December 1, 2011
Rising Health Care costs
Some of the driving forces behind rising health care spending are Technology and Prescription drugs, chronic disease, aging of the population, Administrative costs. For several years, spending on new medical technology and prescription drugs has been the leading contributor to the increase in overall health spending. (Healthcare reform .gov, 2011).longer life spans and greater prevalence of chronic illnesses. This has placed tremendous demands on the health care system, particularly an increased need for treatment of ongoing illnesses and long-term care services such as nursing homes; it is estimated that health care costs for chronic disease treatment account for over 75% of national health expenditures (Kaiser Edu.org, 2010).
HMO's often emphasize their ability to contain costs through oversight of physicians' decisions or by implementation of a capped payment scheme that aligns physicians' incentives with those of the healthcare plan. HMO's do have lower hospitalization rates and shorter hospital stays and use fewer expensive tests and procedures than traditional health-care providers. Some people also argue that the increasing use of managed care generates positive externalities that benefit consumers enrolled in non- HMO health plans. This argument typically invokes some notion of market discipline, arguing that traditional insurers or health-care providers will have to lower premiums to remain viable in a health insurance market (The National Bureau of economic research, 2011).
Managed care repolarizes health care. What was a source of revenue under fee-for-service becomes a cost under managed care. Fee-for-service health care encourages provision of health care services, while managed care discourages use of care unless absolutely necessary. In managed care, doctors and other health care providers make a profit by...