Position Paper: Healthcare Spending in the USA
The United States of America spent a total of US$ 2.1 trillion on the provision of healthcare in 2008 . In 2012, the US spent a total of US$ 2.6 trillion, accounting for about 17% of the country’s Gross Domestic Product (GDP) . Majority of the spending go to hospital care expenditures (about 31.4%), to payments for independent physicians and clinics (19.9%), to purchase of prescription drugs (10%) and to nursing home care (5%). However, of the US$ 2.6 trillion that the country spends in the delivery of healthcare services, about one third is above what is expected to be spent on health care. The largest component of health care has been what health care practitioners call “outpatient healthcare”.
This is defined as healthcare that is delivered the same day the patient visits the hospital. Outpatient healthcare is the fastest growing segment in the United States and the trend towards it has been increasing due to supply and demand factors. Currently, outpatient healthcare accounts for approximately two thirds of the budget for health care. Outpatient healthcare is driven by the availability of hospitals for providing services, the ability of physicians to judge or classify a patient’s need as outpatient or in-hospital treatment, the use of new technology for better health care delivery that unfortunately increases healthcare prices, the higher demand for outpatient healthcare that is greater than the supply, and finally the evidence of patients that are relatively price-insensitive due to their use of healthcare insurances.
Other aspect of the US healthcare system that shows increasing costs is the administration of prescription drugs. According to the Center for disease Control and Prevention (2012), drug cost in the United States account for about US$ 98 billion, a good 15% of the total national budget for healthcare. The administration cost of health care is also an increasing cost segment, eating up about 14% of the total national health care budget or equivalent to approximately US$ 91 billion.
The higher cost of healthcare may be due to the fact that Americans get sick more often than other residents of industrialized countries. There also is evidence of the US Congress wanting to provide more healthcare spending to provide political and social stability. Whatever the case may be, it is important that health care policy is guided by the dynamic relationship between healthcare demand and supply. There are issues regarding the factors affecting demand as well as the factors that affect health care supply. Experts believe that healthcare reforms are necessary, more than what the current administration of President Obama can accomplish through its Obamacare Law, especially since the disparity between what American pay and what other residents of OECD countries pay.
According to an article by Kane, the average American spends $8,233 per year on health care. This number is easily greater than what Europeans spend and clearly more than what residents of developing nations spend on healthcare. In fact, the US spends so much for healthcare services that it eats up approximately 17.6% of the country’s Gross Domestic Product (GDP). Based on these numbers alone, we can surmise that the US has uncontrollable health care appetite, because Europeans (or other Northern Americans like Canada) have the same health care service provided to them, at a fraction of this figure. What is surprising is that the metrics for top of the line health care, as what US politicians would claim to be supporting, is actually far below standards in economically developed countries. Consider for example the fact that the average number of physicians per 1,000 people in developed countries is 3.1 while in the US it is only 2.1. US hospital beds are also lower than the average (2.6 for US and 3.4 for global average). So based on these numbers, it can be surmised that the US does not have enough and will have to continue purchasing more health care services and products, to be truly “world class”. The answer to the question therefore is, the US will continue to have an insatiable appetite for healthcare services today and in the foreseeable future.
Undoubtedly, the US healthcare system needs to be reformed. We know that reform is not easy even if policy makers and the general public is aware of the pending healthcare issues. According to Dewar, “The concern over the future of health care revolves around three broad issues: cost, quality, and access. As private health insurance declines and the number of uninsured people steadily rise, emerging public consensus is that the system is in need of reform. Gaps in coverage, combined with the upward trend in medical care spending over the past several decades, add to the commonly-held belief that the U.S. healthcare system is in crisis. Many are concerned over access to care for the uninsured and the prospects for continued access for those currently with insurance.” In addition, Chris Connover of Forbes wrote that “the U.S. health system needed reform was never in doubt. However, that government-run health care was the answer was never in doubt only in the minds of progressives.
Experts believe that the enactment of any health care reform, particularly the one espoused by government today called “Obamacare” puts the US firmly on the path towards government-run health care”(Connover, 2012). According to the Congressional Budget Office, the enactment of Obamacare will bring the cost of healthcare spending down for the federal government. In fact, it’s a very little known fact that private companies benefit from the law also. Under Obamacare, families with group income that fall between the 100% and 400% of the poverty line can avail of tax credits that they can utilize in paying for insurance premiums (Obamacare Facts, 2013). Such tax credit may be availed in advance or refunded. These families have no enough money to buy insurance but are considered to have more not to be qualified in the Medicaid. With Medicaid Expansion they can be covered. The federal government offers state government that will have Medicaid Expansion funding of 100% on the first three years and 90% on the succeeding years. The potential savings on expenses will be very different and if we are to believe that savings on expenditures will lead to an improvement in quality, then the answer is yes, healthcare reforms should make a difference.
Centers for Disease Control and Prevention. (2012). FastFacts: Healthcare Spending of the US. Retrieved September 24, 2013, from CDC.Gov: http://www.cdc.gov/nchs/fastats/hexpense.htm
Connover, C. (2012). Repealing Obamacare in the Vothing Booth. Retrieved September 17, 2013
Dewar, D. (2010). Essentials of Health Economics. Massachusetts: Jones and Barlett Publishers.
Farrel, D., Jensen, E., Kotcher MD, B., Lovegrove, N., Melhem, F., Mendonca, L., et al. (2008, December). Accounting for the cost of US health care: A new look at why Americans spend more. Retrieved September 24, 2013
Kane, J. (2012). The Rundown: PBS News Hour. Retrieved September 17, 2013
Obama Care Facts. (2013). Obamacare Bill. Retrieved September 17, 2013