Rising Healthcare Costs: Mixed Benefits, Tough Choices

The latest figures from the Centers for Medicare and Medicaid show national healthcare spending forecasted to be almost $4 Trillion in 2019 and rising to almost $6 Trillion by 2027.  Healthcare spending last year (2018) was 18% of Gross Domestic Product. That is three times the amount we spent on education (6% of GDP) and almost five times what we spent on national defense (3.2% of GDP). Sure, the amount we spend on healthcare reflects the value we place on healthcare. Our “health is wealth”, so the saying goes, and most would say that there is nothing more important than your health. But there is good reason to be concerned about the mixed benefits produced by our national healthcare expenditure.

Rates of cancer have been declining for 25 years, which is good news. But on the other hand, average life expectancy in the U.S. has been declining for three consecutive years, more than 90 million adults in the U.S. are obese, almost 50% of American adults have heart disease, and more than 100 million Americans are diabetic or pre-diabetic. Stanford University health economist, Victor Fuchs, points to three key concerns with rising healthcare expenditures: the benefits are increasingly not commensurate with costs, there is too much waste in our healthcare system, such as excess capacity (lots of idle MRIs) and too high administrative costs, and some of the suppliers of our healthcare products and services (drug companies) have too high profits.  Victor Fuchs reminds us that there are no easy choices to make (“no pain, no gain”, as he puts it) in order to bring costs more in line with the benefits from healthcare expenditure. One cost reduction strategy is to reduce services, but that would limit access to healthcare, with the burden felt unevenly across communities and places where people live. Another strategy would be to produce services with fewer resources, but that would hurt jobs in arguably the biggest sector of the economy. A third strategy would be to cut the prices paid to the providers of healthcare, but that would reduce wages in healthcare, cut investment, and slow economic growth.  Tough choices indeed.

Peter Erwin, Ph.D.
Vice President Federal Health Transformation Services