Rising Healthcare Costs
RISING HEALTHCARE COSTS AND MEDICARE
James Richardson
Professor Lewis
Health Policy Over the past 30 years, the American healthcare system has been plagued by the continuous rise of healthcare costs. These costs include but are not limited to insurance premiums, co-payments as well as prescription drugs. One of the significant reasons for the increase in healthcare costs is that nowadays people are living longer lives than they did in the past and the prevalence rates of contracting chronic diseases and developing life threatening injuries are causing the United States healthcare system to suffer a financial crisis. There are three major industries in the healthcare sector:
• (1) The healthcare service industry consisting of providers such as medical practices, hospitals, clinics, nursing homes and home health care agencies;
• (2) The healthcare insurance industry consisting of both government programs such as Medicare and commercial insurers; and
• (3) The managed healthcare industry consisting of organizations such as health maintenance organizations (HMOs) that incorporate both insurance and provider functions. (Gapenski, 1999).
Currently, citizens of the United States spend 15 percent of income expenditures on healthcare. It is estimated that these expenditures are likely to rise to about 29 percent of Gross Domestic Product (GDP) by the year 2040. (Fogel, 2009). On the other hand, the major funder of healthcare costs in the U.S. is the Medicare program. Medicare is an insurance program created in the mid-1960s to cover medical services (such as hospital, institutional, and other home care) for the elderly that is funded by a payroll system. (Butler, Lave & Reischauer, 1998). The Medicare program of healthcare for the elderly currently costs more than $5,000 per enrollee, a national cost of more than $200 billion annually. It is projected that the costs for Medicare will rise rapidly from 2.5 percent of GDP to 5.5 GDP in 2030 and 7
James Richardson
Professor Lewis
Health Policy Over the past 30 years, the American healthcare system has been plagued by the continuous rise of healthcare costs. These costs include but are not limited to insurance premiums, co-payments as well as prescription drugs. One of the significant reasons for the increase in healthcare costs is that nowadays people are living longer lives than they did in the past and the prevalence rates of contracting chronic diseases and developing life threatening injuries are causing the United States healthcare system to suffer a financial crisis. There are three major industries in the healthcare sector:
• (1) The healthcare service industry consisting of providers such as medical practices, hospitals, clinics, nursing homes and home health care agencies;
• (2) The healthcare insurance industry consisting of both government programs such as Medicare and commercial insurers; and
• (3) The managed healthcare industry consisting of organizations such as health maintenance organizations (HMOs) that incorporate both insurance and provider functions. (Gapenski, 1999).
Currently, citizens of the United States spend 15 percent of income expenditures on healthcare. It is estimated that these expenditures are likely to rise to about 29 percent of Gross Domestic Product (GDP) by the year 2040. (Fogel, 2009). On the other hand, the major funder of healthcare costs in the U.S. is the Medicare program. Medicare is an insurance program created in the mid-1960s to cover medical services (such as hospital, institutional, and other home care) for the elderly that is funded by a payroll system. (Butler, Lave & Reischauer, 1998). The Medicare program of healthcare for the elderly currently costs more than $5,000 per enrollee, a national cost of more than $200 billion annually. It is projected that the costs for Medicare will rise rapidly from 2.5 percent of GDP to 5.5 GDP in 2030 and 7
References: Bodenheimer, T. S., & Grumbach, K. (2008). Understanding Health Policy (Lange Clinical Medicine) (5 ed.). USA: McGraw-Hill Medical. Butler, S., Lave, J., & Reischauer, R. (1998). Medicare: Preparing for the Challenges of the 21st Century (Conference of the National Academy of Social Insurance). Washington, D.C.: Brookings Institution Press. Feldstein, M. "Prefunding Medicare," American Economic Review, 1999, v89(2,May), 222-227. Finkler, S., & Ward, D. (2006). Accounting Fundamentals for Health Care Management (1 ed.). New York: Jones & Bartlett Pub. Fogel, R. W., 2009. "Forecasting the cost of U.S. Health Care in 2040," Journal of Policy Modeling, Elsevier, vol. 31(4), pages 482-488, July. Gapenski, L. C. (1999). Healthcare Finance: An Introduction to Accounting and Financial Management. Chicago, Il: Health Administration Press.