, 2008, http://www.cms.hhs.gov/NationalHealthExpendData/25_NHE_Fact_Sheet.asp#TopOfPage), the CMS indicates that Medicare accounted for a staggering 18.7% of national care expenditures in 2006.
Generally, projections are most accurate for the near future and less accurate for the distant future. For example, predictions for 2030 should be viewed more warily than predictions for 2010, because it is unlikely that the conditions on which the projections are based will remain the same. As a result, the CMS cautions that its projections should not be viewed as predictions for the future. Rather, they are intended to help policy makers evaluate the costs or savings of proposed legislative or regulatory changes.
Total Health Care Spending
The CMS, along with the Centers for Disease Control and Prevention and the U.S. Government Accountability Office, maintain most of the nation's statistics on health care costs. The CMS reports that the United States spent $2.2 trillion for health care in 2007, which was an increase of 6.7% from $2.1 trillion in 2006. (See Table 5.3.) This rate has decreased since the 9.1% increase in 2002 and is projected to remain relatively constant, although it will likely be as high as three times the rate of inflation through 2017.
Over $2.1 trillion of 2006 health care expenditures came from private funds (out-of-pocket payments, private health insurance, and other private funds), and the balance was paid with public money. (See Table 5.4.) The 2006 per capita cost for health care (the average per individual if spending was divided equally among all people in the country) was $7,026.
Of the $2.1 trillion spent on health care in 2006, close to $1.8 trillion was spent on personal health services (expenses incurred by individuals as opposed to institutions). (See Table 5.5.) Some of the services included hospital care, physician and dental services, nursing and home health care, prescription drugs, and durable medical equipment.
Table 5.5 shows the trends and annual percent changes in personal health care expenditures by category. In 2006 the nation spent $660.2 billion on professional services, by far the largest chunk of personal health care spending, followed by $648.2 billion on hospital costs. This expense was followed by $447.6 billion for physician and clinical services, $216.7 billion for prescription drugs, and $177.6 billion for nursing home and home health care.
| Gross domestic product, government expenditures, and national health expenditures | 1960 | 1970 | 1980 | 1990 | 1995 | 2000 | 2003 | 2004 | 2005 |
|---|---|---|---|---|---|---|---|---|---|
| Amount in billions | |||||||||
| Gross domestic product (GDP) | $526 | $1,039 | $2,790 | $5,803 | $7,398 | $9,817 | $10,961 | $11,713 | $12,456 |
| Federal government expenditures | $87 | $201 | $586 | $1,254 | $1,604 | $1,864 | $2,252 | $2,383 | $2,556 |
| State and local government expenditures | 40 | 113 | 329 | 731 | 978 | 1,270 | 1,515 | 1,606 | 1,704 |
| National health expenditures | $28 | $75 | $254 | $714 | $1,017 | $1,353 | $1,733 | $1,859 | $1,988 |
| Private | 21 | 47 | 148 | 427 | 552 | 757 | 956 | 1,021 | 1,085 |
| Public | 7 | 28 | 106 | 287 | 465 | 596 | 778 | 838 | 903 |
| Federal government | 3 | 18 | 72 | 194 | 327 | 417 | 553 | 601 | 644 |
| State and local government | 4 | 10 | 35 | 93 | 138 | 179 | 225 | 237 | 259 |
| Amount per capita | |||||||||
| National health expenditures | $148 | $356 | $1,102 | $2,813 | $3,783 | $4,790 | $5,952 | $6,322 | $6,697 |
| Private | 111 | 222 | 640 | 1,684 | 2,053 | 2,680 | 3,282 | 3,472 | 3,656 |
| Public | 36 | 134 | 462 | 1,130 | 1,730 | 2,110 | 2,670 | 2,850 | 3,041 |
| Percent | |||||||||
| National health expenditures as percent of GDP | 5.2 | 7.2 | 9.1 | 12.3 | 13.7 | 13.8 | 15.8 | 15.9 | 16.0 |
| Health expenditures as a percent of total government expenditures | |||||||||
| Federal government | 3.3 | 8.8 | 12.2 | 15.5 | 20.4 | 22.4 | 24.6 | 25.2 | 25.2 |
| State and local government | 9.8 | 9.2 | 10.6 | 12.7 | 14.1 | 14.1 | 14.8 | 14.8 | 15.2 |
| Percent distribution | |||||||||
| National health expenditures | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 |
| Private | 75.3 | 62.4 | 58.1 | 59.8 | 54.3 | 55.9 | 55.1 | 54.9 | 54.6 |
| Public | 24.7 | 37.6 | 41.9 | 40.2 | 45.7 | 44.1 | 44.9 | 45.1 | 45.4 |
| Average annual percent change from previous year shown | |||||||||
| Gross domestic product | — | 7.0 | 10.4 | 7.6 | 5.0 | 5.8 | 3.7 | 6.9 | 6.3 |
| Federal government expenditures | — | 8.8 | 11.3 | 7.9 | 5.0 | 3.1 | 6.5 | 5.8 | 7.3 |
| State and local government expenditures | — | 10.9 | 11.3 | 8.3 | 6.0 | 5.4 | 6.1 | 6.0 | 6.1 |
| National health expenditures | — | 10.5 | 13.0 | 10.9 | 7.3 | 5.9 | 8.6 | 7.2 | 6.9 |
| Private | — | 8.5 | 12.2 | 11.2 | 5.2 | 6.5 | 8.1 | 6.8 | 6.3 |
| Public | — | 15.3 | 14.2 | 10.4 | 10.1 | 5.1 | 9.3 | 7.8 | 7.7 |
| Federal government | — | 20.0 | 15.0 | 10.5 | 11.0 | 5.0 | 9.8 | 8.6 | 7.2 |
| State and local government | — | 10.2 | 12.8 | 10.3 | 8.2 | 5.4 | 7.9 | 5.7 | 9.1 |
| National health expenditures, per capita | — | 9.2 | 12.0 | 9.8 | 6.1 | 4.8 | 7.5 | 6.2 | 5.9 |
| Private | — | 7.2 | 11.2 | 10.1 | 4.0 | 5.5 | 7.0 | 5.8 | 5.3 |
| Public | — | 13.9 | 13.2 | 9.4 | 8.9 | 4.1 | 8.2 | 6.7 | 6.7 |
| –Category not applicable. | |||||||||
| Notes: These data include revisions in health expenditures and may differ from previous editions of Health, United States. The data reflect U.S. Census Bureau resident population estimates as of July 2006, excluding the armed forces overseas and the population of outlying areas. Federal and state and local government total expenditures reflect revisions from the Bureau of Economic Analysis. Percents are calculated using unrounded data. Percents and numbers may not add to totals due to rounding. | |||||||||
WHO PAYS THE BILL?
In general, the government is the fastest-growing payer of health care expenses. From 2002 to 2006 the public share of the nation's total health care bill rose from 45% to 46.1%, and it is projected to rise to 48.6% by 2017. (See Table 5.4.) In 2006 private health insurance, the major nongovernmental payer of health care costs, paid approximately 34.4% of all health expenditures. The share of health care spending from private, out-of-pocket (paid by the patient) funds declined from 13.2% in 2002 to 12.2% in 2006.
Personal Health Care Bill
Much of the increase in government spending has occurred in the area of personal health care. In 2002 government sources paid 43.9% of personal health care expenditures; by 2006 they covered 45.3% of the $1.8 trillion spent on personal health care services. (See Table 5.6.) Of the total expenditures, 35.1% came from the federal government and 10.2% came from state and local governments. Some of the federal increase was attributed to Medicare spending, which grew from 19.1% of all personal health care expenditures in 2002 to 21.6% in 2006.
| Items and medical care components | 1960 | 1970 | 1980 | 1990 | 1995 | 2000 | 2003 | 2004 | 2005 | 2006 |
|---|---|---|---|---|---|---|---|---|---|---|
| Consumer price index (CPI) | ||||||||||
| All items | 29.6 | 38.8 | 82.4 | 130.7 | 152.4 | 172.2 | 184.0 | 188.9 | 195.3 | 201.6 |
| All items less medical care | 30.2 | 39.2 | 82.8 | 128.8 | 148.6 | 167.3 | 178.1 | 182.7 | 188.7 | 194.7 |
| Services | 24.1 | 35.0 | 77.9 | 139.2 | 168.7 | 195.3 | 216.5 | 222.8 | 230.1 | 238.9 |
| Food | 30.0 | 39.2 | 86.8 | 132.4 | 148.4 | 167.8 | 180.0 | 186.2 | 190.7 | 195.2 |
| Apparel | 45.7 | 59.2 | 90.9 | 124.1 | 132.0 | 129.6 | 120.9 | 120.4 | 119.5 | 119.5 |
| Housing | — | 36.4 | 81.1 | 128.5 | 148.5 | 169.6 | 184.8 | 189.5 | 195.7 | 203.2 |
| Energy | 22.4 | 25.5 | 86.0 | 102.1 | 105.2 | 124.6 | 136.5 | 151.4 | 177.1 | 196.9 |
| Medical care | 22.3 | 34.0 | 74.9 | 162.8 | 220.5 | 260.8 | 297.1 | 310.1 | 323.2 | 336.2 |
| Components of medical care | ||||||||||
| Medical care services | 19.5 | 32.3 | 74.8 | 162.7 | 224.2 | 266.0 | 306.0 | 321.3 | 336.7 | 350.6 |
| Professional services | — | 37.0 | 77.9 | 156.1 | 201.0 | 237.7 | 261.2 | 271.5 | 281.7 | 289.3 |
| Physicians' services | 21.9 | 34.5 | 76.5 | 160.8 | 208.8 | 244.7 | 267.7 | 278.3 | 287.5 | 291.9 |
| Dental services | 27.0 | 39.2 | 78.9 | 155.8 | 206.8 | 258.5 | 292.5 | 306.9 | 324.0 | 340.9 |
| Eye glasses and eye carea | — | — | — | 117.3 | 137.0 | 149.7 | 155.9 | 159.3 | 163.2 | 168.1 |
| Services by other medical professionalsb | — | — | — | 120.2 | 143.9 | 161.9 | 177.1 | 181.9 | 186.8 | 192.2 |
| Hospital and related services | — | — | 69.2 | 178.0 | 257.8 | 317.3 | 394.8 | 417.9 | 439.9 | 468.1 |
| Hospital servicesb | — | — | — | — | — | 115.9 | 144.7 | 153.4 | 161.6 | 172.1 |
| Inpatient hospital servicesb, c | — | — | — | — | — | 113.8 | 140.1 | 148.1 | 156.6 | 167.5 |
| Outpatien t hospital servicesa, c | — | — | — | 138.7 | 204.6 | 263.8 | 337.9 | 356.3 | 373.0 | 395.0 |
| Hospital rooms | 9.3 | 23.6 | 68.0 | 175.4 | 251.2 | — | — | — | — | — |
| Other inpatient servicesa | b | — | — | — | 142.7 | 206.8 | — | — | — | — |
| Nursing homes and adult day careb | — | — | — | — | — | 117.0 | 135.2 | 140.4 | 145.0 | 151.0 |
| Health insuranced | — | — | — | — | — | — | — | — | — | 103.1 |
| Medical care commodities | 46.9 | 46.5 | 75.4 | 163.4 | 204.5 | 238.1 | 262.8 | 269.3 | 276.0 | 285.9 |
| Prescripti on drugs and medical supplies | 54.0 | 47.4 | 72.5 | 181.7 | 235.0 | 285.4 | 326.3 | 337.1 | 349.0 | 363.9 |
| Nonpresc ription drugs and medical suppliesa | — | — | — | 120.6 | 140.5 | 149.5 | 152.0 | 152.3 | 151.7 | 154.6 |
| Internal and respiratory over-the-counter drugs | — | 42.3 | 74.9 | 145.9 | 167.0 | 176.9 | 181.2 | 180.9 | 179.7 | 183.4 |
| Nonprescription medical equipment and supplies | — | — | 79.2 | 138.0 | 166.3 | 178.1 | 178.1 | 179.7 | 180.6 | 183.2 |
| Average annual percent change from previous year shown | ||||||||||
| All items | … | 2.7 | 7.8 | 4.7 | 3.1 | 2.5 | 2.2 | 2.7 | 3.4 | 3.2 |
| All items excluding medical care | … | 2.6 | 7.8 | 4.5 | 2.9 | 2.4 | 2.1 | 2.6 | 3.3 | 3.2 |
| All services | … | 3.8 | 8.3 | 6.0 | 3.9 | 3.0 | 3.5 | 2.9 | 3.3 | 3.8 |
| Food | … | 2.7 | 8.3 | 4.3 | 2.3 | 2.5 | 2.4 | 3.4 | 2.4 | 2.4 |
| Apparel | … | 2.6 | 4.4 | 3.2 | 1.2 | −0.4 | −2.3 | −0.4 | −0.7 | 0.0 |
| Housing | … | — | 8.3 | 4.7 | 2.9 | 2.7 | 2.9 | 2.5 | 3.3 | 3.8 |
| Energy | … | 1.3 | 12.9 | 1.7 | 0.6 | 3.4 | 3.1 | 10.9 | 17.0 | 11.2 |
| Medical care | … | 4.3 | 8.2 | 8.1 | 6.3 | 3.4 | 4.4 | 4.4 | 4.2 | 4.0 |
| Components of medical care | ||||||||||
| Medical care services | … | 5.2 | 8.8 | 8.1 | 6.6 | 3.5 | 4.8 | 5.0 | 4.8 | 4.1 |
| Professio nal services | … | — | 7.7 | 7.2 | 5.2 | 3.4 | 3.2 | 3.9 | 3.8 | 2.7 |
| Physicians' services | … | 4.6 | 8.3 | 7.7 | 5.4 | 3.2 | 3.0 | 4.0 | 3.3 | 1.5 |
| Dental services | … | 3.8 | 7.2 | 7.0 | 5.8 | 4.6 | 4.2 | 4.9 | 5.6 | 5.2 |
| Eye glasses and eye carea | … | — | — | — | 3.2 | 1.8 | 1.4 | 2.2 | 2.4 | 3.0 |
| Services by other medical professionalsa | … | — | — | — | 3.7 | 2.4 | 3.0 | 2.7 | 2.7 | 2.9 |
| Hospital and related services | … | — | — | 9.9 | 7.7 | 4.2 | 7.6 | 5.9 | 5.3 | 6.4 |
| Hospital servicesb | … | — | — | — | — | — | 7.7 | 6.0 | 5.3 | 6.5 |
| Inpatient hospital servicesb, c | … | — | — | — | — | — | 7.2 | 5.7 | 5.7 | 7.0 |
| Outpatien t hospital servicesa, c | … | — | — | — | 8.1 | 5.2 | 8.6 | 5.4 | 4.7 | 5.9 |
| Hospital rooms | … | 9.8 | 11.2 | 9.9 | 7.4 | — | — | — | — | — |
| Other inpatient servicesa | … | — | — | — | 7.7 | — | — | — | — | — |
| Nursing homes and adult day careb | … | — | — | — | — | — | 4.9 | 3.8 | 3.3 | 4.1 |
| Health insuranced | … | — | — | — | — | — | — | — | — | — |
WHY HAVE HEALTH CARE COSTS AND SPENDING INCREASED?
The increase in the cost of medical care is challenging to analyze, because the methods and quality of health care change constantly and as a result are often not comparable. A hospital stay in 1970 did not include the same services offered in 2008. Furthermore, the care received in a physician's office today is not comparable to that received a generation ago. One contributing factor to the rising cost of health care is the increase in biomedical technology, much of which is now available for use outside of a hospital.
Many other factors also contribute to the increase in health care costs. These include population growth, high salaries for physicians and some other health care workers, and the expense of malpractice insurance. Escalating malpractice insurance costs and professional liability premiums have prompted some physicians and other health care practitioners to refrain from performing high-risk procedures that increase their vulnerability or have caused them to relocate to states where malpractice premiums are lower. Furthermore, to protect themselves from malpractice suits, many health care practitioners routinely order diagnostic tests and prescribe treatments that are not medically necessary and do not serve to improve their patients' health. This practice is known as defensive medicine, and even though its precise contribution to rising health care costs is difficult to gauge, industry observers agree that it is a significant factor.
| Items and medical care components | 1960 | 1970 | 1980 | 1990 | 1995 | 2000 | 2003 | 2004 | 2005 | 2006 |
|---|---|---|---|---|---|---|---|---|---|---|
| aDecember 1986 100. | ||||||||||
| bDecember 1996 100. | ||||||||||
| cSpecial index based on a substantially smaller sample. | ||||||||||
| dDecember 2005 100. | ||||||||||
| Average annual percent change from previous year shown | ||||||||||
| Medical care commodities | … | −0.1 | 5.0 | 8.0 | 4.6 | 3.1 | 3.3 | 2.5 | 2.5 | 3.6 |
| Prescripti on drugs and medical supplies | … | −1.3 | 4.3 | 9.6 | 5.3 | 4.0 | 4.6 | 3.3 | 3.5 | 4.3 |
| Nonpresc ription drugs and medical suppliesa | … | — | — | — | 3.1 | 1.2 | 0.6 | 0.2 | −0.4 | 1.9 |
| Internal and respiratory over-the-counter drugs | … | — | 5.9 | 6.9 | 2.7 | 1.2 | 0.8 | −0.2 | −0.7 | 2.1 |
| Nonprescription medical equipment and supplies | … | — | — | 5.7 | 3.8 | 1.4 | 0.0 | 0.9 | 0.5 | 1.4 |
| –Data not available. | ||||||||||
| …Category not applicable. | ||||||||||
| Notes: Consumer price index for all urban consumers (CPI-U) U.S. city average, detailed expenditure categories. 1982 — 1984 100, except where noted. Data are not seasonally adjusted. Data are based on reporting by samples of providers and other retail outlets. | ||||||||||
Other factors include advanced biomedical procedures requiring high-technology expertise and equipment, redundant (excessive and unnecessary) technology in hospitals, cumbersome medical insurance programs and consumer demand for less restrictive insurance plans (ones that offer more choices, benefits, and coverage, but usually mean higher premiums), and consumer demand for the latest and most comprehensive testing and treatment. Legislation that increased Medicare spending and the growing number of older adults who use a disproportionate amount of health care services have also accelerated health care spending.
In “Health Spending Projections through 2017: The Baby-Boom Generation Is Coming to Medicare” (Health Affairs, vol. 27, no. 2, February 26, 2008), Sean Keehan et al. express a concern shared by many industry observers: “Health is projected to consume an expanding share of the economy, which means that policymakers, insurers and the public will face increasingly difficult decisions about the way health care is delivered and paid for.” The researchers observe that health care will account for as much as one-fifth of the U.S. economy in the coming decade, growing at about 6.7% per year until 2017. Spending for hospital care will increase at a rate of 6.9% a year, spending for physician services will rise 5.9% annually, and spending on nursing homes will grow 5.2% a year. Much of this increase is attributable to the enormous baby-boom generation (people born between 1946 and 1964), which will soon be eligible for government-sponsored health care. The first wave of baby boomers will become eligible for Medicare in 2011. Keehan et al. predict that baby-boom Medicare enrollees will contribute 2.9 percentage points to growth in Medicare spending by 2017.
CONTROLLING HEALTH CARE SPENDING
In an effort to control health expenditures, the nation's health care system underwent some dramatic changes. Beginning in the late 1980s employers began looking for new ways to contain health benefit costs for their workers. Many enrolled their employees in managed care programs as alternatives to traditional, fee-for-service insurance. Managed care programs offered lower premiums by keeping a tighter control on costs and utilization and by emphasizing the importance of preventive care. Insurers negotiated discounts with providers (physicians, hospitals, clinical laboratories, and others) in exchange for guaranteed access to employer-insured groups. In 2006 private insurance and other private funds paid for 40.5% of the nation's health costs. (See Table 5.4.) Public sources covered 48.6% of the nation's costs, and 12.2% of the costs came directly from consumers' pockets.
| Projected | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Item | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| a2000 base year. Calculated as the difference between nominal personal health care spending and real personal health care spending. Real personal health care spending is produced by deflating spending on each service type by the appropriate deflator (PPI, CPI, etc.) and adding real spending by service type. | ||||||||||||||||
| bJuly 1 Census resident based population estimates. | ||||||||||||||||
| National health expenditures (billions) | $1,603.4 | $1,732.4 | $1,852.3 | $1,973.3 | $2,105.5 | $2,245.6 | $2,394.3 | $2,555.1 | $2,725.8 | $2,905.1 | $3,097.8 | $3,305.0 | $3,523.6 | $3,757.0 | $4,007.8 | $4,277.1 |
| National health expenditures as a percent of gross domestic product | 15.3% | 15.8% | 15.9% | 15.9% | 16.0% | 16.3% | 16.6% | 16.9% | 17.1% | 17.4% | 17.7% | 18.0% | 18.4% | 18.8% | 19.1% | 19.5% |
| National health expenditures per capita | $5,560 | $5,952 | $6,301 | $6,649 | $7,026 | $7,439 | $7,868 | $8,329 | $8,816 | $9,322 | $9,862 | $10,439 | $11,043 | $11,684 | $12,369 | $13,101 |
| Gross domestic product (billions) | $10,469.6 | $10,960.8 | $11,685.9 | $12,433.9 | $13,194.7 | $13,801.7 | $14,450.3 | $15,158.4 | $15,916.3 | $16,712.1 | $17,514.3 | $18,320.0 | $19,144.4 | $20,025.0 | $20,946.2 | $21,909.7 |
| Gross domestic product (billions of 2000 $) | $10,048.8 | $10,301.0 | $10,675.8 | $11,003.4 | $11,319.4 | $11,557.1 | $11,799.8 | $12,083.0 | $12,397.2 | $12,719.5 | $13,024.8 | $13,311.3 | $13,590.8 | $13,889.8 | $14,195.4 | $14,507.7 |
| Gross domestic product implicit price deflator (chain weighted 2000 base year) | 1.042 | 1.064 | 1.095 | 1.130 | 1.166 | 1.196 | 1.220 | 1.248 | 1.278 | 1.309 | 1.340 | 1.372 | 1.405 | 1.439 | 1.473 | 1.509 |
| Consumer price index (CPI-W)—1982–1984 base | 1.799 | 1.840 | 1.889 | 1.953 | 2.016 | 2.064 | 2.122 | 2.182 | 2.243 | 2.305 | 2.370 | 2.436 | 2.505 | 2.575 | 2.647 | 2.721 |
| CMS implicit medical price deflatora | 1.078 | 1.118 | 1.163 | 1.204 | 1.245 | 1.285 | 1.328 | 1.372 | 1.419 | 1.468 | 1.519 | 1.574 | 1.632 | 1.694 | 1.760 | 1.829 |
| U.S. populationb | 288.4 | 291.1 | 294.0 | 296.8 | 299.7 | 301.9 | 304.3 | 306.8 | 309.2 | 311.7 | 314.1 | 316.6 | 319.1 | 321.5 | 324.0 | 326.5 |
| Population age less than 65 years | 253.2 | 255.7 | 258.1 | 260.4 | 262.9 | 264.6 | 266.4 | 268.2 | 270.0 | 271.6 | 272.9 | 274.0 | 275.2 | 276.4 | 277.5 | 278.5 |
| Population age 65 years and older | 35.2 | 35.5 | 35.9 | 36.4 | 36.7 | 37.3 | 37.9 | 38.6 | 39.2 | 40.0 | 41.2 | 42.5 | 43.8 | 45.1 | 46.5 | 47.9 |
| Private health insurance—NHE (billions) | $552.5 | $602.8 | $645.8 | $685.6 | $723.4 | $769.4 | $821.7 | $878.8 | $936.0 | $995.4 | $1,058.0 | $1,124.3 | $1,192.0 | $1,263.4 | $1,338.0 | $1,415.3 |
| Private health insurance—PHC (billions) | 482.4 | 521.2 | 560.2 | 598.6 | 634.6 | 676.4 | 720.3 | 767.2 | 817.8 | 872.1 | 927.8 | 986.1 | 1,046.8 | 1,110.4 | 1,176.5 | 1,245.2 |
| National health expenditures (billions) | — | 8.0 | 6.9 | 6.5 | 6.7 | 6.7 | 6.6 | 6.7 | 6.7 | 6.6 | 6.6 | 6.7 | 6.6 | 6.6 | 6.7 | 6.7 |
| National health expenditures as a percent of gross domestic product | — | 3.2 | 0.3 | 0.1 | 0.5 | 2.0 | 1.8 | 1.7 | 1.6 | 1.5 | 1.7 | 2.0 | 2.0 | 1.9 | 2.0 | 2.0 |
| National health expenditures per capita | — | 7.1 | 5.9 | 5.5 | 5.7 | 5.9 | 5.8 | 5.9 | 5.8 | 5.7 | 5.8 | 5.9 | 5.8 | 5.8 | 5.9 | 5.9 |
| Gross domestic product (billions) | — | 4.7 | 6.6 | 6.4 | 6.1 | 4.6 | 4.7 | 4.9 | 5.0 | 5.0 | 4.8 | 4.6 | 4.5 | 4.6 | 4.6 | 4.6 |
| Gross domestic product (billions of 2000 $) | — | 2.5 | 3.6 | 3.1 | 2.9 | 2.1 | 2.1 | 2.4 | 2.6 | 2.6 | 2.4 | 2.2 | 2.1 | 2.2 | 2.2 | 2.2 |
| Gross domestic product implicit price deflator (chain weighted 2000 base year) | — | 2.1 | 2.9 | 3.2 | 3.2 | 2.6 | 2.0 | 2.3 | 2.4 | 2.4 | 2.4 | 2.4 | 2.4 | 2.4 | 2.4 | 2.4 |
| Consumer price Iindex (CPI-W)—1982–1984 base | — | 2.3 | 2.7 | 3.4 | 3.2 | 2.4 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 | 2.8 |
| CMS implicit medical price deflatora | — | 3.7 | 4.1 | 3.5 | 3.4 | 3.2 | 3.4 | 3.3 | 3.4 | 3.5 | 3.5 | 3.6 | 3.7 | 3.8 | 3.9 | 3.9 |
| U.S. populationb | — | 0.9 | 1.0 | 1.0 | 1.0 | 0.7 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 | 0.8 |
| Population age less than 65 years | — | 1.0 | 1.0 | 0.9 | 1.0 | 0.6 | 0.7 | 0.7 | 0.7 | 0.6 | 0.5 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 |
| Population age 65 years and older | — | 1.0 | 1.1 | 1.3 | 1.0 | 1.4 | 1.8 | 1.8 | 1.6 | 2.1 | 3.0 | 3.2 | 3.0 | 3.0 | 3.0 | 3.1 |
| Private health insurance—NHE | — | 9.1 | 7.1 | 6.2 | 5.5 | 6.4 | 6.8 | 7.0 | 6.5 | 6.3 | 6.3 | 6.3 | 6.0 | 6.0 | 5.9 | 5.8 |
| Private health insurance—PHC | — | 8.0 | 7.5 | 6.9 | 6.0 | 6.6 | 6.5 | 6.5 | 6.6 | 6.6 | 6.4 | 6.3 | 6.2 | 6.1 | 6.0 | 5.8 |
| Notes: Numbers and percents may not add to totals because of rounding. The health spending projections were based on the 2006 version of the National Health Expenditures released in January 2008. CMS = Centers for Medicare and Medicaid Services. NHE = National Health Expenditures. PHC = Personal Health Care. | ||||||||||||||||
| Third-party payments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Public | ||||||||||
| Year | Total | Out-of-pocket payments | Total | Private health insurance | Other private funds | Total | Federala | State and locala | Medicareb | Medicaidc |
| Historical estimates | Amount in billions | |||||||||
| 2002 | $1,603.4 | $211.4 | $1,392.0 | $552.5 | $118.4 | $721.1 | $508.6 | $212.5 | $265.1 | $249.0 |
| 2003 | 1,732.4 | 224.9 | 1,507.6 | 602.8 | 127.4 | 777.3 | 550.7 | 226.6 | 281.5 | 271.6 |
| 2004 | 1,852.3 | 234.9 | 1,617.4 | 645.8 | 134.1 | 837.5 | 597.1 | 240.4 | 309.3 | 292.0 |
| 2005 | 1,973.3 | 247.1 | 1,726.2 | 685.6 | 143.9 | 896.8 | 639.1 | 257.7 | 338.0 | 313.5 |
| 2006 | 2,105.5 | 256.5 | 1,849.0 | 723.4 | 155.3 | 970.3 | 704.9 | 265.4 | 401.3 | 310.6 |
| Projected | ||||||||||
| 2007 | 2,245.6 | 269.3 | 1,976.3 | 769.4 | 168.1 | 1,038.8 | 753.1 | 285.6 | 427.3 | 338.2 |
| 2008 | 2,394.3 | 282.6 | 2,111.7 | 821.7 | 180.8 | 1,109.3 | 806.8 | 302.5 | 460.7 | 361.2 |
| 2009 | 2,555.1 | 297.6 | 2,257.5 | 878.8 | 192.9 | 1,185.8 | 864.3 | 321.5 | 495.0 | 387.9 |
| 2010 | 2,725.8 | 314.4 | 2,411.4 | 936.0 | 206.3 | 1,269.0 | 926.5 | 342.5 | 531.1 | 417.7 |
| 2011 | 2,905.1 | 332.0 | 2,573.1 | 995.4 | 220.3 | 1,357.4 | 992.2 | 365.2 | 568.5 | 450.5 |
| 2012 | 3,097.8 | 350.6 | 2,747.3 | 1,058.0 | 234.6 | 1,454.7 | 1,065.3 | 389.4 | 610.5 | 486.0 |
| 2013 | 3,305.0 | 370.3 | 2,934.7 | 1,124.3 | 250.1 | 1,560.3 | 1,144.7 | 415.6 | 656.4 | 524.6 |
| 2014 | 3,523.6 | 391.3 | 3,132.3 | 1,192.0 | 266.2 | 1,674.1 | 1,230.3 | 443.8 | 705.6 | 566.6 |
| 2015 | 3,757.0 | 413.9 | 3,343.2 | 1,263.4 | 282.9 | 1,796.9 | 1,322.6 | 474.3 | 758.8 | 612.4 |
| 2016 | 4,007.8 | 438.1 | 3,569.7 | 1,338.0 | 300.2 | 1,931.5 | 1,424.3 | 507.2 | 818.1 | 662.3 |
| 2017 | 4,277.1 | 464.3 | 3,812.8 | 1,415.3 | 318.3 | 2,079.2 | 1,536.2 | 543.0 | 884.0 | 717.3 |
| Historical estimates | Per capita amount | |||||||||
| 2002 | $5,560 | $733 | $4,826 | $1,916 | $411 | $2,500 | $1,763 | $737 | d | d |
| 2003 | 5,952 | 773 | 5,179 | 2,071 | 438 | 2,670 | 1,892 | 779 | d | d |
| 2004 | 6,301 | 799 | 5,502 | 2,197 | 456 | 2,849 | 2,031 | 818 | d | d |
| 2005 | 6,649 | 833 | 5,816 | 2,310 | 485 | 3,022 | 2,153 | 868 | d | d |
| 2006 | 7,026 | 856 | 6,170 | 2,414 | 518 | 3,238 | 2,352 | 886 | d | d |
| Projected | ||||||||||
| 2007 | 7,439 | 892 | 6,547 | 2,549 | 557 | 3,441 | 2,495 | 946 | d | d |
| 2008 | 7,868 | 929 | 6,939 | 2,700 | 594 | 3,645 | 2,651 | 994 | d | d |
| 2009 | 8,329 | 970 | 7,359 | 2,865 | 629 | 3,866 | 2,818 | 1,048 | d | d |
| 2010 | 8,816 | 1,017 | 7,799 | 3,027 | 667 | 4,104 | 2,996 | 1,108 | d | d |
| 2011 | 9,322 | 1,065 | 8,256 | 3,194 | 707 | 4,355 | 3,184 | 1,172 | d | d |
| 2012 | 9,862 | 1,116 | 8,746 | 3,368 | 747 | 4,631 | 3,391 | 1,240 | d | d |
| 2013 | 10,439 | 1,170 | 9,270 | 3,551 | 790 | 4,928 | 3,616 | 1,313 | d | d |
| 2014 | 11,043 | 1,226 | 9,817 | 3,736 | 834 | 5,247 | 3,856 | 1,391 | d | d |
| 2015 | 11,684 | 1,287 | 10,397 | 3,929 | 880 | 5,588 | 4,113 | 1,475 | d | d |
| 2016 | 12,369 | 1,352 | 11,017 | 4,129 | 926 | 5,961 | 4,396 | 1,565 | d | d |
| 2017 | 13,101 | 1,422 | 11,679 | 4,335 | 975 | 6,369 | 4,705 | 1,663 | d | d |
| Historical estimates | Percent distribution | |||||||||
| 2002 | 100.0 | 13.2 | 86.8 | 34.5 | 7.4 | 45.0 | 31.7 | 13.3 | 16.5 | 15.5 |
| 2003 | 100.0 | 13.0 | 87.0 | 34.8 | 7.4 | 44.9 | 31.8 | 13.1 | 16.2 | 15.7 |
| 2004 | 100.0 | 12.7 | 87.3 | 34.9 | 7.2 | 45.2 | 32.2 | 13.0 | 16.7 | 15.8 |
| 2005 | 100.0 | 12.5 | 87.5 | 34.7 | 7.3 | 45.4 | 32.4 | 13.1 | 17.1 | 15.9 |
| 2006 | 100.0 | 12.2 | 87.8 | 34.4 | 7.4 | 46.1 | 33.5 | 12.6 | 19.1 | 14.8 |
| Projected | ||||||||||
| 2007 | 100.0 | 12.0 | 88.0 | 34.3 | 7.5 | 46.3 | 33.5 | 12.7 | 19.0 | 15.1 |
| 2008 | 100.0 | 11.8 | 88.2 | 34.3 | 7.5 | 46.3 | 33.7 | 12.6 | 19.2 | 15.1 |
| 2009 | 100.0 | 11.6 | 88.4 | 34.4 | 7.6 | 46.4 | 33.8 | 12.6 | 19.4 | 15.2 |
| 2010 | 100.0 | 11.5 | 88.5 | 34.3 | 7.6 | 46.6 | 34.0 | 12.6 | 19.5 | 15.3 |
| 2011 | 100.0 | 11.4 | 88.6 | 34.3 | 7.6 | 46.7 | 34.2 | 12.6 | 19.6 | 15.5 |
| 2012 | 100.0 | 11.3 | 88.7 | 34.2 | 7.6 | 47.0 | 34.4 | 12.6 | 19.7 | 15.7 |
| 2013 | 100.0 | 11.2 | 88.8 | 34.0 | 7.6 | 47.2 | 34.6 | 12.6 | 19.9 | 15.9 |
| 2014 | 100.0 | 11.1 | 88.9 | 33.8 | 7.6 | 47.5 | 34.9 | 12.6 | 20.0 | 16.1 |
| 2015 | 100.0 | 11.0 | 89.0 | 33.6 | 7.5 | 47.8 | 35.2 | 12.6 | 20.2 | 16.3 |
| 2016 | 100.0 | 10.9 | 89.1 | 33.4 | 7.5 | 48.2 | 35.5 | 12.7 | 20.4 | 16.5 |
| 2017 | 100.0 | 10.9 | 89.1 | 33.1 | 7.4 | 48.6 | 35.9 | 12.7 | 20.7 | 16.8 |
There is heightened interest in developing treatments and technologies designed to reduce the health system's dependence on expensive, inpatient hospital care. After professional services ($660.2 billion), hospital care expenditures were the single-largest spending component of total health care expenses ($648.2), accounting for 31% of all national health care expenditures in 2006. (See Table 5.5.) The annual hospital cost growth rate was 7% in 2006 and was projected to remain at about that rate through 2017.
Physician and clinical services accounted for $447.6 billion of 2006 national health spending. (See Table 5.5.) Spending for nursing home care totaled $124.9 billion, and spending for home health care reached $52.7 billion. Nursing home expenses increased 3.5% in 2006 and were projected to rise by about 5% annually through 2017.
| Third-party payments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Public | ||||||||||
| Year | Total | Out-of-pocket payments | Total | Private health insurance | Other private funds | Total | Federala | State and locala | Medicareb | Medicaidc |
| aIncludes Medicaid State Children's Health Insurance Program (SCHIP) Expansion and SCHIP. | ||||||||||
| bSubset of federal funds. | ||||||||||
| cSubset of federal and state and local funds. Includes Medicaid SCHIP Expansion. | ||||||||||
| dCalculation of per capita estimates is inappropriate. | ||||||||||
| Historical estimates | Annual percent change from previous year shown | |||||||||
| 2002 | — | — | — | — | — | — | — | — | — | — |
| 2003 | 8.0 | 6.4 | 8.3 | 9.1 | 7.6 | 7.8 | 8.3 | 6.6 | 6.2 | 9.1 |
| 2004 | 6.9 | 4.5 | 7.3 | 7.1 | 5.2 | 7.7 | 8.4 | 6.1 | 9.9 | 7.5 |
| 2005 | 6.5 | 5.2 | 6.7 | 6.2 | 7.3 | 7.1 | 7.0 | 7.2 | 9.3 | 7.3 |
| 2006 | 6.7 | 3.8 | 7.1 | 5.5 | 7.9 | 8.2 | 10.3 | 3.0 | 18.7 | —0.9 |
| Projected | ||||||||||
| 2007 | 6.7 | 5.0 | 6.9 | 6.4 | 8.3 | 7.1 | 6.8 | 7.6 | 6.5 | 8.9 |
| 2008 | 6.6 | 4.9 | 6.9 | 6.8 | 7.5 | 6.8 | 7.1 | 5.9 | 7.8 | 6.8 |
| 2009 | 6.7 | 5.3 | 6.9 | 7.0 | 6.7 | 6.9 | 7.1 | 6.3 | 7.4 | 7.4 |
| 2010 | 6.7 | 5.7 | 6.8 | 6.5 | 6.9 | 7.0 | 7.2 | 6.5 | 7.3 | 7.7 |
| 2011 | 6.6 | 5.6 | 6.7 | 6.3 | 6.8 | 7.0 | 7.1 | 6.6 | 7.0 | 7.9 |
| 2012 | 6.6 | 5.6 | 6.8 | 6.3 | 6.5 | 7.2 | 7.4 | 6.6 | 7.4 | 7.9 |
| 2013 | 6.7 | 5.6 | 6.8 | 6.3 | 6.6 | 7.3 | 7.5 | 6.7 | 7.5 | 7.9 |
| 2014 | 6.6 | 5.7 | 6.7 | 6.0 | 6.4 | 7.3 | 7.5 | 6.8 | 7.5 | 8.0 |
| 2015 | 6.6 | 5.8 | 6.7 | 6.0 | 6.3 | 7.3 | 7.5 | 6.9 | 7.5 | 8.1 |
| 2016 | 6.7 | 5.9 | 6.8 | 5.9 | 6.1 | 7.5 | 7.7 | 6.9 | 7.8 | 8.2 |
| 2017 | 6.7 | 6.0 | 6.8 | 5.8 | 6.0 | 7.6 | 7.9 | 7.1 | 8.0 | 8.3 |
| Notes: Per capita amounts based on July 1 Census resident based population estimates. Numbers and percents may not add to totals because of rounding. The health spending projections were based on the 2006 version of the National Health Expenditures (NHE) released in January 2008. | ||||||||||
One of the fastest-growing components of health care is the market for prescription drugs. In 2006 Americans spent $216.7 billion on prescription medication–this was an 8.5% increase from $199.7 billion in 2005. (See Table 5.5.) A large part of the increase was financed by private insurers, who paid $47.6 billion of the drug costs in 2006, slightly lower than the previous year's $48.8 billion. (See Table 5.7.) The aging population and the fact that prescription drugs are increasingly substituted for other types of health care have fueled growth in this sector of health services. For example, antidepressant drugs have demonstrated effectiveness in place of more expensive psychotherapy.
Prescription Drug Prices Rose in 2007
In Rx Watchdog Report Trends in Manufacturer Prices of Prescription Drugs Used by Medicare Beneficiaries 2002 to 2007 (2008, http://assets.aarp.org/rgcenter/health/2008_05_watchdog_q407.pdf), David Gross, Stephen W. Schondelmeyer, and Leigh Purvis find that pharmaceutical companies increased the prices they charge drug wholesalers for the top 220 brand-name drugs an average of 7.4% in 2007, more than two and half times the general inflation rate of 2.9%. All but four of the 220 drugs rose in price during 2007. Gross, Schondelmeyer, and Purvis note that manufacturers have increased prices of brand-name drugs used by Medicare beneficiaries since the implementation of the Medicare prescription drug benefit in 2006.
The Medicare drug benefit was intended to increase government spending for prescription drugs and provide prescription drug savings for older Americans and people with disabilities. The voluntary program allows Medicare beneficiaries to choose from dozens of plans offered by health insurers and health plans called pharmacy benefit managers.
Gross, Schondelmeyer, and Purvis observe that manufacturers' drug price increases produce higher pharmacy prices and higher out-of-pocket costs for Medicare beneficiaries who pay a percent of their drug costs as opposed to fixed copayment per prescription. The higher prices also result in higher costsfor drug plans, whichinturnmay serve toincreasethe plans' premiums or cause them to reduce benefits.
HEALTH CARE FOR OLDER ADULTS, PEOPLE WITH DISABILITIES, AND THE POOR
The United States is one of the few industrialized nations that does not have a national health care program. Government-funded health care exists, and it forms a
| Projected | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Type of expenditure | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
| *Research and development expenditures of drug companies and other manufacturers and providers of medical equipment and supplies are excluded from research expenditures. These research expenditures are implicitly included in the expenditure class in which the product falls, in that they are covered by the payment received for that product. | ||||||||||||||||
| National health expenditures | $1,603.4 | $1,732.4 | $1,852.3 | $1,973.3 | $2,105.5 | $2,245.6 | $2,394.3 | $2,555.1 | $2,725.8 | $2,905.1 | $3,097.8 | 3304.97 | $3,523.6 | $3,757.0 | $4,007.8 | $4,277.1 |
| Health services and supplies | 1,499.4 | 1,620.7 | 1,730.6 | 1,843.6 | 1,966.2 | 2,095.5 | 2,234.5 | 2,386.3 | 2,546.5 | 2,714.5 | 2,895.9 | 3,090.6 | 3,296.3 | 3,516.1 | 3,752.9 | 4,007.7 |
| Personal health care | 1,340.8 | 1,445.9 | 1,547.7 | 1,653.7 | 1,762.0 | 1,877.6 | 1,999.1 | 2,130.6 | 2,273.1 | 2,425.0 | 2,587.5 | 2,761.5 | 2,946.5 | 3,144.1 | 3,356.5 | 3,585.6 |
| Hospital care | 488.6 | 525.4 | 564.4 | 605.5 | 648.2 | 696.7 | 747.1 | 800.0 | 855.3 | 914.8 | 977.9 | 1,044.2 | 1,114.1 | 1,187.8 | 1,264.6 | 1,345.7 |
| Professional services | 503.1 | 542.9 | 580.7 | 622.2 | 660.2 | 701.1 | 743.1 | 790.6 | 842.5 | 896.4 | 953.3 | 1,014.6 | 1,078.6 | 1,146.0 | 1,219.2 | 1,297.7 |
| Physician and clinical services | 337.9 | 366.7 | 393.6 | 422.6 | 447.6 | 473.0 | 501.7 | 532.8 | 566.5 | 601.0 | 636.8 | 675.1 | 714.0 | 753.6 | 795.8 | 840.0 |
| Other professional services | 45.6 | 49.0 | 52.4 | 56.2 | 58.9 | 61.7 | 65.1 | 68.5 | 72.4 | 76.3 | 80.5 | 84.9 | 89.5 | 94.3 | 99.5 | 105.0 |
| Dental services | 73.3 | 76.9 | 81.5 | 86.6 | 91.5 | 96.9 | 102.4 | 108.2 | 114.4 | 120.7 | 127.4 | 134.5 | 142.0 | 150.3 | 159.6 | 169.6 |
| Other personal health care | 46.3 | 50.3 | 53.2 | 56.8 | 62.2 | 69.6 | 73.9 | 81.1 | 89.2 | 98.4 | 108.6 | 120.2 | 133.2 | 147.8 | 164.4 | 183.1 |
| Nursing home and home health | 139.9 | 148.5 | 157.9 | 168.7 | 177.6 | 187.3 | 198.5 | 210.2 | 222.9 | 236.2 | 250.1 | 264.8 | 280.7 | 297.8 | 316.1 | 336.5 |
| Home health care | 34.2 | 38.0 | 42.7 | 47.9 | 52.7 | 57.6 | 62.0 | 66.7 | 71.8 | 77.1 | 82.7 | 88.8 | 95.3 | 102.4 | 110.2 | 119.0 |
| Nursing home care | 105.7 | 110.5 | 115.2 | 120.7 | 124.9 | 129.7 | 136.5 | 143.5 | 151.2 | 159.1 | 167.4 | 176.0 | 185.3 | 195.4 | 206.0 | 217.5 |
| Retail outlet sales of medical products | 209.1 | 229.0 | 244.7 | 257.3 | 276.0 | 292.5 | 310.4 | 329.8 | 352.4 | 377.6 | 406.1 | 437.9 | 473.2 | 512.5 | 556.6 | 605.7 |
| Prescription drugs | 157.6 | 174.2 | 188.8 | 199.7 | 216.7 | 231.3 | 247.0 | 264.5 | 284.6 | 307.2 | 332.9 | 361.6 | 393.7 | 429.8 | 470.4 | 515.7 |
| Other medical products | 51.5 | 54.9 | 55.9 | 57.6 | 59.3 | 61.2 | 63.4 | 65.3 | 67.8 | 70.4 | 73.3 | 76.3 | 79.5 | 82.7 | 86.2 | 90.0 |
| Durable medical equipment | 20.7 | 22.4 | 22.8 | 23.2 | 23.7 | 24.5 | 25.4 | 26.0 | 27.0 | 28.0 | 29.2 | 30.5 | 31.9 | 33.3 | 34.9 | 36.6 |
| Other non-durable medical products | 30.8 | 32.4 | 33.1 | 34.4 | 35.6 | 36.7 | 38.0 | 39.3 | 40.9 | 42.4 | 44.0 | 45.8 | 47.6 | 49.3 | 51.3 | 53.4 |
| Program administration and net cost of private health insurance | 106.5 | 121.0 | 129.0 | 133.6 | 145.4 | 155.1 | 168.3 | 184.0 | 196.5 | 207.1 | 220.3 | 234.7 | 248.7 | 263.7 | 280.3 | 297.7 |
| Government public health activities | 52.1 | 53.8 | 53.9 | 56.3 | 58.7 | 62.8 | 67.1 | 71.8 | 76.9 | 82.3 | 88.1 | 94.4 | 101.1 | 108.3 | 116.0 | 124.4 |
| Investment | 104.0 | 111.8 | 121.7 | 129.7 | 139.4 | 150.1 | 159.8 | 168.8 | 179.3 | 190.7 | 201.9 | 214.3 | 227.3 | 240.9 | 254.9 | 269.4 |
| Research* | 32.5 | 35.5 | 38.8 | 40.6 | 41.8 | 42.9 | 44.0 | 45.8 | 48.1 | 50.8 | 53.9 | 57.3 | 60.9 | 64.7 | 68.6 | 72.7 |
| Structures & equipment | 71.5 | 76.3 | 83.0 | 89.1 | 97.6 | 107.2 | 115.8 | 122.9 | 131.2 | 139.9 | 148.0 | 157.0 | 166.4 | 176.3 | 186.3 | 196.7 |
| National health expenditures | — | 8.0 | 6.9 | 6.5 | 6.7 | 6.7 | 6.6 | 6.7 | 6.7 | 6.6 | 6.6 | 6.7 | 6.6 | 6.6 | 6.7 | 6.7 |
| Health services and supplies | — | 8.1 | 6.8 | 6.5 | 6.6 | 6.6 | 6.6 | 6.8 | 6.7 | 6.6 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 | 6.8 |
| Personal health care | — | 7.8 | 7.0 | 6.8 | 6.6 | 6.6 | 6.5 | 6.6 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 | 6.8 | 6.8 |
| Hospital care | — | 7.5 | 7.4 | 7.3 | 7.0 | 7.5 | 7.2 | 7.1 | 6.9 | 7.0 | 6.9 | 6.8 | 6.7 | 6.6 | 6.5 | 6.4 |
| Professional services | — | 7.9 | 7.0 | 7.1 | 6.1 | 6.2 | 6.0 | 6.4 | 6.6 | 6.4 | 6.4 | 6.4 | 6.3 | 6.3 | 6.4 | 6.4 |
| Physician and clinical services | — | 8.5 | 7.3 | 7.4 | 5.9 | 5.7 | 6.1 | 6.2 | 6.3 | 6.1 | 6.0 | 6.0 | 5.8 | 5.6 | 5.6 | 5.6 |
| Other professional services | — | 7.5 | 7.0 | 7.1 | 4.9 | 4.8 | 5.5 | 5.2 | 5.7 | 5.4 | 5.4 | 5.5 | 5.4 | 5.4 | 5.5 | 5.6 |
| Dental services | — | 4.8 | 6.0 | 6.3 | 5.7 | 5.9 | 5.7 | 5.6 | 5.7 | 5.6 | 5.5 | 5.5 | 5.6 | 5.9 | 6.2 | 6.3 |
| Other personal health care | — | 8.7 | 5.7 | 6.8 | 9.5 | 11.8 | 6.3 | 9.6 | 10.0 | 10.2 | 10.4 | 10.6 | 10.8 | 11.0 | 11.2 | 11.4 |
| Nursing home and home health | — | 6.1 | 6.3 | 6.9 | 5.3 | 5.4 | 6.0 | 5.9 | 6.0 | 6.0 | 5.9 | 5.9 | 6.0 | 6.1 | 6.2 | 6.4 |
| Home health care | — | 11.1 | 12.3 | 12.3 | 9.9 | 9.2 | 7.8 | 7.6 | 7.5 | 7.4 | 7.3 | 7.3 | 7.3 | 7.4 | 7.6 | 8.0 |
| Nursing home care | — | 4.5 | 4.2 | 4.9 | 3.5 | 3.8 | 5.2 | 5.2 | 5.3 | 5.3 | 5.2 | 5.1 | 5.3 | 5.4 | 5.4 | 5.6 |
| Retail outlet sales of medical products | — | 9.5 | 6.8 | 5.2 | 7.3 | 6.0 | 6.1 | 6.3 | 6.9 | 7.2 | 7.5 | 7.8 | 8.1 | 8.3 | 8.6 | 8.8 |
| Prescription drugs | — | 10.5 | 8.4 | 5.8 | 8.5 | 6.7 | 6.8 | 7.1 | 7.6 | 8.0 | 8.3 | 8.6 | 8.9 | 9.2 | 9.4 | 9.6 |
| Other medical products | — | 6.5 | 1.8 | 3.1 | 3.0 | 3.2 | 3.6 | 3.0 | 3.9 | 3.8 | 4.1 | 4.2 | 4.1 | 4.1 | 4.3 | 4.4 |
| Durable medical equipment | — | 8.2 | 1.5 | 1.7 | 2.3 | 3.4 | 3.7 | 2.1 | 3.9 | 3.8 | 4.4 | 4.5 | 4.5 | 4.5 | 4.7 | 4.9 |
| Other non-durable medical products | — | 5.4 | 2.1 | 4.0 | 3.5 | 3.0 | 3.5 | 3.6 | 3.9 | 3.8 | 3.9 | 3.9 | 3.9 | 3.8 | 4.0 | 4.1 |
| Program administration and net cost of private health insurance | — | 13.6 | 6.6 | 3.6 | 8.8 | 6.6 | 8.5 | 9.3 | 6.8 | 5.4 | 6.4 | 6.5 | 6.0 | 6.1 | 6.3 | 6.2 |
| Government public health activities | — | 3.2 | 0.2 | 4.4 | 4.3 | 7.0 | 6.9 | 7.0 | 7.1 | 7.1 | 7.1 | 7.1 | 7.1 | 7.1 | 7.2 | 7.2 |
| Investment | — | 7.5 | 8.9 | 6.6 | 7.4 | 7.7 | 6.5 | 5.6 | 6.3 | 6.3 | 5.9 | 6.2 | 6.1 | 6.0 | 5.8 | 5.7 |
| Research* | — | 9.2 | 9.1 | 4.8 | 2.9 | 2.7 | 2.6 | 4.1 | 5.0 | 5.5 | 6.1 | 6.4 | 6.3 | 6.1 | 6.0 | 6.0 |
| Structures & equipment | — | 6.7 | 8.8 | 7.4 | 9.5 | 9.8 | 8.1 | 6.1 | 6.7 | 6.6 | 5.8 | 6.1 | 6.0 | 5.9 | 5.7 | 5.6 |
| Notes: Numbers may not add to totals because of rounding. The health spending projections were based on the 2006 version of the National Health Expenditures (NHE) released in January 2008. | ||||||||||||||||
| Third-party payments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Public | ||||||||||
| Year | Total | Out-of-pocket payments | Total | Private health insurance | Other private funds | Total | Federala | State and locala | Medicareb | Medicaidc |
| Historical estimates | Amount in billions | |||||||||
| 2002 | $1,340.8 | $211.4 | $1,129.3 | $482.4 | $58.3 | $588.7 | $448.3 | $140.4 | $256.3 | $231.9 |
| 2003 | 1,445.9 | 224.9 | 1,221 0 | 521.2 | 63.6 | 636.2 | 485.0 | 151.1 | 272.8 | 252.3 |
| 2004 | 1,547.7 | 234.9 | 1,312.8 | 560.2 | 64.9 | 687.7 | 525.6 | 162.1 | 298.7 | 271.5 |
| 2005 | 1,653.7 | 247.1 | 1,406.6 | 598.6 | 69.0 | 739.0 | 562.2 | 176.8 | 326.0 | 291.5 |
| 2006 | 1,762.0 | 256.5 | 1,505.5 | 634.6 | 72.7 | 798.2 | 618.1 | 180.1 | 381.0 | 287.5 |
| Projected | ||||||||||
| 2007 | 1,877.6 | 269.3 | 1,608.4 | 676.4 | 77.0 | 855.0 | 660.3 | 194.7 | 404.7 | 313.1 |
| 2008 | 1,999.1 | 282.6 | 1,716.5 | 720.3 | 81.9 | 914.3 | 708.0 | 206.3 | 435.6 | 334.3 |
| 2009 | 2,130.6 | 297.6 | 1,833.0 | 767.2 | 87.5 | 978.3 | 758.5 | 219.8 | 467.1 | 359.0 |
| 2010 | 2,273.1 | 314.4 | 1,958.7 | 817.8 | 93.3 | 1,047.6 | 812.9 | 234.7 | 500.4 | 386.6 |
| 2011 | 2,425.0 | 332.0 | 2,093.0 | 872.1 | 99.3 | 1,121.5 | 870.6 | 250.9 | 535.2 | 417.0 |
| 2012 | 2,587.5 | 350.6 | 2,236.9 | 927.8 | 105.9 | 1,203.2 | 934.8 | 268.4 | 574.5 | 449.9 |
| 2013 | 2,761.5 | 370.3 | 2,391.2 | 986.1 | 113.0 | 1,292.2 | 1,004.8 | 287.4 | 617.5 | 485.7 |
| 2014 | 2,946.5 | 391.3 | 2,555.2 | 1,046.8 | 120.2 | 1,388.2 | 1,080.3 | 307.9 | 663.8 | 524.5 |
| 2015 | 3,144.1 | 413.9 | 2,730.2 | 1,110.4 | 127.6 | 1,492.2 | 1,162.1 | 330.1 | 713.9 | 566.9 |
| 2016 | 3,356.5 | 438.1 | 2,918.4 | 1,176 5 | 135.4 | 1,606.6 | 1,252.3 | 354.3 | 769.8 | 613.2 |
| 2017 | 3,585.6 | 464.3 | 3,121.2 | 1,245.2 | 143.5 | 1,732.5 | 1,351.8 | 380.6 | 831.9 | 664.2 |
| Historical estimates | Per capita amount | |||||||||
| 2002 | $4,649 | $733 | $3,916 | $1,673 | $202 | $2,041 | $1,554 | $487 | d | d |
| 2003 | 4,967 | 773 | 4,195 | 1,791 | 218 | 2,185 | 1,666 | 519 | d | d |
| 2004 | 5,265 | 799 | 4,466 | 1,906 | 221 | 2,339 | 1,788 | 551 | d | d |
| 2005 | 5,572 | 833 | 4,739 | 2,017 | 233 | 2,490 | 1,894 | 596 | d | d |
| 2006 | 5,880 | 856 | 5,024 | 2,117 | 243 | 2,663 | 2,062 | 601 | d | d |
| Projected | ||||||||||
| 2007 | 6,220 | 892 | 5,328 | 2,241 | 255 | 2,832 | 2,187 | 645 | d | d |
| 2008 | 6,569 | 929 | 5,640 | 2,367 | 269 | 3,005 | 2,327 | 678 | d | d |
| 2009 | 6,945 | 970 | 5,975 | 2,501 | 285 | 3,189 | 2,473 | 716 | d | d |
| 2010 | 7,352 | 1,017 | 6,335 | 2,645 | 302 | 3,388 | 2,629 | 759 | d | d |
| 2011 | 7,781 | 1,065 | 6,716 | 2,798 | 319 | 3,599 | 2,793 | 805 | d | d |
| 2012 | 8,237 | 1,116 | 7,121 | 2,954 | 337 | 3,830 | 2,976 | 855 | d | d |
| 2013 | 8,723 | 1,170 | 7,553 | 3,115 | 357 | 4,082 | 3,174 | 908 | d | d |
| 2014 | 9,235 | 1,226 | 8,008 | 3,281 | 377 | 4,351 | 3,386 | 965 | d | d |
| 2015 | 9,778 | 1,287 | 8,491 | 3,453 | 397 | 4,641 | 3,614 | 1,027 | d | d |
| 2016 | 10,359 | 1,352 | 9,007 | 3,631 | 418 | 4,958 | 3,865 | 1,093 | d | d |
| 2017 | 10,983 | 1,422 | 9,561 | 3,814 | 440 | 5,307 | 4,141 | 1,166 | d | d |
| Historical estimates | Percent distribution | |||||||||
| 2002 | 100.0 | 15.8 | 84.2 | 36.0 | 4.3 | 43.9 | 33.4 | 10.5 | 19.1 | 17.3 |
| 2003 | 100.0 | 15.6 | 84.4 | 36.0 | 4.4 | 44.0 | 33.5 | 10.5 | 18.9 | 17.5 |
| 2004 | 100.0 | 15.2 | 84.8 | 36.2 | 4.2 | 44.4 | 34.0 | 10.5 | 19.3 | 17.5 |
| 2005 | 100.0 | 14.9 | 85.1 | 36.2 | 4.2 | 44.7 | 34.0 | 10.7 | 19.7 | 17.6 |
| 2006 | 100.0 | 14.6 | 85.4 | 36.0 | 4.1 | 45.3 | 35.1 | 10.2 | 21.6 | 16.3 |
| Projected | ||||||||||
| 2007 | 100.0 | 14.3 | 85.7 | 36.0 | 4.1 | 45.5 | 35.2 | 10.4 | 21.6 | 16.7 |
| 2008 | 100.0 | 14.1 | 85.9 | 36.0 | 4.1 | 45.7 | 35.4 | 10.3 | 21.8 | 16.7 |
| 2009 | 100.0 | 14.0 | 86.0 | 36.0 | 4.1 | 45.9 | 35.6 | 10.3 | 21.9 | 16.9 |
| 2010 | 100.0 | 13.8 | 86.2 | 36.0 | 4.1 | 46.1 | 35.8 | 10.3 | 22.0 | 17.0 |
| 2011 | 100.0 | 13.7 | 86.3 | 36.0 | 4.1 | 46.2 | 35.9 | 10.3 | 22.1 | 17.2 |
| 2012 | 100.0 | 13.5 | 86.5 | 35.9 | 4.1 | 46.5 | 36.1 | 10.4 | 22.2 | 17.4 |
| 2013 | 100.0 | 13.4 | 86.6 | 35.7 | 4.1 | 46.8 | 36.4 | 10.4 | 22.4 | 17.6 |
| 2014 | 100.0 | 13.3 | 86.7 | 35.5 | 4.1 | 47.1 | 36.7 | 10.4 | 22.5 | 17.8 |
| 2015 | 100.0 | 13.2 | 86.8 | 35.3 | 4.1 | 47.5 | 37.0 | 10.5 | 22.7 | 18.0 |
| 2016 | 100.0 | 13.1 | 86.9 | 35.1 | 4.0 | 47.9 | 37.3 | 10.6 | 22.9 | 18.3 |
| 2017 | 100.0 | 13.0 | 87.0 | 34.7 | 4.0 | 48.3 | 37.7 | 10.6 | 23.2 | 18.5 |
major part of the health care system, but it is available only to specific segments of the U.S. population. In other developed countries government national medical care programs cover almost all their citizen's health-related costs, from maternity care to long-term care.
In the United States the major government health care entitlement programs are Medicare and Medicaid. They provide financial assistance for people aged sixty-five and older, the poor, and people with disabilities. Before the existence of these programs, many older Americans could not afford adequate medical care. For older adults who are beneficiaries, the Medicare program provides reimbursement for hospital and physician care, whereas Medicaid pays for the cost of nursing home care.
| Third-party payments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Public | ||||||||||
| Year | Total | Out-of-pocket payments | Total | Private health insurance | Other private funds | Total | Federala | State and locala | Medicareb | Medicaidc |
| aIncludes Medicaid State Children's Health Insurance Program (SCHIP) Expansion and SCHIP. | ||||||||||
| bSubset of federal funds. | ||||||||||
| cSubset of federal and state and local funds. Includes Medicaid SCHIP Expansion. | ||||||||||
| dCalculation of per capita estimates is inappropriate. | ||||||||||
| Historical estimates | Annual percent change from previous year shown | |||||||||
| 2002 | — | — | — | — | — | — | — | — | — | — |
| 2003 | 7.8 | 6.4 | 8.1 | 8.0 | 9.2 | 8.1 | 8.2 | 7.7 | 6.5 | 8.8 |
| 2004 | 7.0 | 4.5 | 7.5 | 7.5 | 2.1 | 8.1 | 8.4 | 7.3 | 9.5 | 7.6 |
| 2005 | 6.8 | 5.2 | 7.1 | 6.9 | 6.4 | 7.5 | 7.0 | 9.0 | 9.1 | 7.4 |
| 2006 | 6.6 | 3.8 | 7.0 | 6.0 | 5.4 | 8.0 | 9.9 | 1.9 | 16.9 | −1.4 |
| Projected | ||||||||||
| 2007 | 6.6 | 5.0 | 6.8 | 6.6 | 5.8 | 7.1 | 6.8 | 8.1 | 6.2 | 8.9 |
| 2008 | 6.5 | 4.9 | 6.7 | 6.5 | 6.4 | 6.9 | 7.2 | 6.0 | 7.7 | 6.8 |
| 2009 | 6.6 | 5.3 | 6.8 | 6.5 | 6.9 | 7.0 | 7.1 | 6.5 | 7.2 | 7.4 |
| 2010 | 6.7 | 5.7 | 6.9 | 6.6 | 6.6 | 7.1 | 7.2 | 6.8 | 7.1 | 7.7 |
| 2011 | 6.7 | 5.6 | 6.9 | 6.6 | 6.5 | 7.1 | 7.1 | 6.9 | 6.9 | 7.9 |
| 2012 | 6.7 | 5.6 | 6.9 | 6.4 | 6.6 | 7.3 | 7.4 | 7.0 | 7.4 | 7.9 |
| 2013 | 6.7 | 5.6 | 6.9 | 6.3 | 6.7 | 7.4 | 7.5 | 7.1 | 7.5 | 7.9 |
| 2014 | 6.7 | 5.7 | 6.9 | 6.2 | 6.4 | 7.4 | 7.5 | 7.1 | 7.5 | 8.0 |
| 2015 | 6.7 | 5.8 | 6.8 | 6.1 | 6.1 | 7.5 | 7.6 | 7.2 | 7.5 | 8.1 |
| 2016 | 6.8 | 5.9 | 6.9 | 6.0 | 6.1 | 7.7 | 7.8 | 7.3 | 7.8 | 8.2 |
| 2017 | 6.8 | 6.0 | 6.9 | 5.8 | 6.0 | 7.8 | 8.0 | 7.4 | 8.1 | 8.3 |
| Notes: Per capita amounts based on July 1 Census resident based population estimates. Numbers and percents may not add to totals because of rounding. The health spending projections were based on the 2006 version of the National Health Expenditures (NHE) released in January 2008. | ||||||||||
Medicare
The Medicare program, which was enacted under Title XVIII (Health Insurance for the Aged) of the Social Security Act, was approved in July 1966. The program is composed of four parts:
- Part A provides hospital insurance. Coverage includes physicians' fees, nursing services, meals, semiprivate rooms, special-care units, operating room costs, laboratory tests, and some drugs and supplies. Part A also covers rehabilitation services, limited posthospital care in a skilled nursing facility, home health care, and hospice care for the terminally ill.
- Part B (Supplemental Medical Insurance [SMI]) is elective medical insurance; that is, enrollees must pay premiums to obtain coverage. SMI covers out-patient physicians' services, diagnostic tests, outpatient hospital services, outpatient physical therapy, speech pathology services, home health services, and medical equipment and supplies.
- Part C is the Medicare+Choice program, which was established by the Balanced Budget Act of 1997 to expand beneficiaries' options and allow them to participate in private-sector health plans.
- Part D is also elective and provides voluntary, subsidized access to prescription drug insurance coverage, for a premium, to individuals entitled to Part A or enrolled in Part B. Part D also has provisions (premium and cost-sharing subsidies) for low-income enrollees. Part D coverage began in 2006 and includes most U.S. Food and Drug Administration (FDA) approved prescription drugs.
In general, Medicare reimburses physicians on a feefor-service basis (paid for each visit, procedure, or treatment delivered), as opposed to per capita (per head) or per member per month. In response to the increasing administrative burden of paperwork, reduced compensation, and delays in reimbursements, some physicians opt out of Medicare participation–they do not provide services under the Medicare program and choose not to accept Medicare patients into their practices. Others still provide services to Medicare beneficiaries but do not “accept assignment,” meaning that patients must pay out-of-pocket for services and then seek reimbursement from Medicare.
Because of these problems, the Tax Equity and Fiscal Responsibility Act of 1982 authorized a risk managed care option for Medicare, based on agreed-on prepayments. Beginning in 1985 the Health Care Financing Administration (now known as the CMS) could contract to pay health care providers, such as health maintenance organizations (HMOs) or health care prepayment plans, to serve Medicare and Medicaid patients. These groups are paid a predetermined cost per patient for their services.
| Third-party payments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Public | ||||||||||
| Year | Total | Out-of-pocket payments | Total | Private health insurance | Other private funds | Total | Federala | State and locala | Medicareb | Medicaidc |
| Historical estimates | Amount in billions | |||||||||
| 2002 | $157.6 | $40.4 | $117.3 | $78.0 | $0.0 | $39.3 | $23.0 | $16.2 | $2.4 | $28.0 |
| 2003 | 174.2 | 44.2 | 130.0 | 83.5 | 0.0 | 46.5 | 27.6 | 18.9 | 2.3 | 32.8 |
| 2004 | 188.8 | 46.2 | 142.5 | 90.1 | 0.0 | 52.5 | 31.3 | 21.2 | 3.3 | 36.6 |
| 2005 | 199.7 | 48.8 | 150.9 | 95.7 | 0.0 | 55.2 | 32.6 | 22.6 | 3.9 | 37.6 |
| 2006 | 216.7 | 47.6 | 169.1 | 95.1 | 0.0 | 74.0 | 58.7 | 15.3 | 39.5 | 19.4 |
| Projected | ||||||||||
| 2007 | 231.3 | 50.4 | 180.9 | 100.7 | 0.0 | 80.2 | 63.8 | 16.4 | 43.0 | 21.0 |
| 2008 | 247.0 | 53.5 | 193.5 | 107.1 | 0.0 | 86.4 | 68.9 | 17.5 | 46.7 | 22.3 |
| 2009 | 264.5 | 56.4 | 208.1 | 113.3 | 0.0 | 94.8 | 75.9 | 18.9 | 52.2 | 24.0 |
| 2010 | 284.6 | 59.9 | 224.7 | 120.6 | 0.0 | 104.0 | 83.7 | 20.4 | 58.2 | 26.0 |
| 2011 | 307.2 | 63.9 | 243.3 | 129.0 | 0.0 | 114.4 | 92.4 | 22.0 | 65.0 | 28.4 |
| 2012 | 332.9 | 68.3 | 264.6 | 138.2 | 0.0 | 126.3 | 102.5 | 23.8 | 72.9 | 31.0 |
| 2013 | 361.6 | 73.6 | 288.0 | 149.2 | 0.0 | 138.7 | 112.9 | 25.8 | 81.0 | 33.8 |
| 2014 | 393.7 | 79.5 | 314.2 | 161.6 | 0.0 | 152.6 | 124.6 | 28.0 | 90.0 | 36.8 |
| 2015 | 429.8 | 86.3 | 343.5 | 175.6 | 0.0 | 168.0 | 137.7 | 30.3 | 100.3 | 40.1 |
| 2016 | 470.4 | 93.9 | 376.4 | 191.3 | 0.0 | 185.1 | 152.4 | 32.7 | 111.9 | 43.5 |
| 2017 | 515.7 | 102.5 | 413.2 | 209.0 | 0.0 | 204.2 | 168.8 | 35.3 | 125.2 | 47.1 |
| Historical estimates | Per capita amount | |||||||||
| 2002 | $547 | $140 | $407 | $270 | $0 | $136 | $80 | $56 | d | d |
| 2003 | 598 | 152 | 446 | 287 | 0 | 160 | 95 | 65 | d | d |
| 2004 | 642 | 157 | 485 | 306 | 0 | 178 | 107 | 72 | d | d |
| 2005 | 673 | 164 | 508 | 322 | 0 | 186 | 110 | 76 | d | d |
| 2006 | 723 | 159 | 564 | 317 | 0 | 247 | 196 | 51 | d | d |
| Projected | ||||||||||
| 2007 | 766 | 167 | 599 | 334 | 0 | 266 | 211 | 54 | d | d |
| 2008 | 812 | 176 | 636 | 352 | 0 | 284 | 226 | 58 | d | d |
| 2009 | 862 | 184 | 678 | 369 | 0 | 309 | 247 | 61 | d | d |
| 2010 | 920 | 194 | 727 | 390 | 0 | 336 | 271 | 66 | d | d |
| 2011 | 986 | 205 | 781 | 414 | 0 | 367 | 296 | 71 | d | d |
| 2012 | 1,060 | 217 | 842 | 440 | 0 | 402 | 326 | 76 | d | d |
| 2013 | 1,142 | 232 | 910 | 471 | 0 | 438 | 357 | 82 | d | d |
| 2014 | 1,234 | 249 | 985 | 506 | 0 | 478 | 391 | 88 | d | d |
| 2015 | 1,337 | 268 | 1,068 | 546 | 0 | 522 | 428 | 94 | d | d |
| 2016 | 1,452 | 290 | 1,162 | 591 | 0 | 571 | 470 | 101 | d | d |
| 2017 | 1,580 | 314 | 1,266 | 640 | 0 | 625 | 517 | 108 | d | d |
| Historical estimates | Percent distribution | |||||||||
| 2002 | 100.0 | 25.6 | 74.4 | 49.5 | 0.0 | 24.9 | 14.6 | 10.3 | 1.5 | 17.8 |
| 2003 | 100.0 | 25.4 | 74.6 | 47.9 | 0.0 | 26.7 | 15.9 | 10.8 | 1.3 | 18.8 |
| 2004 | 100.0 | 24.5 | 75.5 | 47.7 | 0.0 | 27.8 | 16.6 | 11.2 | 1.7 | 19.4 |
| 2005 | 100.0 | 24.4 | 75.6 | 47.9 | 0.0 | 27.6 | 16.3 | 11.3 | 1.9 | 18.8 |
| 2006 | 100.0 | 22.0 | 78.0 | 43.9 | 0.0 | 34.2 | 27.1 | 7.0 | 18.2 | 9.0 |
| Projected | ||||||||||
| 2007 | 100.0 | 21.8 | 78.2 | 43.5 | 0.0 | 34.7 | 27.6 | 7.1 | 18.6 | 9.1 |
| 2008 | 100.0 | 21.6 | 78.4 | 43.4 | 0.0 | 35.0 | 27.9 | 7.1 | 18.9 | 9.0 |
| 2009 | 100.0 | 21.3 | 78.7 | 42.8 | 0.0 | 35.8 | 28.7 | 7.1 | 19.7 | 9.1 |
| 2010 | 100.0 | 21.1 | 78.9 | 42.4 | 0.0 | 36.6 | 29.4 | 7.2 | 20.5 | 9.1 |
| 2011 | 100.0 | 20.8 | 79.2 | 42.0 | 0.0 | 37.2 | 30.1 | 7.2 | 21.2 | 9.2 |
| 2012 | 100.0 | 20.5 | 79.5 | 41.5 | 0.0 | 38.0 | 30.8 | 7.2 | 21.9 | 9.3 |
| 2013 | 100.0 | 20.3 | 79.7 | 41.3 | 0.0 | 38.4 | 31.2 | 7.1 | 22.4 | 9.3 |
| 2014 | 100.0 | 20.2 | 79.8 | 41.0 | 0.0 | 38.8 | 31.7 | 7.1 | 22.9 | 9.3 |
| 2015 | 100.0 | 20.1 | 79.9 | 40.8 | 0.0 | 39.1 | 32.0 | 7.0 | 23.3 | 9.3 |
| 2016 | 100.0 | 20.0 | 80.0 | 40.7 | 0.0 | 39.4 | 32.4 | 7.0 | 23.8 | 9.2 |
| 2017 | 100.0 | 19.9 | 80.1 | 40.5 | 0.0 | 39.6 | 32.7 | 6.9 | 24.3 | 9.1 |
Medicare-Risk HMOs Control Costs, but Some Senior Health Plans Do Not Survive
During the 1980s and 1990s the federal government, employers that provided health coverage for retiring employees, and many states sought to control costs by encouraging Medicare and Medicaid beneficiaries to enroll in HMOs. From the early 1980s through the late 1990s, Medicare-risk HMOs did contain costs because, essentially, the federal government paid the health plans that operated them with fixed fees—a predetermined dollar amount per member per month (PMPM). For this fixed fee, Medicare recipients were to receive a fairly
| Third-party payments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Public | ||||||||||
| Year | Total | Out-of-pocket payments | Total | Private health insurance | Other private funds | Total | Federala | State and locala | Medicareb | Medicaidc |
| aIncludes Medicaid State Children's Health Insurance Program (SCHIP) Expansion and SCHIP. | ||||||||||
| bSubset of federal funds. | ||||||||||
| cSubset of federal and state and local funds. Includes Medicaid SCHIP Expansion. | ||||||||||
| dCalculation of per capita estimates is inappropriate. | ||||||||||
| Historical estimates | Annual percent change from previous year shown | |||||||||
| 2002 | — | — | — | — | — | — | — | — | — | — |
| 2003 | 10.5 | 9.3 | 10.9 | 7.1 | — | 18.4 | 20.1 | 16.2 | –1.8 | 17.0 |
| 2004 | 8.4 | 4.7 | 9.6 | 7.9 | — | 12.8 | 13.3 | 12.1 | 40.4 | 11.6 |
| 2005 | 5.8 | 5.5 | 5.9 | 6.2 | — | 5.2 | 4.2 | 6.7 | 18.1 | 2.8 |
| 2006 | 8.5 | –2.4 | 12.0 | –0.7 | — | 34.1 | 80.0 | –32.3 | 914.4 | –48.3 |
| Projected | ||||||||||
| 2007 | 6.7 | 5.8 | 7.0 | 6.0 | — | 8.4 | 8.6 | 7.6 | 8.9 | 8.0 |
| 2008 | 6.8 | 6.1 | 6.9 | 6.3 | — | 7.7 | 8.0 | 6.8 | 8.6 | 6.4 |
| 2009 | 7.1 | 5.5 | 7.5 | 5.8 | — | 9.7 | 10.2 | 7.5 | 11.9 | 7.4 |
| 2010 | 7.6 | 6.2 | 8.0 | 6.5 | — | 9.8 | 10.2 | 8.0 | 11.5 | 8.6 |
| 2011 | 8.0 | 6.6 | 8.3 | 6.9 | — | 9.9 | 10.4 | 8.1 | 11.6 | 9.0 |
| 2012 | 8.3 | 6.9 | 8.7 | 7.2 | — | 10.5 | 11.0 | 8.3 | 12.2 | 9.2 |
| 2013 | 8.6 | 7.8 | 8.8 | 7.9 | — | 9.8 | 10.2 | 8.3 | 11.0 | 9.1 |
| 2014 | 8.9 | 8.1 | 9.1 | 8.3 | — | 10.0 | 10.4 | 8.3 | 11.2 | 9.0 |
| 2015 | 9.2 | 8.5 | 9.3 | 8.7 | — | 10.1 | 10.5 | 8.3 | 11.4 | 8.9 |
| 2016 | 9.4 | 8.8 | 9.6 | 9.0 | — | 10.2 | 10.6 | 8.1 | 11.6 | 8.6 |
| 2017 | 9.6 | 9.1 | 9.8 | 9.3 | — | 10.3 | 10.8 | 7.9 | 11.9 | 8.2 |
| Notes: Per capita amounts based on July 1 Census resident based population estimates. Numbers and percents may not add to totals because of rounding. The health spending projections were based on the 2006 version of the National Health Expenditures (NHE) released in January 2008. | ||||||||||
comprehensive, preset array of benefits. PMPM payment provided financial incentives for Medicare-risk HMO physicians to control costs, unlike physicians who were reimbursed on a fee-for-service basis.
Even though Medicare recipients were generally pleased with these HMOs (even when enrolling meant they had to change physicians and thereby end longstanding relationships with their family doctors), many of the health plans did not fare well financially. The health plans suffered for a variety of reasons: some plans had underestimated the service utilization rates of older adults, and some were unable to provide the stipulated range of services as cost effectively as they had believed possible. Other plans found that the PMPM payment was simply not sufficient to enable them to cover all the clinical services and their administrative overhead.
Still, the health plans providing these senior HMOs competed fiercely to market to and enroll older adults. Some health plans feared that closing their Medicare-risk programs would be viewed negatively by employer groups, which, when faced with the choice of plans that offered coverage for both younger workers and retirees or one that only covered the younger workers, would choose the plans that covered both. Despite losing money, most health plans maintained their Medicare-risk programs to avoid alienating the employers they depended on to enroll workers who were younger, healthier, and less expensive to serve than the older adults.
By the mid-1990s, some of the Medicare-risk plans faced a challenge that proved daunting. Their enrollees had aged and required even more health care services than they had previously. For example, a senior HMO member who had joined as a healthy sixty-five-year-old could now be a frail seventy-five-year-old with multiple chronic health conditions requiring many costly health services. Even though the PMPM had increased over the years, for some plans it was simply insufficient to cover their costs. Some Medicare-risk plans, especially those operated by smaller health plans, were forced to end their programs abruptly, leaving thousands of older adults scrambling to join other health plans. Others endured, offering older adults comprehensive care and generating substantial cost savings for employers and the federal government.
The Balanced Budget Act of 1997 produced another plan for Medicare recipients called Medicare+Choice. This plan offers Medicare beneficiaries a wider range of managed care plan options than just HMOs—older adults may join preferred provider organizations (PPOs) and provider-sponsored organizations that generally offer greater freedom of choice of providers (physicians and hospitals) than what is available through HMO membership. These plans (as well as those formerly called Medicare-risk plans), are known as Medicare-Advantage (MA) plans. MA plans include HMOs, PPOs, private fee-for-service plans, and medical savings account plans (which deposit money from Medicare into an account that can be used to pay medical expenses). According to Abby L. Block (June 26, 2007, http://www.hhs.gov/asl/testify/2007/06/t20070626b.html) of the CMS, in his testimony before the House Energy and Commerce, Subcommittee on Oversight and Investigations in 2007, these plans had nearly 8.3 million members—one out of five Medicare beneficiaries was enrolled in a MA plan.
Medicare Faces Challenges
Higher and higher costs are being borne by fewer and fewer people. Sooner or later, this formula implodes. There is serious danger here. Medicare is drifting towards disaster. The disaster is not inevitable. If we act now, we can change the outcome. In health care, the core problem is that costs are rising significantly faster than costs in the economy as a whole.
—Michael Leavitt, the U.S. secretary of health and human services, quoted by Maggie Fox, “Medicare 'Drifting towards Disaster'” (Reuters, April 29, 2008)
The Medicare program's continuing financial viability is in jeopardy. In 1995, for the first time since 1972, the Medicare trust fund lost money, a sign that the financial condition of Medicare was worse than previously assumed. The CMS had not expected a deficit until 1997; however, income to the trust fund, primarily from payroll taxes, was less than expected and spending was higher. The deficit is significant because losses are anticipated to grow from year to year. As of 2008, there were no tax increases scheduled, and there was no reason to expect a reduction in the rate of spending.
A NATIONAL BIPARTISAN COMMISSION CONSIDERS THE FUTURE OF MEDICARE. The National Bipartisan Commission on the Future of Medicare was created by Congress in the Balanced Budget Act of 1997. The commission was chaired by Senator John B. Breaux (1944—; D-LA) and Representative William M. Thomas (1941—; R-CA) and was charged with examining the Medicare program and drafting recommendations to avert a future financial crisis and reinforce the program in anticipation of the retirement of the baby boomers.
The commission observed that much like Social Security, Medicare would suffer because there would be fewer workers per retiree to fund it. It predicted that beneficiaries' out-of-pocket costs would rise and forecast soaring Medicare enrollment.
When the commission disbanded in March 1999, it was unable to forward an official recommendation to Congress because a plan endorsed by Senator Breaux fell one vote short of the required majority needed to authorize an official recommendation. The plan backed by Senator Breaux would have changed Medicare into a premium system, where instead of Medicare directly covering beneficiaries, the beneficiaries would be given a fixed amount of money to purchase private health insurance. The plan would have also raised the age of eligibility from sixty-five to sixty-seven, as has already been done with Social Security, and provided prescription drug coverage for low-income beneficiaries, much like the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT AIMS TO REFORM MEDICARE. Supported by Senator Breaux, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 was a measure intended to introduce private-sector enterprise into a Medicare model in urgent need of a reform.
The CMS explains in Medicare and Year, 2008 (January 2008, http://www.medicare.gov/publications/pubs/pdf/10050.pdf) that older adults with substantial incomes face increasing premium costs. In 2008 older adults with annual incomes below $82,000 (or $164,000 for couples) paid a monthly premium of $96.40; individuals earning $82,001 to $102,000 (or couples earning $164,001 to $204,000) paid $122.40; those earning between $102,001 and $153,000 (or $204,001 to $306,000 for couples) paid $160.90; individuals making $153,001 to $205,000 (or $306,001 to $410,000 for couples) paid $199.70; and above $205,000 (or above $410,000 for couples) paid $238.40.
The act also expands coverage of preventive medical services. According to the CMS, new beneficiaries will receive a free physical examination along with laboratory tests to screen for heart disease and diabetes. The act also provides employers with $89 billion in subsidies and tax breaks to help offset the costs associated with maintaining retiree health benefits.
Medicare reform continues to be hotly contested. According to the article “Time Running out for Medicare Reform” (Virginian-Pilot [Norfolk, Virginia], March 28, 2008), the issues that attracted attention from policy makers, legislators, and the public in 2008 were the likelihood that Medicare would be in the red by 2019, drug prices, gaps in prescription drug coverage under the new legislation, access to preventive care, changes in the way physicians are reimbursed, and the role of health savings accounts and other cost sharing proposals. Health care industry observers predict that increased federal spending as a result of the new drug benefit will intensify demands for cost containment, which will increase as the baby-boom generation becomes eligible for Medicare coverage.
Medicaid
Medicaid was enacted by Congress in 1965 under Title XIX (Grants to States for Medical Assistance Programs) of the Social Security Act. It is a joint federal-state program that provides medical assistance to selected categories of low-income Americans: the aged, people who are blind or disabled, or financially struggling families with dependent children. Medicaid covers hospitalization, physicians' fees, laboratory and radiology fees, and long-term care in nursing homes. It is the largest source of funds for medical and health-related services for the poorest Americans and the second-largest public payer of health care costs, after Medicare.
In February 2006 President George W. Bush (1946—) signed the Deficit Reduction Act (DRA) into law. The DRA changes many aspects of the Medicaid program. Some of the changes are mandatory provisions that the states must enact, such as proof of citizenship and other criteria that will make it more difficult for people to qualify for or enroll in Medicaid. Other changes are optional; they allow the states to make drastic changes to the Medicaid program through state plan amendments. For example, states can choose to require anyone with a family income more than 150% of the poverty level to pay a premium of as much as 5% of their income. Before the DRA, the states had to provide a mandatory set of services to Medicaid recipients. As of March 31, 2006, the states could modify their Medicaid benefits such that they were comparable to those offered to federal and state employees, the benefits provided by the HMO with the largest non-Medicaid enrollment, or coverage approved by the secretary of health and human services.
The CMS states in the press release “Medicaid Grants to Help Improve Access to Primary Care and Avoid Unnecessary ER Visits” (April 17, 2008, http://www.cms.hhs.gov/apps/media/press/release.asp) that in 2008 Medicaid extended grants totaling $26 million to twenty states to improve access to primary care, which would help Medicaid beneficiaries avoid inappropriate use of costly hospital emergency rooms. Created by the DRA, these grants will fund initiatives to provide alternative health care settings such as community health centers.
LONG-TERM HEALTH CARE
One of the most urgent health care problems facing Americans in the twenty-first century is the growing need for long-term care. Long-term care refers to health and social services for people with chronic illnesses or mental or physical conditions so disabling that they cannot live independently without assistance—they require care daily. Longer life spans and improved life-sustaining technologies are increasing the likelihood that more people than ever before may eventually require costly, long-term care.
Limited and Expensive Options
Caring for chronically ill or elderly patients presents difficult and expensive choices for Americans: they must either provide long-term care at home or rely on nursing homes. Home health care was the fastest-growing segment of the health care industry during the first half of the 1990s. Even though the rate of growth slowed during the late 1990s, the CMS projects that the home health care sector will more than double, from $52.7 billion in 2006 to $119 billion in 2017. (See Table 5.5.)
High Cost of Long-Term Care
The options for quality, affordable long-term care in the United States are limited but improving. Nursing home costs average about $78,000 per year depending on services and location. According to MetLife, in MetLife Market Survey of Nursing Home and Home Care Costs (October 2007, http://www.metlife.com/FileAssets/MMI/MMIStudies2007NHAL.pdf), in 2006 nursing home care cost an average of $213 per day for a private room, or $77,745 per year. Many nursing home residents rely on Medicaid to pay these fees. In 2006 Medicaid covered 43.4% of nursing home costs for older Americans. (See Table 5.8.) The most common sources of payment at admission were Medicare (which only pays for short-term stays after hospitalization), private insurance, and other private funds. The primary source of payment changes as a stay lengthens. After their funds are exhausted, nursing home residents on Medicare shift to Medicaid.
To be eligible for Medicaid, a person must have no more than $2,500 in assets. (In the case of a married couple where only one spouse is in a nursing home, the remaining spouse can retain a house, a car, up to $75,000 in assets, and $2,000 in monthly income.) Many older adults must “spend down” to deplete their life savings to qualify for Medicaid assistance. This term refers to a provision in Medicaid coverage that provides care for seniors whose income exceeds eligibility requirements. For example, if their monthly income is $100 over the state Medicaid eligibility line, they can spend $100 per month on their medical care, and Medicaid will cover the remainder.
Nursing home care may seem cost-prohibitive, but even an unskilled caregiver who makes home visits can cost more than $25,000 per year; skilled care costs much more, and most older adults cannot afford this expense. In Genworth Financial 2008 Cost of Care Survey (April 2008, http://www.genworth.com/), Genworth Financial indicates that in 2008 the average hourly rates were $18 for homemaker services and $19 for home health aide services. The cost of a Medicare-certified home health aide rose 7% annually over the preceding four years to an average $38 an hour.
Lifetime savings may be exhausted long before the need for care ends. Georgetown University's Health Policy Institute estimates in “Long-Term Care May Strain U.S. Government Finances” (July 24, 2007, http://thehill.com/op-eds/long-term-care-may-strain-u.s.-government-finances-2007-07-24.html) that the total expenditure for long-term care services for older adults in 2005 (excluding the value of donated care from relatives and friends) was $206.6 billion—$129.8 billion on nursing home care and $76.8 billion on home care.
| Third-party payments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Public | ||||||||||
| Year | Total | Out-of-pocket | Total | Private health instrance | Other private funds | Total | Federala | State and locala | Medicareb | Medicarec |
| Historical estimates | Amount in billions | |||||||||
| 2002 | $105.7 | $29.7 | $76.1 | $8.7 | $4.0 | $63.3 | $44.4 | $18.9 | $13.9 | $47.1 |
| 2003 | 110.5 | 30.5 | 80.0 | 8.7 | 4.2 | 67.1 | 46.1 | 21.1 | 14.7 | 49.7 |
| 2004 | 115.2 | 30.8 | 84.3 | 8.7 | 4.2 | 71.5 | 49.3 | 22.2 | 17.0 | 51.5 |
| 2005 | 120.7 | 31.5 | 89.3 | 8.8 | 4.4 | 76.1 | 52.1 | 24.0 | 19.2 | 53.7 |
| 2006 | 124.9 | 32.9 | 92.0 | 9.3 | 4.6 | 78.1 | 53.7 | 24.3 | 20.8 | 54.2 |
| Projected | ||||||||||
| 2007 | 129.7 | 34.1 | 95.6 | 9.6 | 4.9 | 81.2 | 56.3 | 24.9 | 22.4 | 55.5 |
| 2008 | 136.5 | 35.0 | 101.4 | 9.8 | 5.1 | 86.5 | 60.2 | 26.4 | 24.3 | 58.8 |
| 2009 | 143.5 | 36.6 | 106.9 | 10.2 | 5.3 | 91.5 | 63.7 | 27.7 | 25.9 | 61.7 |
| 2010 | 151.2 | 38.5 | 112.6 | 10.6 | 5.6 | 96.5 | 67.4 | 29.2 | 27.5 | 65.0 |
| 2011 | 159.1 | 40.5 | 118.6 | 10.9 | 5.8 | 101.9 | 71.2 | 30.7 | 29.1 | 68.4 |
| 2012 | 167.4 | 42.4 | 125.0 | 11.2 | 6.1 | 107.7 | 75.3 | 32.3 | 30.9 | 72.1 |
| 2013 | 176.0 | 44.2 | 131.8 | 11.5 | 6.4 | 113.8 | 79.8 | 34.1 | 32.8 | 75.9 |
| 2014 | 185.3 | 46.3 | 139.0 | 11.9 | 6.7 | 120.4 | 84.5 | 35.9 | 34.9 | 80.0 |
| 2015 | 195.4 | 48.7 | 146.7 | 12.2 | 7.1 | 127.5 | 89.6 | 37.9 | 37.1 | 84.4 |
| 2016 | 206.0 | 51.0 | 154.9 | 12.5 | 7.4 | 135.0 | 95.1 | 40.0 | 39.6 | 89.0 |
| 2017 | 217.5 | 53.6 | 163.8 | 12.8 | 7.9 | 143.2 | 101.0 | 42.2 | 42.4 | 93.9 |
| Historical estimates | Per capita amount | |||||||||
| 2002 | $367 | $103 | $264 | $30 | $14 | $220 | $154 | $66 | d | d |
| 2003 | 379 | 105 | 275 | 30 | 14 | 230 | 158 | 72 | d | d |
| 2004 | 392 | 105 | 287 | 29 | 14 | 243 | 168 | 76 | d | d |
| 2005 | 407 | 106 | 301 | 30 | 15 | 256 | 175 | 81 | d | d |
| 2006 | 417 | 110 | 307 | 31 | 15 | 261 | 179 | 81 | d | d |
| Projected | ||||||||||
| 2007 | 430 | 113 | 317 | 32 | 16 | 269 | 186 | 83 | d | d |
| 2008 | 448 | 115 | 333 | 32 | 17 | 284 | 198 | 87 | d | d |
| 2009 | 468 | 119 | 349 | 33 | 17 | 298 | 208 | 90 | d | d |
| 2010 | 489 | 125 | 364 | 34 | 18 | 312 | 218 | 94 | d | d |
| 2011 | 511 | 130 | 381 | 35 | 19 | 327 | 228 | 99 | d | d |
| 2012 | 533 | 135 | 398 | 36 | 19 | 343 | 240 | 103 | d | d |
| 2013 | 556 | 140 | 416 | 36 | 20 | 360 | 252 | 108 | d | d |
| 2014 | 581 | 145 | 436 | 37 | 21 | 377 | 265 | 113 | d | d |
| 2015 | 608 | 151 | 456 | 38 | 22 | 396 | 279 | 118 | d | d |
| 2016 | 636 | 157 | 478 | 39 | 23 | 417 | 293 | 123 | d | d |
| 2017 | 666 | 164 | 502 | 39 | 24 | 439 | 310 | 129 | d | d |
| Historical estimates | Percent distribution | |||||||||
| 2002 | 100.0 | 28.0 | 72.0 | 8.2 | 3.8 | 59.9 | 42.0 | 17.9 | 13.2 | 44.6 |
| 2003 | 100.0 | 27.6 | 72.4 | 7.8 | 3.8 | 60.8 | 41.7 | 19.1 | 13.3 | 45.0 |
| 2004 | 100.0 | 26.8 | 73.2 | 7.5 | 3.7 | 62.1 | 42.8 | 19.3 | 14.8 | 44.7 |
| 2005 | 100.0 | 26.1 | 73.9 | 7.3 | 3.6 | 63.0 | 43.1 | 19.9 | 15.9 | 44.5 |
| 2006 | 100.0 | 26.4 | 73.6 | 7.4 | 3.7 | 62.5 | 43.0 | 19.5 | 16.7 | 43.4 |
| Projected | ||||||||||
| 2007 | 100.0 | 26.3 | 73.7 | 7.4 | 3.7 | 62.6 | 43.4 | 19.2 | 17.3 | 42.8 |
| 2008 | 100.0 | 25.7 | 74.3 | 7.2 | 3.7 | 63.4 | 44.1 | 19.3 | 17.8 | 43.1 |
| 2009 | 100.0 | 25.5 | 74.5 | 7.1 | 3.7 | 63.7 | 44.4 | 19.3 | 18.1 | 43.0 |
| 2010 | 100.0 | 25.5 | 74.5 | 7.0 | 3.7 | 63.8 | 44.6 | 19.3 | 18.2 | 43.0 |
| 2011 | 100.0 | 25.4 | 74.6 | 6.8 | 3.7 | 64.1 | 44.8 | 19.3 | 18.3 | 43.0 |
| 2012 | 100.0 | 25.3 | 74.7 | 6.7 | 3.6 | 64.3 | 45.0 | 19.3 | 18.4 | 43.1 |
| 2013 | 100.0 | 25.1 | 74.9 | 6.6 | 3.6 | 64.7 | 45.3 | 19.4 | 18.6 | 43.1 |
| 2014 | 100.0 | 25.0 | 75.0 | 6.4 | 3.6 | 65.0 | 45.6 | 19.4 | 18.8 | 43.2 |
| 2015 | 100.0 | 24.9 | 75.1 | 6.3 | 3.6 | 65.2 | 45.8 | 19.4 | 19.0 | 43.2 |
| 2016 | 100.0 | 24.8 | 75.2 | 6.1 | 3.6 | 65.6 | 46.2 | 19.4 | 19.2 | 43.2 |
| 2017 | 100.0 | 24.7 | 75.3 | 5.9 | 3.6 | 65.9 | 46.5 | 19.4 | 19.5 | 43.2 |
The U.S. Census Bureau (March 18, 2004, http://www.census.gov/population/www/projections/usinterimproj/natprojtab02b.pdf) projects that the population over age eighty-five (those most likely to require long-term care) will nearly triple by 2050. Even though disability rates among older adults have declined in recent years, reducing somewhat the need for long-term care, the Congressional Budget Office anticipates that the growing population of people likely to require long-term care will no doubt increase spending commensurate with this growth.
| Third-party payments | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Public | ||||||||||
| Year | Total | Out-of-pocket | Total | Private health instrance | Other private funds | Total | Federala | State and locala | Medicareb | Medicarec |
| aIncludes Medicaid State Children's Health Insurance Program (SCHIP) Expansion and SCHIP. | ||||||||||
| bSubset of federal funds. | ||||||||||
| cSubset of federal and state and local funds. Includes Medicaid SCHIP Expansion. | ||||||||||
| dCalculation of per capita estimates is inappropriate. | ||||||||||
| Historical estimates | Annual percent change from previous year shown | |||||||||
| 2002 | — | — | — | — | — | — | — | — | — | — |
| 2003 | 4.5 | 2.9 | 5.1 | 0.2 | 3.2 | 6.0 | 3.7 | 11.4 | 5.7 | 5.5 |
| 2004 | 4.2 | 1.0 | 5.5 | 0.2 | 1.9 | 6.5 | 6.9 | 5.4 | 16.0 | 3.6 |
| 2005 | 4.9 | 2.1 | 5.9 | 2.2 | 3.3 | 6.4 | 5.7 | 8.0 | 12.9 | 4.4 |
| 2006 | 3.5 | 4.7 | 3.0 | 4.9 | 5.9 | 2.6 | 3.2 | 1.5 | 8.1 | 0.9 |
| Projected | ||||||||||
| 2007 | 3.8 | 3.5 | 4.0 | 3.3 | 4.9 | 4.0 | 4.7 | 2.4 | 7.9 | 2.3 |
| 2008 | 5.2 | 2.8 | 6.1 | 2.6 | 4.3 | 6.6 | 6.9 | 5.8 | 8.2 | 5.9 |
| 2009 | 5.2 | 4.4 | 5.4 | 3.5 | 4.8 | 5.7 | 6.0 | 5.1 | 6.9 | 5.1 |
| 2010 | 5.3 | 5.4 | 5.3 | 3.8 | 4.7 | 5.5 | 5.7 | 5.2 | 5.9 | 5.2 |
| 2011 | 5.3 | 5.1 | 5.3 | 3.1 | 4.4 | 5.6 | 5.7 | 5.3 | 5.9 | 5.3 |
| 2012 | 5.2 | 4.8 | 5.3 | 2.9 | 4.7 | 5.7 | 5.8 | 5.3 | 6.1 | 5.3 |
| 2013 | 5.1 | 4.3 | 5.4 | 3.0 | 4.9 | 5.7 | 5.9 | 5.4 | 6.2 | 5.4 |
| 2014 | 5.3 | 4.8 | 5.5 | 3.0 | 5.1 | 5.8 | 5.9 | 5.4 | 6.3 | 5.4 |
| 2015 | 5.4 | 5.0 | 5.6 | 2.9 | 5.3 | 5.8 | 6.0 | 5.5 | 6.4 | 5.4 |
| 2016 | 5.4 | 4.8 | 5.6 | 2.3 | 5.2 | 5.9 | 6.1 | 5.5 | 6.6 | 5.5 |
| 2017 | 5.6 | 5.1 | 5.7 | 2.1 | 5.9 | 6.1 | 6.3 | 5.5 | 7.0 | 5.5 |
| Notes: Per capita amounts based on July 1 Census resident based population estimates. Numbers and percents may not add to totals because of rounding. The health spending projections were based on the 2006 version of the National Health Expenditures (NHE) released in January 2008. | ||||||||||
MENTAL HEALTH SPENDING
In National Expenditures for Mental Health and Substance Abuse Treatment 1993—2003 (2007, http://www.csat.samhsa.gov/IDBSE/spendEst/reports/SAMHSAFINAL9303.pdf), a study funded by the Substance Abuse and Mental Health Services Administration (SAMHSA), Tami L. Mark et al. find that spending for mental health and substance abuse (alcohol and chemical dependency) treatment in the United States totaled $121 billion in 2003, representing 7.5% of all health care spending. Between 1993 and 2003 the annual rate of spending grew about 5.6%, almost 1% less than the growth rate for all health care (6.5%) during the same period. Medicaid is the single largest payer for mental health care, and prescription drugs are the fastest-growing component of mental health expenditures. Figure 5.1 shows that in 2003 Medicaid paid 45% of the $58 billion spent by public payers for mental health services.
Mark et al. also report that:
- Mental health spending rose from $205 to $345 per capita in inflation-adjusted dollars. This increase reflects the growing number of people treated for mental health conditions.
- Out-of pocket spending for mental health care rose by 7.2% from 1993 to 2003, compared to a 4.6% increase for other health care.
- Prescription drug spending for mental health patients increased 18.8% annually between 1993 and 2003, and was responsible for 42% of the increase in mental health spending during the same period.
- Mental health spending for inpatient services dropped from 41% in 1986 to 24% in 2003.
Health care industry observers attribute the decrease in mental health inpatient services to increased emphasis on drug treatment of mental health disorders, the increasing frequency of outpatient treatment, closure of psychiatric hospitals, and cost containment efforts of managed care. Figure 5.2 shows how retail drugs were just 8% of expenditures for mental health in 1993 but by 2003 had nearly tripled, accounting for 23% of mental health expenditures. Despite the higher spending for these psychoactive prescription drugs, some industry observers feel the increased availability of effective drug therapy actually served to contain mental health spending by enabling providers to offer drug therapy instead of more costly inpatient treatment.
SAMHSA Spending
In U.S. Department of Health and Human Services Budget in Brief, Fiscal Year 2009 (2008, http://www.hhs.gov/budget/09budget/2009BudgetInBrief.pdf), the U.S. Department of Health and Human Services (HHS) states that the fiscal year (FY) 2009 budget request for SAMHSA was $3.2 billion, $198 million less than the FY 2008 budget. The funds were used to continue to expand suicide prevention programs and reduce youth drug use, prevent youth violence, and help people with mental illness who face homelessness.
State Mental Health Agency Expenditures
A number of court rulings during the 1970s and an evolution in professional thinking prompted the release of many people with serious mental illness from institutions to community treatment programs. The census (the number of patients or occupants, which is frequently referred to as a rate) of public mental hospitals sharply declined, and there was increasing pressure on the states to deliver community-based treatment.
State mental health agencies (SMHAs) operate the public mental health system that acts as a safety net for poor, uninsured, and otherwise indigent people suffering from mental illness. In “Key Elements of the National Statistical Picture” (2000, http://www.mentalhealth.samhsa.gov/publications/allpubs/SMA01-3537/chapter16.asp), Ted Lutterman and Michael Hogan characterize these public mental health systems “as a safety valve for an inadequate private sector response to mental illness.” SMHAs vary from state to state—some purchase, regulate, administer, manage, and provide care and treatment; others simply purchase care using public funds that include general state revenues and federal funds. Generally, the federal funds are Medicare and Medicaid payments made to state-owned or state-operated facilities, although SMHAs also administer additional Medicaidpaymentswhenthe stateMedicaidagencygrantsthe SHMA control of all Medicaid mental health expenditures.
Similar to the movement of privately insured people into managed care, during the 1990s state Medicaid programs turned to managed care organizations (MCOs) and behavioral health services in an effort to contain costs. More than half the states have separated the administration and financing of physical health and mental health in their MCO contracts.
SMHAs manage funds from the SAMHSA Mental Health Block Grant (MHBG) program. The MHBG was created in 1982 and its flexible funding enables states to innovate, develop, and expand successful community-based programs. Block grants (lump sums of money) are awarded based on a formula that considers each state's population, service costs, income, and taxable resources, and the funds enable the states to finance community mental health treatment programs. According to Lutterman and Hogan, MHBG expenditures dropped by 49% in inflation-adjusted dollars during the 1990s, but in 1999 Congress appropriated an additional $13.4 million to the MHBG. The FY 2009 budget request included $421 million in block grant funding.
HIGH COSTS OF RESEARCH
Medical and pharmaceutical research, disease prevention research, and the work to develop and conduct clinical trials of new drugs are expensive. The National Institutes of Health (NIH) reports in “Estimates of Funding for Various Diseases, Conditions, Research Areas” (February 5, 2008, http://www.nih.gov/news/fundingresearchareas.htm) that its FY 2009 budget allocated an estimated $2.9 billion for human immunodeficiency virus (HIV) and acquired immunodeficiency syndrome (AIDS) research, compared to $660 million to investigate obesity prevention and treatment. Pharmaceutical manufacturers also spend billions of dollars every year researching and developing new medicines. For example, according to the Pharmaceutical Research and Manufacturers of America (PhRMA; 2008, http://www.phrma.org/about_phrma/), U.S. pharmaceutical companies spent $58.8 billion in 2007. By contrast, the entire NIH FY 2007 budget was $29.1 billion. (See Figure 4.5 in Chapter 4.)
Decisions about how much is spent to research a particular disease are not based solely on how many people develop the disease or die from it. Rightly or wrongly, economists base the societal value of an individual on his or her earning potential and productivity (the ability to contribute to society as a worker). The bulk of the people who die from heart disease, stroke, and cancer are older adults. Many have retired from the workforce, and their potential economic productivity is usually low or nonexistent. (This is not an observation about how society values older adults; instead, it is simply an economic measure of present and future financial productivity.)
In contrast, AIDS patients are often much younger and die in their twenties, thirties, and forties. Until they developed AIDS, their potential productivity, measured in economic terms, was high. The number of work years lost when they die is considerable. Using this economic equation to determine how disease research should be funded, it may be considered economically wise to invest more money to research AIDS because the losses, which are measured in potential work years rather than in lives, is so much greater.
Once a new drug receives FDA approval, its manufacturer is ordinarily allowed to hold the patent on the drug to recoup its investment. During that time, the drug is priced much higher than if other manufacturers were allowed to compete by producing generic versions of the same drug. After the patent expires, competition between pharmaceutical manufacturers generally lowers the price. In contrast, HIV/AIDS drugs are granted only seven years of exclusivity under legislation to encourage research and promote development of new treatments.
In What Goes into the Cost of Prescription Drugs? … and Other Questions about Your Medicines (June 2005, http://www.phrma.org/files/Cost_of_Prescription_Drugs.pdf), PhRMA explains that the pharmaceutical manufacturer must cover the cost not only of research and development for the approximately three out of ten drugs that succeed but also for many—seven out of ten—that have failed. In contrast, the producer of generic drugs has the formula and must simply manufacture the drugs properly. On average, manufacturers spend over $800 million to bring brand-name drugs to market, including the expense of twelve to fifteen years of product development. The generic manufacturer does not have to pay for successful and unsuccessful research and development of new drugs, nor does it have to pursue the complicated, time-consuming process of seeking and obtaining FDA approval. Generic manufacturers' FDA submissions need only reference the original manufacturer's clinical data supporting the safety and efficacy of the drug.
HARDSHIP OF HIGH HEALTH CARE COSTS ON FAMILIES
Families USA is a national health care advocacy organization that is dedicated to achieving affordable, quality health care and long-term care for all American families. The organization describes itself as “the voice for American consumers” and contends that American families pay about two-thirds of the nation's health care bill, whereas American businesses pay the other third. This ratio is based on the premise that families and businesses pay for health care in several ways:
- Directly, through out-of-pocket payments and insurance expenses. These include premiums, deductibles (annual amounts that must be paid by the employee before the insurance plan begins paying), and co-payments.
- Indirectly, through Medicare payroll, income, and other federal, state, and local taxes that support public health programs. These include veterans' health benefits, military health benefits, the Medicaid program, and a variety of smaller public health programs.
As a result, Families USA estimates of per capita health care spending differ from other reports, such as those from the CMS and the U.S. Census Bureau, which take into account only direct payments.
Families also purchase insurance themselves when they work for employers that do not offer group health insurance or when insurers refuse to insure certain groups they consider to be at high risk (such as people with chronic diseases). Workers who retire before reaching age sixty-five and are not yet eligible for Medicare coverage must also purchase insurance on their own. Furthermore, many Medicare beneficiaries pay insurance premiums for supplemental (Medigap) insurance to cover the difference in charges that Medicare does not pay, as well as uncovered costs, such as durable medical equipment.
Reed Abelson and Milt Freudenheim report in “Even the Insured Feel the Strain of Health Costs” (New York Times, May 4, 2008) that even some of the 158 million people with health insurance in 2008 found it challenging to pay for their health care. Some faced higher premiums, less extensive coverage, and higher out-of-pocket deductibles and co-payments. Abelson and Freudenheim note that Helen Darling, the president of the National Business Group on Health, said, “It's a bad-news situation when an individual or household has to pay out-of-pocket three, four or five times as much for their health plan as they would have at the time of the last recession. Americans have been giving their pay raise to the health care system.”
High Cost of Prescription Drugs
Even though it has slowed somewhat in recent years, spending for prescription drugs remains the fastest-growing component of health care spending. In 2006 prescription drug expenditures reached $216.7 billion and were projected to more than double to $515.7 billion by 2017. (See Table 5.7.) The editorial “When Drug Costs Soar beyond Reach” (New York Times, April 15, 2008) observes that many patients who require costly prescription drugs, which can cost thousands or even hundreds of thousands of dollars per year, are being forced to pay as much as 33% of the drug costs. Insurance companies defend this practice by explaining that having these patients bear the brunt of their exceedingly high drug costs enables the insurance companies to control the cost of monthly premiums. Critics of this practice believe it is not only unfair but also short-sighted. They observe that if sick patients are forced to forgo their medicines, they will doubtless become sicker and incur even higher medical care costs.
To control prescription drug expenditures, many hospitals, health plans, employers, and other group purchasers have attempted to obtain discounts and rebates for bulk purchases from pharmaceutical companies. Some have developed programs to encourage health care practitioners and consumers to use less costly generic drugs, and others have limited, reduced, or even eliminated prescription drug coverage.
The Henry J. Kaiser Family Foundation explains in Prescription Drug Trends (May 2007, http://www.kff.org/rxdrugs/upload/3057_06.pdf) that consumers are attempting to reduce their prescription drug costs by asking their physicians for less expensive or generic drugs, comparison shopping to find the best prices for their prescription drugs, using mail-order pharmacies, purchasing drugs from vendors on the Internet, buying drugs in bulk, using over-the-counter drugs instead of prescription medications, and participating in pharmaceutical company- and state-sponsored drug assistance programs. Some consumers are ordering less expensive pharmaceuticals from Canada.
The report USA Today/Kaiser Family Foundation/Harvard School of Public Health Survey: The Public on Prescription Drugs and Pharmaceutical Companies: Toplines (March 2008, http://www.kff.org/kaiserpolls/upload/7747.pdf) reveals that in 2008 cost had prompted 29% of survey respondents not to fill a prescription in the past two years and 23% said they cut pills in half or skipped doses to make their medications last longer.
Consumers also consider pharmaceutical companies as major contributors to rising health care costs. In 2008, 79% of adults named profits made by drug companies as a “very important” factor contributing to rising drug costs, and 70% said drug companies are “too concerned about making profits and not concerned enough about helping people.”
Generic Drugs Promise Cost Savings
When patents expire on popular brand-name drugs, the entry of generic versions of these drugs to the market promises cost savings for consumers and payers as well as increased profits for pharmacies. Generic drugs usually cost 10% to 30% less when they first enter the market and even less once additional generic manufacturers join in the competition. According to the article “RxWatch: Generics in 2008” (November 6, 2007, http://www.calendarlive.com/media/acrobat/2008-03/36768569.pdf), among the drugs with patents that were set to expire in 2008 were fexofenadine (for seasonal allergy congestion relief), alendronate (for prevention of bone loss), bupropion (an antidepressant), and zaleplon (for people with sleeping problems). Industry observers predict that consumers can expect to pay $5 to $20 less per prescription when they opt for generic rather than brand-name drugs and payers.
RATIONING HEALTH CARE
When health care rationing (allocating medical resources) is defined as “all care that is expected to be beneficial is not always available to all patients,” most health care practitioners, policy makers, and consumers accept that rationing has been, and will continue to be, a feature of the U.S. health care system. Most American opinion leaders and industry observers accept that even a country as wealthy as the United States cannot afford all the care that is likely to benefit its citizens. The practical considerations of allocating health care resources involve establishing priorities and determining how these resources should be rationed.
Opponents of Rationing
There is widespread agreement among Americans that rationing according to patients' ability to pay for health care services or insurance is unfair. Ideally, health care should be equitably allocated on the basis of need and the potential benefit derived from the care. Those who argue against rationing fear that society's most vulnerable populations— older adults, the poor, and people with chronic illnesses— suffer most from the present rationing of health care.
Many observers believe improving the efficiency of the U.S. health care system will save enough money to supply basic health care services to all Americans. They suggest that because expenditures for the same medical procedures vary greatly in different areas of the country, standardizing fees and costs could realize great savings. They also believe that money could be saved if greater emphasis was placed on preventive care and on effective strategies to prevent or reduce behaviors that increase health risk such as smoking, alcohol and drug abuse, and unsafe sexual practices. Furthermore, they insist that the high cost of administering the U.S. health system could be streamlined with a single payer for health care—as in the Canadian system.
Supporters of Rationing
Those who endorse rationing argue that the spiraling cost of health care stems from more than simple inefficiency. They attribute escalating costs to the aging population, rapid technological innovation, and the increasing price tags for labor and supplies.
Not everyone who supports rationing thinks the U.S. health care system is working well. Some rationing supporters believe that the nation's health care system charges too much for the services it delivers and that it fails altogether to deliver to millions of uninsured. In fact, they point out that the United States already rations health care by not covering the uninsured. Other health care—rationing advocates argue that the problem is one of basic cultural assumptions, not the economics of the health care industry. Americans value human life, believe in the promise of health and quality health care for all, and insist that diseases can be cured. They contend that the issue is not whether health care should be rationed but how care is rationed. They believe that the United States spends too much on health compared to other societal needs, too much on the old rather than on the young, more on curing and not enough on caring, and too much on extending the length of life and not enough on enhancing the quality of life. Supporters of rationing argue instead for a system that guarantees a minimally acceptable level of health care for all, while reining in the expensive excesses of the current system, which often acts to prolong life at any cost.
The Oregon Health Plan: An Experiment in Rationing
In 1987 Oregon designed a new, universal health care plan that would simultaneously expand coverage and contain costs by limiting services. Unlike other states, which trimmed budgets by eliminating people from Medicaid eligibility, Oregon chose to eliminate low-priority services. Michael Janofsky reports in “Oregon Starts to Extend Health Care” (New York Times, February 19, 1994) that the Oregon Health Plan, which was approved in August 1993, aimed to provide Medicaid to 120,000 additional residents living below the federal poverty level. The plan also established a high-risk insurance pool for people who were refused health insurance coverage because of preexisting medical conditions, offered more insurance options for small businesses, and improved employees' abilities to retain their health insurance benefits when they changed jobs. A gradual increase in the state cigarette tax was expected to provide $45 million annually, which would help fund the additional estimated $200 million needed over the next several years.
Oregon developed a table of health care services and performed a cost-benefit analysis to rank them. It was decided that Oregon Medicaid would cover the top 565 services on a list of 696 medical procedures. Janofsky notes that services that fell below the cutoff point were “not deemed to be serious enough to require treatment, like common colds, flu, mild food poisoning, sprains, cosmetic procedures and experimental treatments for diseases in advanced stages.”
When setting the priorities, those making the list decided that disease prevention and quality of life were the factors that most influenced the ranking of the treatments. Quality of life (quality of well-being [QWB] in the Oregon plan) drew fire from those who felt such judgments could not be decided subjectively. Active medical or surgical treatment of terminally ill patients also ranked low on the QWB scale, whereas comfort and hospice care ranked high. The Oregon Health Services Commission (HSC) emphasized that its QWB judgments were not based on an individual's quality of life at a given time; such judgments were considered ethically questionable. Instead, it focused on the potential for change in an individual's life, posing questions such as: “After treatment, how much better or worse off would the patient be?”
Critics countered that the plan obtained its funding by reducing services that were currently offered to Medicaid recipients (often poor women and children) rather than by emphasizing cost control. Others objected to the ranking and the ethical questions raised by choosing to support some treatments over others.
In “Oregon Falters on a New Path to Health Care” (New York Times, January 3, 1999), Peter T. Kilborn notes that by 1998 the Oregon Health Plan had encountered major problems. The state was no longer promising universal care, physicians were seeking and finding ways to get around the rationing restrictions, and friction with federal Medicaid regulators was blocking Oregon's efforts to deny more treatments. A plan to require that employers insure all their workers or contribute to a fund to cover them failed. Spending for the health plan climbed to $2.1 billion in the 1997— 99 state budget period, up from $1.7 billion in the 1995—97 period. Higher cigarette taxes did not offset the increase, thereby requiring more money from the state's general fund.
According to the Jonathan Oberlander of the University of North Carolina, Chapel Hill, in “Health Reform Interrupted: The Unraveling of the Oregon Health Plan” (Health Affairs, vol. 26, no. 1, 2007), the Oregon Health Plan initially did serve to reduce the percentage of uninsured Oregonians from 18% in 1992 to 11% in 1996, but its early success proved difficult to sustain. By 2003 the Oregon plan was not even close to achieving its goal of having no uninsured people in the state. In fact, the ranks of the uninsured were growing and by 2003 would again reach 17%. An economic downturn in the state and the state's strategy of explicit rationing are cited as reasons for the ambitious plan's failure to achieve its goals.
The Oregon HSC continued to modify the plan's covered benefits. The HSC's most recent effort to refine the list of covered services began in January 2002. The HSC sought to reduce the overall costs of the plan by eliminating less effective treatments and determining if any covered medical conditions could be more effectively treated using standardized clinical practice guidelines (step-by-step instructions for diagnosis and treatment of specific illnesses or disorders) while preserving basic coverage. The benefit review process will be ongoing with the HSC submitting a new prioritized list of benefits on July 1 of each even-numbered year for review by legislative assembly. In April 2008 the HSC (http://www.oregon.gov/OHPPR/HSC/docs/Apr08Plist.pdf) issued an updated prioritized list of health services (medical conditions and treatments) for 2008 and 2009.
Rationing by HMOs
Until 2000, steadily increasing numbers of Americans received their health care from HMOs or other managed care systems. According to the Kaiser Foundation (http://www.statehealthfacts.org/comparemaptable.jsp?ind=348&cat=7), by July 2007 national enrollment in HMOs was 66.8 million, which was more than four times the enrollment rate two decades earlier (15.1 million). However, the number of enroll-ees has steadily declined since 2000. By contrast, the number of HMOs operating in the United States has risen slightly, from 560 in July 2000 to 602 in July 2007.
Managed care programs have sought to control costs by limiting coverage for experimental, duplicative, and unnecessary treatments. Before physicians can perform experimental procedures or prescribe new treatment plans, they must obtain prior authorization (approval from the patient's managed care plan) to ensure that the expenses will be covered.
Increasingly, patients and physicians are battling HMOs for approval to use and receive reimbursement for new technology and experimental treatments. Judges and juries, moved by the desperate situations of patients, have frequently decided cases against HMOs, regardless of whether the new treatment has been shown to be effective.
“SILENT RATIONING.” Physicians and health care consumers are concerned that limiting coverage for new, high-cost technology will discourage research and development for new treatments before they have even been developed. This has been called “silent rationing,” because patients will never know what they have missed.
In an effort to control costs, some HMOs have discouraged physicians from informing patients about certain treatment options—those that are extremely expensive or not covered by the HMO. This has proved to be a highly controversial issue, both politically and ethically. In December 1996 the HHS ruled that HMOs and other health plans cannot prevent physicians from telling Medicare patients about all available treatment options.
Could Less Health Care Be Better Than More?
Even though health care providers and consumers fear that rationing sharply limits access to medical care and will ultimately result in poorer health among affected Americans, researchers are also concerned about the effects of too much care on the health of the nation. Several studies suggest that an oversupply of medical care may be as harmful as an undersupply.
Frank W. Young of Cornell University asserts in “An Explanation of the Persistent Doctor-Mortality Association” (Journal of Epidemiology and Community Health, February 2001) that supply appears to drive demand in areas with more physicians and hospitals—people visit physicians more often and spend more days in hospitals with no apparent improvement in their health status.
In Geography and the Debate over Medicare Reform (February 13, 2002, http://content.healthaffairs.org/cgi/re print/hlthaff.w2.96v1), John E. Wennberg, Elliott S. Fisher, and Jonathan S. Skinner find tremendous regional variation in both utilization and the cost of health care that they believe is explained, at least in part, by the distribution of health care providers. They also suggest that variations in physicians' practice styles—whether they favor outpatient treatment over hospitalization for specific procedures such as biopsies (surgical procedures to examine tissue to detect cancer cells)— greatly affects demand for hospital care.
Variation in demand for health care services in turn produces variation in health care expenditures. Wennberg, Fisher, and Skinner report wide geographic variation in Medicare spending. Medicare paid more than twice as much to care for a sixty-five-year-old in Miami, where the supply of health care providers is overabundant, than it spent on care for a sixty-five-year-old in Minneapolis, a city with an average supply of health care providers. To be certain that the difference was not simply higher fees and charges in Miami, the investigators also compared rates of utilization and found that older adults in Miami visited physicians and hospitals much more often than their counterparts in Minneapolis.
Wennberg, Fisher, and Skinner also wanted to be sure that the differences were not caused by the severity of illness, so they compared care during the last six months of life to control for any underlying regional differences in the health of the population. Remarkably, the widest variations were observed in care during the last six months of life, when older adults in Miami saw physician specialists six times as often as those in Minneapolis. The researchers assert that higher expenditures, particularly at the end of life, do not purchase better care. Instead, they finance generally unpleasant and futile interventions intended to prolong life rather than improve the quality of patients' lives. Wennberg, Fisher, and Skinner conclude that areas with more medical care, higher utilization, and higher costs fared no better in terms of life expectancy, morbidity, or mortality, and that the care that people received was no different in quality from care received by people in areas with average supplies of health care providers.
In “The Care of Patients with Severe Chronic Illness: A Report on the Medicare Program by the Dartmouth Atlas Project” (2006, http://www.dartmouthatlas.org/atlases/2006_Chronic_Care_Atlas.pdf), John E. Wennberg et al. detail differences in the management of Medicare enrollees with severe chronic illnesses. The investigators find that average utilization and health care spending varied by state, region, and even by hospital in the same region. Expenditures were not linked with rates of illness in different parts of the country; instead, they reflected how intensively selected resources (e.g., acute care hospital beds, specialist physician visits, tests, and other services) were used to care for patients who were very ill but could not be cured. Because other research demonstrates that, for these chronically ill Americans, receiving more services does not result in improved health outcomes, and because most Americans say they prefer to avoid excessively high-tech end-of-life care, the investigators conclude that Medicare spending for the care of the chronically ill could be reduced by as much as 30%, while improving quality, patient satisfaction, and outcomes. Wennberg et al.'s research and similar studies pose two important and as yet unanswered questions: How much health care is needed to deliver the best health to a population? Are Americans getting the best value for the dollars spent on health care?