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Health Care Spending Essay

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“Historically, U.S. health care spending has grown at rates exceeding the economy’s growth rate, often by at least 2 percentage points per year” (Holahan & McMorrow, 2012, 393). Recently, it seems that the rate of health care spending has slowed down a little, though no reasons can be pinpointed as to why this is. There are many factors that affect the growth of health care spending, and plenty of solutions have been proposed to help improve this issue.

Factors such as advancements in medical technology and an increase in the price of prescription drugs cause health care costs to rise year after year.

Solutions have been presented and implemented, like Medicare and Medicaid and managed care plans, however, even these components have added to the health care spending issue. With all the discussion and debate, one thing can be agreed upon, something needs to be done.

In recent years both public and private payers have experienced an inclement rise health care spending that has exceeded income growth.

This growth started right after the end of World War II and has continue to increase every ten years, health care spending has exceeded the gross domestic products (GDP) which had a projection of 26% by 2035 taken for health care spending, prior the health care reform was passed. This number is only going to continue increasing, which bring in the importance of control the spending since the nation’s long-term fiscal balance will be determined by the future rate growth in health care cost.

According to Chernew (2010) the primary determinant of spending growth is the development and diffusion of new medical technology. However this does not imply the establishment of new technology rather focuses on how to use it with technologies and systems already in use, in other words make it compatible to work together. The diversity of technologies contributing to spending growth generates a diversity of pathways by which technology increases spending. These includes high unit cost driven capital cost or the need for specialized labor, high volume, or cost related to complementary services. Because the past rate of health care spending growth is not sustainable, both private and public payers will take action to lower spending.

Those actions may not necessary alter the forces that historically have driven up spending, but they will be designed to address the immediate problem of high sending. There are many options from cost sharing from patients, reductions in payments to Medicare Advantage, fee reductions under the new payment rules implemented with Patient Protection and Affordable Care Act. On the article there is a suggestion that I find interesting about Global payments, which is an alternate form of bundled payments which is a program use to pay a fixed fee for a set of services related to a specific episode of care.

This might be a good solution for the situation we are facing now, because it would give providers the opportunity to profit with reduced revenue, and even share some of the savings form not using health care services. Yet in order for bundled payments system to be successful the need of having the proper tools to improve the efficiency of care. Many providers will be able to develop these tools, but it would require partnership between facilities, physicians, and insurers.

For the system to be successful it would have to carefully manage practice pattern changes due to new technology, adjusting aggressiveness based on the generosity of bundled payments updates. If bundled payments encourage efficiencies, they may reduce the level of spending more than spending growth, and that is exactly the area we as country need to be working on.

According to President Obama, “We do not have a spending problem; we have a health care problem”. This statement was alarming to many Americans. The President feels that healthcare spending on the aging population is the number one fiscal problem. Then why is the solution taking so long? With Obamacare, Medicare will see cuts up to $716 billion. Where will this leave the Americans who receive Medicare? How can they still receive health care with this much of a cut? Will Providers be willing to provide the same high level of care with the high cut to their expected fees? There is no way of knowing if this will even solve the health care spending problem or if it will create even larger problems for Americans.

Budget cuts will be needed in other areas to make these cuts to health care spending improve the financial state of our country (Galupo, 2013). According to New Republic’s Jonathan Cohn, the new health care reform addresses the cost of health care rather than health care spending. He argues the proposed spending cuts will address the health care spending problem along with other budget cuts. Obamacare may not be a good solution to the current health care spending problem in America. Many suggest that the new law’s affect on provider reimbursement rates will have a huge impact on access to care for many seniors.

This can greatly affect the health of our aging population. Spending cuts projected for Medicare and Medicaid will help that aspect of health care spending but with the added subsidies for people to purchase private health insurance, the savings just do not add up. When it comes to health care spending there is much controversy on what increases health care cost, what measures we can take to keep health care cost down, and what actions we can take to make health care affordable without limiting health care.

According to kaiserEDU.org the chart provided below shows how costing allocates throughout the nation. “Hospital care and physician services combined added up for half (51%) of the nation’s health expenditures.” Below is a diagram from the year 2010 of the nation’s health expenditures. National Health Expenditures, 2010

Totaling up = $2.3 Trillion

Some major growth health care costs include a rise in chronic disease, administrative cost, or technology or prescription cost, although there may be many more expenditure that adds up to the growth in health care cost these three have been discussed to have the biggest effect on the nation. As technology continues to advance over the years to come, we may face more health care struggles, so being prepared for the unexpected leads to a healthy future.

Health care spending continues to be a concern for most Americans. “The nation’s efforts to control health care costs have not had much long-term effect, prompting a debate over what proposals are actually able to reduce for the long-term. Approaches are largely divided by debate over a stronger role for government regulation or market-based models that encourage greater competition” (kaiseredu.org).

Plans such as Obamacare are being implemented, but these plans are not solving the problem. Political debates and public discussions will continue as people try to figure out what factors are responsible for this problem and what solutions are truly aimed at achieving optimal health care at affordable costs.


Chernew, M. (2010). Health Care Spending Growth: Can We Avoid Fiscal Armageddon?. Inquiry,47(4), 285-295. Galupo, Scott, 2013, Let’s Split the Difference: We Have a Healthcare Spending Problem, The American Conservative, Retrieved February 14, 2013: http://www.theamericanconservative.com/lets-split-the-difference-we-have-a-healthcare-spending-problem/

Holahan, J. & McMorrow, S. (2012). Medicare and Medicaid spending trends and the deficit debate. The New England Journal of Medicine, 367(5), 393- 395. Senger, Alyenne, 3013, No, Obamacare Does Not Lower Health Care Spending , The Founder, Retrieved February 16, 2013: http://blog.heritage.org/2013/02/12/no-obamacare-does-not-lower-health-carespending/

The Henry J. Kaiser Family Foundation. (n.d.). U.S. Health Care Costs. Retrieved from http://www.kaiseredu.org.

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